Speaker 1:
From the library of the New York Stock Exchange, at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership, and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now, at the NYSE and at ICE's exchanges and clearinghouses around the world. And now welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
It was the Roaring '20s, the Jazz age, F. Scott Fitzgerald and The Great Gatsby, and Nick Carraway just back from the Great War and all that. On Wall Street, too, things were booming. An extended period of economic prosperity led to new peaks in stock prices. Here at the New York Stork Exchange, companies such as General Electric, General Motors, US Steel, and Coca-Cola were among those that witnessed skyrocketing growth in value, often doubling, tripling, or even quadrupling compared to their share price at the beginning of the decade.
But perhaps no stock benefited more from the prosperity of the Roaring '20s than the Radio Corporation of America, the old RCA, founded by Guglielmo Marconi himself. He of the wireless telegraph, run by the legendary David Sarnoff, later to be commissioned a general in the Army Signal Corps in 1945, thereafter known simply as The General. Once listed on the NYSE under the ticker symbol R, before it was acquired by GE in 1985, RCA's price surged thirteenfold between January 1926 and September 1929.
Those synonymous with the surge in prices and the subsequent personal wealth generated during the decade, are iconic figures in America's business pantheon, viewed either famously or infamously, depending on your perspective. I could rattle off some of the names. Jesse Livermore, known as the pioneer of day trading, along with Charles Mitchell, James Reardon, William Durant and others, they amassed significant fortunes for themselves and others, before experiencing a cataclysmic crash in late October of the glorious decade's final year.
Amid the renowned speculators and stock traders of the Roaring '20s, one Arthur W. Cutten often remains somewhat overlooked. The son of a defenestrated lawyer and one-time community leader in Guelph, Ontario, Mr. Cutten departed from his Canadian roots in May, 1890, setting forth on a transformative journey that saw him move from the boisterous grain pits of the old Chicago Board of Trade, to eventually arrive here at the steps of the New York Stock Exchange, steadily expanding his fortune along the way.
Despite the wall of secrecy that surrounded Arthur Cutten, a man esteemed both for his trading acumen and his enigmatic nature, our guest today, Robert Stephens, successfully unraveled the mysteries shrouding Cutten's life. Through exhaustive research and exploration, he's been able to shed light on the persona and legacy of this elusive figure in his new book To Make a Killing: Arthur Cutten, the Man Who Ruled the Markets. On today's episode, Robert Stephens and I will chronicle the life of Arthur Cutten, from his aspirations for success, to his quest to restore his family's name. We'll explore his triumphs and setbacks in the financial markets, and examine his influence on the stock market crash of 1929. All that and more is coming up right after this.
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Josh King:
Welcome back inside the ICE House. Please remember to subscribe wherever you listen to your podcasts, and rate and review us on Apple Podcasts so other folks know where to find us. Our guest today, Robert Stephens, is the author of To Make a Killing: Arthur Cutten, the Man Who Ruled the Markets. Out now from McGill-Queen's University Press. Robert spent over a decade of his career as an investigative business reporter, senior editor, and a columnist, with several newspapers, including The Globe and Mail, the Toronto Star and the Ottawa Journal. In 1987, he co-founded PR Post, a public relations agency based in Toronto and has led the firm since. Robert, thanks so much for joining us inside the ICE House.
Robert Stephens:
Thank you very much. Glad to be here, Josh.
Josh King:
So dedicating nearly three decades to managing a PR firm in Canada's bustling metropolis, you recently authored this book, To Make a Killing: Arthur Cutten, the Man Who Ruled the Markets. What ignited your passion to delve into this story with the depth and insight that you have?
Robert Stephens:
You've alluded to it certainly in your introduction, that there was well-documented a number of leading traders and speculators in the markets of the 1920s who were well-known and have biographies of their own. Jesse Livermore being one, Billy Durant of General Motors, the du Ponts, the Fisher brothers and others who were multimillionaire traders. But there was this one individual, and I guess being Canadian, I was interested in him because he was born in Guelph, a small Canadian village at the time in 1870. And I guess because he having left Guelph at the age of 20 and went to Chicago with $95 in his pocket, and the Horatio Alger story, the way you success, you bootstrap yourself up from nothing, you make a go of it, you're on your own, and you achieve success by your own wits, kind of intrigued me.
So bit by bit, I put his life together. He was exceedingly difficult to research because he was such a secretive individual. He was purposely covering his tracks wherever he went, and did so throughout his career.
Josh King:
And we're going to get to a lot of those maneuvers, Robert. But you mentioned your own lineage. So you're a guy from Ontario. You could have written about a more modern Canadian magnate, like David Thompson or even Jim Basile, the abrasive Harvard MBA chronicled in losing the signal, The Untold Story Behind the Extraordinary Rise and Spectacular Fall of BlackBerry, published a couple of years ago by Jacquie McNish and Sean Silcoff. What was it like instead to go back 120 years in the past in Canada, instead of say 20 years?
