the great frenzy of the 1920s -- 10/25/17

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Today's selection -- from Insull: The Rise and Fall of a Billionaire Utility Tycoon by Forrest McDonald. The utility industry was red-hot in the 1920s, and utility stocks had the largest market capitalization of any sector on the New York Stock Exchange. As head of Chicago's Commonwealth Edison, the country's largest utility, Samuel Insull was one of the nation's most powerful business executives. Insull had spent his career struggling to gain access to capital for acquisitions and expansion, but in the 1920s, bankers suddenly became generous, and began pushing loans on Insull and on other businesses across the nation, creating an economic frenzy that resulted in the Great Crash of 1929. Insull eventually took advantage of those loans. After the crash, Insull became a pariah:

"During the [1920s], Samuel Insull would ascend higher and higher, until he attained power and prestige rarely if ever equaled by any businessman whose position rested on ability rather than wealth, and then come crashing to earth, to become less than a cipher, to degenerate into an arch-symbol of every manner of corporate evil. He would see his personal fortune increase from around $5,000,000 in 1927 to $150,000,000 in 1929, and then tumble, by mid-1932, to zero and below, to a net indebtedness so large that, as one banker put it, he was 'too broke to be bankrupt.' With him -- to the top and then to the bottom -- went hundreds of thousands of stockholders who shared his faith in his own invulnerability. ...

"Between 1924 and 1927 virtually every old pro in the Chicago banking community died, leav­ing the banks in the hands of persons whose lack of seasoning pre­pared them ill for the financial storms ahead. Assuming command during the expansionist fever of the late twenties, they began throw­ing money at everyone who seemed prosperous; Insull they deluged with easy credit, begging him to accept it, for any purpose. At a party, the new president of the Continental Bank sidled up to [Insull's son] and, with the manner of a French postcard peddler, said, 'Say, I just want you to know that if you fellows ever want to borrow more than the legal limit, all you have to do is organize a new corporation, and we'll be happy to lend you another $21,000,000.'

"As Phil McEn­roe, Insull's bookkeeper, said, 'The bankers would call us up the way the grocer used to call my mamma, and try to push their money at us. "We have some nice lettuce today, Mrs. McEnroe; we have some nice fresh green money today, Mr. Insull. Isn't there something you could use maybe $10,000,000 for?"' To an organization that had al­ways been kept in check by the difficulty of raising capital for expan­sion, this new situation had the impact of three stiff drinks on an empty stomach."

author:	Forrest McDonald
title:	Insull: The Rise and Fall of a Billionaire Utility Tycoon
publisher:	Beard Books
date:	Copyright 1962 by the University of Chicago
pages:	276-278