9/25/13 - how to rob a bank

In today's selection -- from The Millionaire and the Mummies by John M. Adams. Theodore Davis was one of the now-forgotten titans of the post-Civil War "Gilded Age" -- he was a confederate of Boss Tweed, a friend of Teddy Roosevelt, and a rival to J.P. Morgan. An attorney from Iowa, he moved to New York to increase his wealth, primarily through fraudulent schemes arising from his law practice. One such fraudulent scheme involved Davis's client, The Bank of the Metropolis. Astonishingly, the National Bank Act of 1863 had given national banks the authority to print and issue currency backed by the treasury (currency that was the successor to the U.S. "greenbacks" of 1862). Although it helped the U.S. to finance the Civil War (the alternative was loans from European Banks at rates as high as 24 to 36 percent), it led to large scale fraud and speculation -- in which Davis was an all-too-eager participant.

"The National Banking Act, passed by Congress in 1863, had been intended to finance the war and provide currency to keep the U.S. economy from collapsing; part of the act had established national banks under the supervision of the comptroller of the currency. The first national bank in the country had opened in Davenport (Iowa) ... Oversight of the banks was so loose -- and the authorization to print money so attractive -- that hundreds of banks had converted to national bank status. The first institution to go bankrupt had failed in Attica, New York, the day Lincoln was shot. The Bank of the Metropolis had been a venerable Washington institution that helped finance the rebuilding of the White House after the War of 1812; by 1866 it had converted to a national bank and its board members, unable to resist the ample temptation, had looted it into insolvency.

"The law called for the comptroller of the currency to close a broken bank and appoint a receiver to liquidate its assets and pay its creditors. The matter of the Bank of the Metropolis, however, was in the hands of the deputy comptroller ... Hiland Hulburd. Hulburd arranged with [Theodore] Davis and the bank's board to handle the failure as a 'private suspension,' keeping the insolvency secret from depositors and, if successful, allowing the board members to hang on to some of their ill-gotten gains and avoid prison. Despite the law, the bankrupt bank continued operating. Hulburd was widely suspected of taking bribes from those he regulated (winning a national bank charter cost $5,000, paid to Hulburd's brother Lew), and his selection of Davis to handle the lucrative affair -- which if done legitimately would have netted him some $35,000, equivalent to around $750,000 today -- doubtless involved some compensation for the deputy comptroller.

'I was attorney for the bank to close up its affairs,' Davis later testified. 'I was employed by the officers of the bank. The bank owed some $700,000. Its assets consisted of about $400,000.' One of the ways Davis covered the debt was later revealed: A month after Davis was hired, the Metropolis received $618,000 in bonds issued by the State of Tennessee from a bank in Memphis operated by a crony of the Metropolis board member named George Rutter. (Rutter later testified he had received the bond deposit by bribing the Tennessee legislature: 'It was a common thing,' he explained. 'The loan of the bonds was ostensibly to help the Metropolis inflate its asset sheet, and Rutter had been promised that when the Metropolis solved its problems the bonds would be returned. Davis, however, promptly cashed the bonds. The Memphis bank then failed, but Davis paid the Memphis receiver $5,000 to forget the debt owed by the Metropolis. Tennessee eventually sued Davis for fraud, but he was acquitted for lack of evidence.

"There are few surviving records of the closing of the Bank of the Metropolis, and corruption in New York and Washington was so widespread that bribes, kickbacks, and gifts covered much of the process. A 1980 reconstruction of Davis's transactions, however, determined that $227,000 unaccountably disappeared, 'as if evaporated' and went to Davis. The equivalent of some $5 million today."


John M. Adams


The Millionaire and the Mummies


St Martin's Press


Copyright 2013 by John M. Adams


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