Robert Stephens:
That to me was the intriguing part. It was a real detective's challenge, where you had fragments of information here and a document there and someone's letter there. And gradually, one thing led to another. And for me, I would get tremendously excited when I discovered a document that gave me new insight into who this character was. So I guess it's the investigative journalist, the detective in me that wanted to go back that far and uncover the secret. There was also great rumors around where his wealth ended up, and we'll get into that later. That's, again, another detective story.
Josh King:
So you allude to that. His life ended in 1936, when he was 65 years old, so we're coming up on maybe the 88th year of his passing and, really, the 95th anniversary of the crash in 1929. In the acknowledgments, you wrote, I'm going to quote you here, "Many people and organizations helped me research into Arthur Cutten's life. It was not an easy task, as Cutten, ever secretive, covered his tracks well." You've alluded to it, but describe this rigorous process of compiling the book, uncovering the intricate, possibly undocumented details of Cutten's life.
Robert Stephens:
I was able to find one or two individuals who their great-grandfather or their grandfather had contact with Cutten. These are very rare individuals. Most of them have passed now. But one individual I did find, his father was a manager on Cutten's farm. I was able to speak to him. He was 90 years old when I spoke to him, and was able to give me a really fantastic view of Cutten as a man, which was, to me, very intriguing. You can learn a lot through Ancestry, which I actually used quite a bit, was one of my main research tools. There were two or three articles in Saturday Evening Post which were critical as well.
But this individual was able to fill in the character of the guy, what kind of person he was. To me, that was the most important piece to get at. You can do tons of dates and you can do tons of records and you can find out factually how his life proceeded, but to understand him, you have to get inside him, and that's where I was trying to get to.
Josh King:
Robert, the front cover of your book displays this side profile of Arthur Cutten, accompanied below, the words, "To Make a Killing." He certainly did just that in the grain pits of the Chicago Board of Trade and here at the New York Stock Exchange. But before we really discuss his successes and his struggles, just give our listeners an introduction just who was Arthur Cutten?
Robert Stephens:
I'll try to do it a little bit chronologically, because that's the only way it makes sense to me. Is that he came from a middle-class background. His father was a lawyer who was on the fast track, was recognized in Guelph as someone to watch, someone that was building his wealth quickly, perhaps a bit too quickly. His father also opened up a private bank in Guelph and did well at it for a time. I'll skip what happened to that because I think we'll come back to it.
But in terms of young Cutten, young Arthur Cutten, he grew up, I would say rather traditionally. He was of English British background. This is just after Confederation in Canada. He was schooled, he went to private school for one year, which indicates there was a certain wealth there. If you go back generations, his family were farmers, so this was the first generation in which they weren't tied to the land as farmers. He could not get a job or he felt he wasn't using his facilities well enough in Guelph, and saw that there was opportunity in the US. A lot of young men at that time from Canada were going to places like New York and Chicago to seek their fortunes. There was more employment opportunities.
So he ended up in Chicago. He's living in boarding houses, he can hardly make ends meet, and he's fortunate that he gets a job on the Board of Trade. He becomes a broker for the clients of his employer and then he goes out on his own. He takes a big risk and decides one day he's going to trade for himself. And from that day on, he never traded for anybody but himself.
Josh King:
He was one of nine kids born to mom, Annie McFadden, his dad, lawyer, Walter Cutten. Walter, I guess, who was driven by ambitions of affluence, he took on and acquired the Guelph Banking Company from Augustus Kerr in 1882. And thought about that he'd go about lending money to individuals with lower credit worthiness, perhaps charging them a couple extra points in interest because of that risk. The local newspaper, I think referred to him as a keen financier and lawyer who can take risks and make money where more conservative men might not.
Robert, it sounds in sort of a dark side version of Frank Capra's It's a Wonderful Life, with Guelph substituting for Bedford Falls, New York. So Walter built both trust and prosperity. He elevated his standing within the community. While all good things sometimes come to an end, and Walter's sure did, how did his initial achievements shape and influence not just Arthur, but all these kids born to Annie and Walter?
Robert Stephens:
Walter was both a lawyer and a banker, which was inherently creating a conflict, but didn't seem to bother him. You're right, he would offer a higher rate of deposit and loan money at a higher rate. He was taking greater risks than the traditional banks. He was seen as a up-and-comer. He was voted... He won an election, he became an alderman. He became the chair of the finance committee in town. He, at one point bought his own building where he could house his new banking establishment, which was a very expensive block in downtown Guelph. And he had his very own lovely house that's still there today. So the family lived well. They were upstanding members of the Anglican church. They did things the British way. They were respected and respectful, and fit into that very tiered society that existed at the time.
