A ringing defense of Wall Street’s American bankers

BY WARREN BOROSON

NEWJERSEYNEWSROOM.COM

BOROSON ON MONEY

These days, we are deluged with merciless criticism of America's bankers. They're greedy. They're incompetent. They got us into this economic mess, and now they're going to be rewarded with a ton of money. Did someone say something about the devil having all of the good tunes?

Well, it's about time that some courageous soul (like me) stepped up to the plate and said a good word or two about bankers.

You think that today's bankers suck?

Let me tell you about Albert Henry Wiggin, whose birthday we celebrate next month (he lived from Feb. 21, 1868, to May 21, 1951).

He came from good stock-the son of a clergyman. He attended top-notch schools (Middlebury College, Kenyon, Columbia), then entered the banking business, winding up as the chairman of the mighty Chase Bank.

During his lifetime, he became a trustee of Middlebury College, treasurer of the United Hospital Fund of New York, a director of American Express, and treasurer of the Boys Clubs of America.

He belonged to the New York Yacht Club, the Metropolitan, the Grolier. He had a home on Park Avenue and a summer home in Greenwich, Conn.

A true gentleman.

Not. As you will discover if you read John Kenneth Galbraith's book, "The Great Crash."

In 1929, the year of the crash, Wiggin received $275,000 in compensation from Chase Bank, of which he was variously chairman and president. He also received money from 59 other corporations of which he was a director. No doubt it was just a coincidence that these 59 companies that paid Wiggin generous stipends were also clients of and prospective borrowers from Chase Bank.

A busy man! He also ran several holding companies, one of which was named for his daughter Marjorie.

The company named after Marjorie sold 42,506 shares of Chase stock short between Sept. 23 and Nov. 4, 1929. (When you sell a stock short, you make a bet that its price will fall. You borrow shares of the stock, sell them, and pay for them later, when-you hope-the price has nosedived.) A good move.

When it came time for Wiggin to pay for the stock he had sold, another of his holding companies--named for his daughter Muriel-bought 42,506 shares of Chase stock from an affiliate, and financed most of the cost with a big loan from Chase Bank itself.

The short sale made a profit of $4,008,538, according to Congressional hearings.

So, who enjoyed these millions? Was it Chase Bank? After all, it was Chase's stock, Chase provided the loan, and Wiggin was an officer of Chase.

Guess again.

Now, when you sell a stock short, you drive down the price. And by selling Chase stock short, Wiggin, despite being an employee of Chase, clearly had an interest in doing everything he could to drive down the price.

Not nice. (Today it's illegal for a company officer to secretly trade in company stock.)

In 1933, Wiggin decided to retire. He was nearing 65 and, as he put it, "his heart and energies [had] been concentrated for many years in promoting the growth, welfare, and usefulness of the Chase National Bank."

Galbraith called that a "slight overstatement."

Chase's executive committee, "in order to discharge in some measure the obligations of this bank to Mr. Wiggin," unanimously voted him a life salary of $100,000 a year. To quote Galbraith: "It was later brought out that this gesture of inspired generosity was the impulse of Mr. Wiggin himself."

A few years later, when Wiggins' questionable activities were brought to light, he renounced his $100,000-a-year pension. But he stoutly defended his short selling, arguing that company officers should be allowed to speculate in their own stock because it helps them develop a greater interest in their own institution. But he conceded, when questioned, that perhaps a company officer should not bet against his own company.

Anyway, my point is simply this: Considering that today's bankers have had, as a role model, someone as contemptible as Albert Henry Wiggin, is there any surprise that they have behaved as badly they have behaved?

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