Senate Revelations 7: 1

Senator James Couzens is not a forgiving man. All of his opponents are arch-opponents and he fights them to a finish. The St. Valentine's Day Massacre of Detroit's banks provided Senator Couzens with a set of arch-opponents among the citizens of his own city. Some of them accused him of keeping the RFC from going to the aid of their banks. He accused them of shutting off his revelations in their local investigation of the Detroit bank massacre. Senator Couzens is hard to shut off, especially when he is a member of a Senate Investigating Committee. Last week a troupe of Detroit bankers were lined up against a wall of the Senate Banking & Currency Committee room while Inquisitor Pecora began writing Chapter 7 of Senate Revelations--the story of the Guardian Detroit Union Group, Inc. First witness was Robert Owen Lord, president of the Group which owned 23 Michigan banks headed by big Guardian National Bank of Commerce and which foundered last February with $90,000,000 in deposits still tied up. Mr. Lord brought into the committee room a banking atmosphere different from that of Manhattan's moneymerchants, who sit upon generations of money--an atmosphere of the Midwest, of the lusty young automobile industry, of money still too young to beget staid offspring, but not too young to sow a few wild oats. He himself, now three years short of 50, was 27 years ago a boy from Chicago's outskirt, Evanston, just beginning his financial apprenticeship with N. W. Harris & Co. Six years ago he stepped out of Harris Trust & Savings Bank to carry the banner of finance to the City of Automobiles, to the Land-Where-Things-Were-Done-in-a-Big Way. Help, On the first day of his session in the witness chair Mr. Lord, in his strong baritone, put into the record an account of the help the Guardian Group and its stockholders had given to its banks during the Depression. There was $8,400,000 supplied in exchange for slow or undesirable assets in member institutions; $3,595,000 supplied by Charles Stewart Mott, vice president of General Motors, to make up for defalcations in the Union Industrial Bank of Flint; $1,600,00 in credit lent by directors of the Group to carry distress loans of officers and employes; $3,384,000 paid by a group of stockholders to buy 18,800 shares of Group stock as relief for the Guardian Detroit Co.; $1,000,000 in cash and $5,000,000 in securities lent by Edsel Ford to help the same company; $4,000,000 paid by individual stockholders to buy 93,000 shares of the Group's stock to keep the decline of its price from scaring the public; $2,500,000 credit lent by Edsel Ford to secure a loan for the Group. Total help: $27,000,000.

Dividends, In a short time, however. Inquisitor Pecora was making Mr. Lord uncomfortable. "The units of this group were milked to pay dividends," Mr. Pecora declared, "when earnings did not justify the dividends." Mr. Lord protested. Promptly Mr. Pecora produced "form letters" nearly identical in language written by Mr. Lord to presidents of the Group's banks. One such: "To provide for the dividend requirements of the Guardian Detroit Union Group, Inc. on the basis of an annual disbursement of $3.20 a share, a dividend should be declared at the June meeting of your board of directors. I would suggest, therefore, that it would be in order for your board to declare a quarterly dividend equal to 20% annually. . . . Please be good enough to promptly confirm this arrangement. . . ." And its reply: "As you are aware, a dividend of this amount has not been earned. In ad dition to that, the trust company is setting up no reserves and we feel that it is not as it should be." Mr. Pecora: Don't you think that your suggestions for a dividend rate for the units were looked upon as an order from the throne? Mr. Lord: I assumed that the earnings of the units were sufficient to meet the dividends. Bills Payable: "None," Second embarrassing moment for Mr. Lord came when Senator Couzens, who in Detroit is socially acquainted with him, questioned him about the statements of the Group's banks, showing that none of them had any bills payable at the close of 1930. "Was that a fact." demanded Mr. Couzens, "that your banks were out of debt?" Mr. Lord: Except to the depositors. Mr. Couzens: I want to remind you that you are under oath. I want to know whether you had any information outside of the published statements as to whether or not any of these 23 units had bills pay able. . . . Mr. Lord: If that statement was made it was made in good faith. Promptly Mr. Pecora proceeded to pro duce evidence and extract admissions, showing that prior to statement dates various banks of the group arranged to make deposits with one another so as to wipe out "bills payable" for a few days--window dressing to prevent depositors from catching fright. Meantime other officers of the defunct banking group, including Ernest Kanzler, Edsel Ford's brother-in-law, sat squirming in their chairs. None of Detroit's industrial elite under subpoena felt any easier as two agents of the Department of Justice stood in the shadows and noted down any admissions which could be used as a basis for criminal prosecutions.

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