Josh King:
Fit into that society as it existed at the time, but then the times begin to change. We come to 1888 and Walter's decline began. Faced accusations of misappropriating funds, obtaining money under false pretenses, perhaps engaging a little fraud. Although he is ultimately acquitted on these accusations, the public perception really rendered a different verdict. How did everything end for the senior Cutten?
Robert Stephens:
It ended very badly. He was accused of four counts of misappropriation of funds. Technically, he got off on technicalities each time the legal brotherhood in Guelph closed ranks around him, because he was a lawyer. The judge instructed the jury in a couple of cases to find the defendant innocent. The prosecutors failed to provide sufficient evidence. They let him stay at home in one case without bail, whereas he was probably going to have to spend the weekend in jail, they let him out. So there was lots of instances of kind of a brotherhood coming together to protect the lawyer Cutten.
Josh King:
While lawyer Cutten is having his troubles, a couple years later, young Arthur decides to embark on his journey to Chicago. You mentioned earlier just a couple bucks in his pocket. Arthur had many aspirations of wealth and success. To what extent did the staining of his family's name motivate his departure, leaving Canada for Illinois?
Robert Stephens:
I think it's really a critical factor that drove him to decide to leave Guelph. I think that he probably felt real shame and embarrassment over his disgraced father and what his father had done. Don't forget, this is a pretty British closed society and memories there are generational. So that if your dad takes four prominent farmers to the cleaners, those families are going to remember that and that society is going to remember that for a long time. So Cutten, I think, truly did want to find greater opportunity and fame outside of Guelph, and that was the reason he left as well.
But I think this whole thing with his dad, with his father, and the family shame that resulted was an underlying factor that rattled him for the rest of his life. You'll see him later in life giving all kinds of philanthropy and charity back to Guelph, and this is instances of him, I think, trying to atone for the family guilt.
Josh King:
Let's talk about the place that he went to, Robert. In the late 1800s, Chicago was a city divided. I mean, if you look along Michigan Avenue, the likes of A.C. Roebuck, George Pullman, Richard Sears and others had amassed these massive fortunes, while on the south side, Chicagoans grappled with poverty in the pervasive haze of factory smoke. I want to listen just for a second to a segment from a 2023 documentary from PBS, detailing the hardships of many and the life of the luxury for just a select few.
Speaker 14:
So to protect his bottom line, Pullman slashed wages by 25%, but workers' rent stayed the same.
Speaker 15:
You think about it today, would a landlord today reduce rent if there was an economic depression? No. The difference here with The Pullman Company was the company was both the employer and the landlord.
Speaker 14:
Meanwhile, George Pullman and his family enjoyed the trappings of this gilded age in his custom-built mansion on Prairie Avenue, with more than a dozen servants.
Josh King:
So in George Pullman's gilded age, Robert, before Cutten managed to work his way to the Chicago Board of Trade, how did he navigate this divided city and the poor conditions that so many folks faced?
Robert Stephens:
He was certainly aware of the division in the society in Chicago, because having arrived there as a young lad and boarding in a house with some friends, most of his circle were finding menial... The only work they could find was in the south end of Chicago, in the slaughterhouse area, in the meatpacking business. The only way they could pay their rent was to work in these very difficult, disgusting, demanding jobs, and so that they were definitely aware of the rich and the poor.
I think, too, the size of Chicago was a million people at the time, was huge compared to where young Cutten had come from. It was dirty, it was full of the smoke and stench of the slaughterhouses. A 40% of its population were first-generation, mostly Germans, Polish, Italians who had come again for opportunity. So Cutten understood that to be wealthy, to achieve, he had to align himself with the rich people. He had to find a way to align himself with those who could make a difference in his future.
Josh King:
Aligning himself with the rich people, Arthur landed what he would come to regard as his life-changing position in 1891, when he got hired as a bookkeeper with a Stanford White and Co. That was a commodities brokerage house. The role exposed him both to the intricacies of the exchange as well as the prominent figures in it. How did observing men like, perhaps Jim Patton and Ben Hutchinson in the pits, influence how Arthur would later maneuver the crop markets?
Robert Stephens:
His heroes, and he called them his heroes, he called them giants, he called them the titans, and these were people that he emulated, he would watch how they operated. All the individuals you mentioned were kind of the powerful people in the pits. And they would, because of their trading abilities, but also the wealth that they have built up themselves, were able to manipulate a grain prices. Patton, for example, became what they called the Wheat King in the early 1900s. He ran their raids and corners on wheat. Before him, there was a gentleman called Benjamin Hutchison, old Hutch, who was the Wheat King before Patton, who Cutten also praised and looked up to and met once in a restaurant, interestingly. So Cutten aligned himself with these individuals because he saw that they were successful and he wanted to understand their trading techniques, their trading secrets.
