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CHAPTER VIII

THE OFFICE BOY IN HIGH FINANCE

"IN this world," says the old philosophy, "man may not get something for nothing, but renders a return for all he may acquire."

But where? Not in the fertile regions of high finance, certainly. There to get valuable properties and to pay nothing for them is the essence of the game.

True, you cannot always play that game without disagreeable half-hours, but sitting tight and abiding in your faith in the American tolerance, you shall still win at the end. As you may observe in this story, told here to illustrate other phases of the ability that distinguishes the successful man in these pleasant regions.

In New York we have banks that are called banks, and banks that are called trust companies, the difference lying in a more liberal attitude of the

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law toward the banks that are called trust companies. Many trust companies have been organized in the last twenty years, and some of them have had historic careers. One, called the State Trust Company, was founded in 1890 by Mr. Willis S. Paine, as a kind of collateral enterprise of the American Surety Company, of which Mr. Paine was a director. The business of the American Surety Company being chiefly to bond employees and to indemnify employers, the premiums from its policies constantly produced for it a considerable stream of ready money. Now to have ready money instead of credits to handle is a great thing in the Wall Street game. One that has control of the investing of much ready money can do well and lawfully although the money be not his. The gentlemen back of the American Surety Company thought it was a great deal better to invest the premium money than to have it in a bank subject to somebody else's investing. But the law rigidly restricts the investing of insurance funds by insurance companies. Hence the utility of a trust company that is really a branch of the insurance company but operates under another name-an advantage thoroughly appreciated by the big life insurance companies in the palmy days before 1905.

The capital stock of the State Trust Company was $1,000,000, subscribed at 150, so it began business with a surplus of $500,000 in addition to its capital.

In order to secure permanently the control of the trust company by the insurance company, and to perfect the alias under which the insurance company was also to do business as a bank, more than one-quarter of the trust company's stock was held in the treasury of the surety company, and with more than another quarter there was created that beautiful and efficient device, a Voting Trust. That is, the subscribers to this part of the stock surrendered their voting rights to trustees that were bound to vote as the surety company might direct. Mr. Paine was president of the State Trust Company and a majority of the trustees were connected also with the American Surety Company.

For some years the State Trust Company sailed an even and uneventful course, being reputed a good conservative institution and performing agreeably its functions as the banking alias of an insurance company. In 1898 it had a surplus and undivided profits of $1,250,000, and deposits of $10,000,000, having paid six per cent. dividends and kept on the windward side of the law. But in

that year the Whitney-Ryan syndicate, under the inspiration of Mr. R. A. C. Smith (a gifted gentleman with a career in connection with the business side of the Spanish-American war), secured possession of the American Surety Company and therewith, of course, control of the State Trust Company.

It is well to control a trust company that is making good dividends, but better to own it, particularly if you have many schemes and design to use the trust company as a financial adjunct of your scheming. The syndicate had the one-quarter block of stock. This it used as a nucleus. It then went to the other stockholders and persuaded or coerced them into parting with one-half of their holdings at 200, which was about the current price, promising that after the programmed reorganization the price would be raised to 400, so that the half each stockholder retained would then be worth as much as his entire holdings had been worth before. Next it effected on the Real Estate Exchange some ostensible sales of the stock (made by one syndicate member to another) at 400, which established a market rate at that figure. Then it borrowed money on the stock as collateral, at or near this artificial price, and with the money thus

obtained it paid for the stock it had secured from the other stockholders-a small but pleasing illustration of the game before referred to, and tending to show that no man need go without any property if he will take the right way to get it.

Among the original stockholders of the State Trust Company and directors of the American Surety Company was one Abram Kling. He had 190 shares in the trust company and 400 in the surety company. He said that one day Mr. Ryan called him on the telephone and cordially invited him to sell one-half of his holdings in the trust company. He declined. Subsequently he gave the following version of the rest of the conversation:

Mr. Ryan-Well, in that case, Mr. Kling, if you refuse to sell, you understand, we shall have to remove you from the board of the surety company. Mr. Kling-You go to the devil.

Whereupon, he said, he hung up the receiver. Immediately afterward he was dropped from the directorate.

Mr. Kling clung (to speak in the manner of a conjugation) to his stock, and observed the sailing of the reorganized company. He may have had other motives than pure philanthropy; I do not

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