Josh King:
Of Patten, Jim Patten, Robert Cutten said from the book, "He was honorable in every fiber. Never did a mean or tricky thing in his life. In his biggest deals, he had time to be thoughtful of the little fellows who followed his trading operations with piker bets of their own." Would you describe Arthur's trading philosophy in the grain pits as one that tried to mirror or in some way diverge from Patton's fairness toward others' approach?
Robert Stephens:
Well, I don't think that Patton was fair at all. I think that was Cutten just doing a makeover for Jim Patton. Jim Patton was accused of driving the price of bread out of sight for a lot of families. He went to England and almost got railroaded out of town because of his trading practices. So he was not seen as a enlightened, generous individual. I think that Cutten, having seen that, liked his techniques and liked his market savvy, but didn't like how he was being treated, and therefore understood that I'm going to be a lot more secretive than Jim.
Josh King:
So Arthur's brother, Charlie, then joins him in Chicago and they formed friendships with, I guess, the White brothers, Bill and Edson, along with another Canadian, Tom Wilson, who by happenstance is later the founder of Wilson Sporting Goods, which is a subsidiary of Amer Sports, which went public here just a couple weeks ago, under the ticker symbol AS. You mentioned Arthur as the oddity among these men. How did Arthur's odd personality impact his interactions within the group and shape the future relationships that it have as well?
Robert Stephens:
Yeah, they did see him as a rather strange individual, his friends. They liked him. I mean, he was a shy, inward-looking individual, but once you got to know me, he was very loyal to his friends. He would do anything for them. They saw him as odd in the sense of never spending a dime, and if he spent a dime, it was a really big deal. He wouldn't buy the suits that they were buying, that he wouldn't go out and party with them, he was shy around women. So all of those things made him somewhat of a, as you indicate, an oddity amongst them. But they still loved him. They still considered him one of the boys. And when they grew up, and each of them became very successful in what they did, they remained friends. They would visit each other. They would go up to Arlington and play the ponies together at the paddock club. They would golf together. So these are individuals that he had a lifelong friendship with.
Josh King:
Arthur took a flyer on the Soo Line Railroad, which was operating out of Minneapolis, St. Paul. Really dominating the tracks of Wisconsin, Minnesota and South Dakota. He, I guess, purchased 2000 shares of Soo at 54, and then flipped them a couple years later at 164, making about 200 grand. He credited the transaction as his real start, leading to his resignation from Stanford White and his decision to go off in his own. Why did Arthur perceive this particular transaction as the catalyst for this real start after a decade in the trading pits?
Robert Stephens:
He had played the Soo and done extremely well at it, but I don't think it was because of any particular fondness for railroads or understanding of railroads. I think he was, in that particular case, just happened to be lucky. I think the more motivating factor for him to decide to go off and not end up a life as a broker, but call his own shots, was the fact that he had worked now 15 years as an apprentice, acting as a broker for clients, scalping a little bit on the side for himself, but recognizing that this was never going to be what he wanted to be, which was to make a killing. It was never going to allow him to truly play the big bets, and that's what he wanted.
Josh King:
I mean, talking about making a killing, in October, 1907, Cutten buys a future's contract for around 6 million bushels of wheat, and we're sort of in that business here at Intercontinental Exchange today. Very different kind of futures trading than existed back in 1907. After that, the country gets rocked by a financial crisis, which really depletes all of Cutten's profits. In contrast, this adversary that we talked about earlier, Jesse Livermore, he engaged in short selling of major stocks during the period. Earned over a million bucks in a single session. Did the two men operate as sort of unknowing rivals or were they aware of the battles that they were having?
Robert Stephens:
I think at that time, we're talking 1907 now, which is fairly early, where Cutten is where he starting to make some serious money. I think they knew of each other, let's put it that way. I think they knew each other by reputation. Of course, Cutten, at the time was losing huge amounts of money because of the financial panic, and had swamped over from the stock exchange into the grains and into the grain prices. And he was losing tremendous amounts of money, as you indicated. At the same time, that Jesse was raking it in because he was shorting, which he usually did, shorting the stock in New York, in fact.
Livermore claims at one point, and he loved to tell the story, that JP Morgan came to him and begged him to stop shorting because Morgan was trying to put together a syndicate of bankers to stop the slide, the collapse. Jesse claimed that he listened to... He made his fortune the first day, as you indicated, 1 million, and then the next day he listened to JP Morgan, bought back his stocks that started to climb again the second day, and made a further 2 million. He loved to tell that story.
Josh King:
A little earlier on you mentioned Cutten's innate shyness and perhaps his limited interactions with the ladies. But then 1906, Cutten marries a Chicagoan, Maude Boomer, who was an experienced saleswoman in upscale women fashion. What were the dynamics of their relationship and the extent of Maude's engagement in Arthur's daily business affairs?
Robert Stephens:
She was a, I guess, a middle class. Her father was a principal at a school, taught for several years in Edwinston. Maude was 5'4", dark haired, plump, retiring, just like Arthur. She didn't like to party, she didn't like to socialize. So it was a good fit for Arthur because he was socially awkward as well. They were a good couple together. They've never had children, but they loved to entertain at their own house. And their own house being, they had a pied-a-terre in Chicago and he had his estate about 30 miles outside of Chicago. But they were good for each other in the sense that she supported him throughout his career, understood the pressures that he faced, built a nurturing home for when he could come home and relax after the stress that he must've been under. He loved her. He took great care of her. There's lots of funny stories that we'll get into later, about how he protected her when their house was robbed.
Josh King:
Well, I want to get into that right now. I mean, that happens in 1922. Five perps, including Joe Vormatag, a former houseboy at their residence. They stole money, jewelry, firearms and booze, and then locked the household's occupants in their liquor vault, which was, as you described, sort of equivalent to burying them alive. As we head into the break, how were the Cuttens and the other occupants able to survive what seemed to be an impending death, and then actually track down and go after the fugitives?
Robert Stephens:
Eight people locked in a fireproof vault in the basement. Robbers said, "Well, when we get away, we'll phone and someone will come and get you." They had no intention of that. Cutten and his wife were locked in there. And his brother, who was visiting the estate at the time. And then of course, the domestic staff, cook, maid, butler, gardener and chauffeur. The butler had a small little steel ruler that Cutten had given him as a gift that he carried everywhere. Pulled it out of his top pocket and starts working the back of the vault combination lock. Was able to pull off the backing and actually pull the bars across and free them, which is like, how did that happen? That's totally amazing. So now they're bounding up the stairs, they're grabbing a shotgun. The chauffeur and the gardener are in a car and they're chasing the bandits down Butterfield Road, in the middle of the nighttime. And intercept one of them and fire upon them, and happened to hit two individuals.
Josh King:
I mean, talking about protecting one's household. After the break, Robert Stephens and I are going to continue our conversation discussing Arthur Cutten's trading in the grain pits, his then shift to the New York Stock Exchange and his eventual downfall. All that and more is coming up right after this.
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Josh King:
Welcome back. If you're enjoying this conversation and want to hear more from guests like Robert Stephens, author of, To Make a Killing: Arthur Cutten, the Man Who Ruled the Markets, remember to subscribe to the Inside the ICE House podcast wherever you listen, and give us a five star rating and review on Apple Podcasts. Helps people find this show. Before the break, Robert and I were discussing the beginning of Arthur Cutten's life, as well as his time in the grain pits at the Chicago Board of Trade.
So Robert, picking up the story. Following a downturn in the early-1920s, with the economy showing signs of recovery, Arthur, engaging in extensive speculation, opted to kind of cease his direct trading activities. Instead, he chose to operate, really, absolute secrecy. What factors led to this decision and how did it shape his trading methodologies and market approach going forward?
Robert Stephens:
Well, the biggest factor was in 1922, the Grain Futures Act was passed. And this was a piece of legislation or regulation that the Congress brought in because of the farm vote. Grain prices at the time were depressed. It was just after the first World War. Crop overproduction resulting in lower grain prices. And so because of the farm vote, the politicians felt that we better start to bring in legislation that tamps down some of the speculation that's going on in the grain markets.
So the Grain Futures Act of 1922 essentially required traders, like Cutten, to declare anything over 500,000 bushels of grain or more, they had to declare whenever they traded that volume. For Cutten and people like Patton and others, who were used to free rein in the markets, no regulation, this was an outrage. And consequently, Cutten decided that he would start looking elsewhere for a place to play that wasn't being regulated. And of course, his eyes turned to New York.
Josh King:
As we're headed to New York, Robert, I mean, after the Grain Futures Act is enacted, regulation really begins to flourish across the United States. Back on episode 308 of our podcast, my colleague Chris Edmonds spoke really of the need in the present day for regulation, recapping his own testimony before the House Agriculture Committee earlier that year. I just want to hear a brief clip of Chris's conversation with me about regulation. We'll take a listen.
Chris Edmonds:
We want to make certain that they continue in a world that we understand today and a set of rules that we understand today. That's what's called regulation. So we don't need to change the regulation of the world, at the end of the day, to get there. We need to make sure that the products can work within the regulation. And then, after some very careful thought, if they can't and there's better regulation than we get to, well, we'll get to that point. That's how we have done that without taking or creating additional systemic risk. Our biggest failures in the financial markets, in my opinion, of when we've missed that mark, we've gone too fast or too slow one way or the other. Financial crisis '08 being a different example of that.
Josh King:
So how did Arthur respond to what was at the time, this new regime of regulation, and how did it impact his eventual move to the New York Stock Exchange? And then, really, it happens to be a big thing in any family, moving a couple hundred miles from Illinois to New York state.
Robert Stephens:
Well, first of all, his immediate response to the Grain Futures Act was to set up probably 35 or 40 different accounts where he could trade and in probably with six or seven different brokers, so that he could split his trading amongst those accounts and have nothing over 500,000 that he'd had to report. That was his first kind of secretive way of getting around the regulations. But it was still something that he hated. I mean, Arthur, understanding where he came from and his view of what he would consider free markets, free markets were completely free of bureaucratic interference and regulation of any kind. He felt that to have a fully functioning futures market, where farmers could go and hedge their crops and be sure of certain prices, you needed liquidity in the market. And you could only bring liquidity in when you had the speculator there. And the speculator was only going to be there if you had no regulation.
Josh King:
We've talked about Cutten as this master speculator. Do you think his creation of what was then known as the Chicago Perforating Company, a front for his extensive trading endeavors, exemplifies his skill as a manipulator? This was the small two-room office in the Illinois Merchants Bank building. Certainly seemed like quite the mirage for the massive operation and trading behind it.
Robert Stephens:
For sure. I think that was just a, he was looking for a hidey hole and happened to find this two-room office that was totally kind of like a generic office. Nothing of written. You would look at it and think that a man of his wealth and influence possibly could not operate from such a small footprint. There was the name on the door, I think when he leased it, it was already there, called the Chicago Perforating Company, which was probably the previous tenant. He left the name on the door, probably had a great chuckle over it, because who else was better at perforating the market in Chicago than Arthur Cutten?
Josh King:
Finding holes in it, indeed. You titled Chapter nine Cheerleaders, and it began with a lyric from When You're Smiling, this popular song in the 1920s written by Mark Fisher, Joe Goodwin and Larry Shea. Just want to take a listen to a segment from that song in this short verse the chapter started with.
Speaker 18:
When you're smiling, when you're smiling, the whole world smiles with you. When you're laughing, when you're laughing, the sun comes shining through.
Josh King:
When you're smiling, the whole world smiles with you. As the Wall Street crash of 1929 loomed just months away, how did figures like Cutten, John Raskob, Billy Durant project this aura of optimism, convincing the general public and even this newly elected president, Herbert Hoover, to smile along with them, despite the early signs of market concern?
Robert Stephens:
Now you're asking how did these guys operate? How did they make their millions? How did they keep the public enticed, entranced by the stock market? The little guys, the secretaries, the people were buying stocks on margin, how did they keep them absolutely hooked to the stock market? And of course, there was many ways they did that. They formed syndicates and pools, where you put together your friends, you publicly announced that Cutten was buying stock in a certain company, which automatically started to attract public interest. The small investors started to buy because Cutten was buying.
Cutten would have a trading syndicate that would buy up the stock and then sell the stock at the same time, called wash trading. Which is essentially attracting yet more public interest, because it looks like there's high volumes, when in fact there really isn't. They were trading on insider information. They were bribing the media to write positive stories about the companies that they were investing in. They created investment trusts to further extend their hold or their leverage over certain trading securities. There was a whole raft of things they were doing to entice and I would say blind the public to the dangers that were lurking in the market at the time.
Josh King:
In talking about those dangers, in chapter nine, old Joseph P. Kennedy, scion of the Kennedy clan, father of Jack, was weighing a decision to re-enter the markets as early as July, 1929, about three months before the crash. Old Joe met with Cutten and others who cajoled Kennedy to jump back in. But it was this brief conversation with a 19-year-old shoeshine boy, Pat Belagna, that ultimately shaped his decision. How did this conversation influence the Kennedy patriarch to stay out of the markets, ultimately avoid the crash and begin to grow the fortune that became famous and propelled Jack Kennedy to presidency?
Robert Stephens:
Joe had done very well in the market up to the point, of about 1928. He thought that the market was wobbly at that point and decided to withdraw from the market. This is the reason he met with Cutten and Reardon and Raskob in '29, to kind of pick their brains to see what they thought. He kind of came away from that thinking, "Well, these guys are really still heavily invested in the market. I'm just going to walk up the street and see who else I could talk to."
And he ended up talking to the shoeshine boy, Pat Belagna, who was 19 years old. He had shone the Kennedy shoes in the past, so they got into talking. Of course, Pat, having, by nature of where his shoeshine stand was, talked to lots of high-profile investors and always had a view of his own, which he was willing to share with anybody. So Pat told Mr. Kennedy that he should be buying industrials and transportation stocks because they're on the rise, Mr. Kennedy. Of course, Joe got home that evening and talked to his wife, Rose, and he said, "Anytime that a shoeshine boy is suggesting what stocks I should buy in the market, is a time for me not to be in the market."
Josh King:
Time not to be in the market, and we are rapidly moving up to October 24th, famously known as Black Thursday. The crash begins, panic grips the New York Stock Exchange, as orders to sell, sell, sell echo through the trading floor. I want to listen to a clip from a PBS documentary describing the unrest that morning.
Speaker 19:
The following morning, the fear turned to panic and brokers began unloading margin accounts at record speed. Stock prices plummeted sickeningly across the board, spurring the rush of sell orders from terrified speculators, still more. As anguished shrieks rose up from the floor of the New York Stock Exchange, the visitor's gallery was cleared. In less than two hours, nearly $10 billion invested in stocks was simply wiped out.
Josh King:
In less than two hours, $10 billion in stocks were wiped out. How did Cutten respond to this sudden downturn as the market went into free fall?
Robert Stephens:
All the way up to that point, in fact, probably a week in advance of that, just before that he was out publicly stating that there was nothing to worry about. That even with a huge amount of money that was in broker's loans at the time, there was nothing to worry about. This is the cheerleading aspect that was coming from Cutten and others. They, I think, could sense that the market was fundamentally weak. There's no public annunciation to that effect. In other words, Cutten never said publicly, "I think it's time to get out," or, "I think the market is weak." So I can only surmise that he was holding forth in the hopes that his example and those of others of his ilk, if they kept together, if they maintained a united positive front, that the market would not collapse the way it collapsed. I think though that there was a sense that, and I can't prove this, that there was a sense that things were not what they should be.
Josh King:
Did your research show what kind of individual hit Cutten took at that point?
Robert Stephens:
Over the five or six days from the Black Thursday to the following week, the Black Tuesday, the Dow Jones Industrial Average lost about 47% of its value, and Cutten's own wealth, from everything I've been able to piece together, did the same thing. It slid from a hundred million to about 50 million.
Josh King:
So he transitions at that point from a bull to a bear, goes back to Chicago to rebuild his fortune in the pits. Yet, while his operations continued on in secrecy, rumors began that it was he who was short-selling wheat futures, drawing attention from regulators. And because of all this attention, you wrote that Cutten made the single greatest mistake of his life. Despite the perception and the public against him and facing government scrutiny, why do you think Cutten chose to abandon his rule of operating in the shadows and instead opted to confront the situation publicly?
Robert Stephens:
I think what happened, based on the research, Cutten decided for some unknown reason that this was a time where he had to speak out. It makes absolutely no sense that he would do it at this juncture in his life. He'd been quiet, secretive, manipulative, but never above the radar in terms of speaking out so vociferously against government intrusion. And yet he picks his very moment when he's most vulnerable, because of his own short-selling, to begin to speak out. Strange. Again, I don't have a good answer.
Josh King:
How did he actually speak out? Does he summon the press to his office? Does he write an op-ed? I mean, back in those days, when you're Arthur Cutten, how do you go from being a secretive fellow to someone who's out on the street, defending your book, basically?
Robert Stephens:
He teamed with a ghostwriter and wrote a four-part series for the Saturday Evening Post. In that series, he rips apart government for the farm credit board, for the Futures Commission. And of course, beyond that particular series, he could have an interview anytime he wanted, but press was always interested in talking to him. In the past, he'd always used it to promote a stock, but now he was promoting a government policy or a government view. And this is what landed him in huge trouble because government was going to not take that lying down.
Josh King:
Yeah, he's dealing with a different group of folks in Washington now. He's got this guy named Franklin Delano Roosevelt, and FDR has plans to implement this thing called the New Deal. In November of 1933, Cutten gets subpoenaed to testify before the Senate Committee on banking and currency, as part of what was known as the Pecora Investigation. And initially, public attention to the proceedings was pretty minimal, but then interest started to grow. Speculators like Cutten, once revered as wizards of Wall Street, were now derided as Banksters. How did Ferdinand Pecora, the committee's chief counsel, leverage this shifting public sentiment and increase notoriety to vilify people like Cutten, that they deemed responsible for the crash?
Robert Stephens:
The first go around, the US Senate Banking Committee on banking and currency set up in 1933 was a complete disaster. The first three or four lawyers or counsel for the commission simply were not able to prosecute the financial establishment and really turn over the evidence that would put a bad face on the so-called Banksters. The last counsel they hired was Ferdinand Pecora, who was an Italian immigrant, came up on the poor side of town, had menial jobs in the legal profession, and just happened to luck into this job that no one thought anybody could do anything with.
And lo and behold, this guy was a showman and a wizard in his own right at being able to strip the facade off the big bankers, guys like JP Morgan, guys like Mitchell, Albert Wiggin. These are individuals that thought they ran the world from their banking perch and that no small lawyer with a banking committee would knock them off their perch ever. They thought Pecora was a joke. They thought he was going nowhere. And in fact, Pecora, through his ability to be a showman and understand the public sentiment at the time, was able to win the day. FDR found his firebrand in Ferdinand Pecora.
Josh King:
And yet Pecora didn't do a huge amount of damage personally to Cutten, but it didn't deter the government from taking further action. Between like 1934 and 1936, Cutten face charges under the Grain Futures Act, indicted for tax evasion. Although the rulings went in Cutten's favor, the legal battles took a big toll on Arthur's health. And his wife would later pronounce Mr. Cutten will never be strong enough again to take up trading. Although he prevailed in the legal arena, how did the Roosevelt administration achieve, at the end, its intended outcome of removing Arthur from the exchanges for good?
Robert Stephens:
Well, I think it just wore him down. Cutten was a symbol. And if they could remove him from the markets, either through the trading ban in the grain pits, which was overturned by the Supreme Court, Cutten won that round. Yes, he was harassed by the banking committee, but the banking committee had no teeth, so it couldn't actually stop him from what he was all about. And of course, then the tax evasion charges, he died before they could get their hands on the taxes only that they claimed. So that he won in each of these venues, in a sense that he skated from all the regulations and the government agencies that were after him. However, it wore him down. He, by 1935, was a very tired individual. He had, in late November of '35 had a pneumonia, and then by the end of that year, he had his first heart attack. He had always a chronic heart condition his whole life, this just finally was too much for him. Six months later, he was dead.
Josh King:
Yeah, he's dead June 24th, 1936. And then it's discovered that despite once having an estimated fortune of maybe a hundred million dollars, as you said, before the crash, he left behind assets that were only worth $350,000. And given the rumors, you alluded at the very beginning of our conversation, Robert, surrounding the missing millions from the Cutten estate at the time of his death, what are your theories of where the money went?
Robert Stephens:
There's multiple indications over the years that he had been moving money from his operation in Chicago and New York back into Canada, and was quite generous with his siblings, his brothers and sisters. His father and mother, of course were dead at this point. But he had three brothers and two sisters who were part of a company called Cutten and Company Canada, and he was moving money back to them. The family always denied that they were the beneficiaries of all the money that he made in the market, and was never found again. They always denied that.
But there was one individual who was a Deputy Attorney General in Illinois. His name, Harry Ash. And Harry Ash was a trading partner with Arthur Cutten. They traded together. And Ash, after Cutten died, filed motion in court that claimed that Cutten had told him he had sent all his money to Canada to his brothers and sisters, and that they had hidden it well enough that it would never be found.
Josh King:
And do you buy it?
Robert Stephens:
I do buy it. Someone that smart, even if depression wiped him out, half of his money, he still had $50 million. And for him to lose $50 million between that time and his death would, to me, be unthinkable. He was just too smart in the markets to have suffered that kind of loss. So when they uncover his estate and it goes to probate and they find there's only $350,000, you got to ask yourself, there's a whole lot of money missing somewhere.
Josh King:
So Robert Stephens's wrap-up. After diving so deep into Arthur Cutten's life, researching so extensively for your book, how would you characterize what we know of Cutten's legacy, the good and the bad of his life?
Robert Stephens:
I think that he was a man of his time. I think if you looked at him and judged him by today's standards, you'd be pretty harsh on the old guy. I think you'd say he was hurting the little investor. He was stealing from manipulating markets. He was bribing reporters. He was spreading corruption. He was playing by no rules except his own. I think you'd give him a big black mark for that. On the other hand, if you judge him by his own time, his own measures of success, the individuals he looked up to, the stories he believed, you'd have to say he did it and he did it his way.
Josh King:
Robert, thanks so much for joining us Inside the ICE House.
Robert Stephens:
Thank you. It's been a pleasure.
Josh King:
That's our conversation for this week. Our guest was Robert Stephens, author of To Make a Killing: Arthur Cutten, the Man Who Ruled the Markets. Out now from McGill-Queen's University Press. If you like what you heard, please rate us on Apple Podcasts so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show or ideas for people to talk to, like Robert Stephens, author of To Make a Killing, please make sure to leave us a review. Email us at [email protected] or Tweet at us @icehousepodcast. Our show is produced by Lance Glenn, with production assistance and engineering and editing from Ken Abel. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. We'll talk to you next week.
Speaker 1:
The information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.