The woolly horse

Table Of Contents

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Preface 7

I. Panama : A Revelry in Crime 9

Preface

Many facts contained in this volume are not palatable ; they hurt our vanity ; but bitter medicine is often necessary, though one hates the doctor who gives it.

The Panama story is startling and humiliating. The financial and political interests behind the gigantic swindle are so potent that publicity through ordinary channels is impossible. Hence this book. The writer visited Paris in the Summer of 1908 for the purpose of investigating the Panama Scandal, and speaks with knowledge.

Congress does not dare investigate, and if it should be spurred into a pretended investigation, another Committee, with a majority hostile to the inquiry, would probaly re-enact the travesty of 1906, when Senator Morgan, vainly tried to get Mr. Cromwell to answer any important question, during days of examination, other than "I decline to answer," on the ground that he was attorney for everybody in interest, including himself. The Committee sustained him in his frivolous and insulting conduct, until Senator Morgan obtained a resolution of the Senate directing Mr. Cromwell to answer. Whereupon Mr. Cromwell sailed for Europe, and Senator Morgan, having been taken sick and having died, the matter was dropped; and yet Mr. Cromwell, in a recent interview, stated: "All this * * * was thrashed out before the United States Senate Committee by the late Senator Morgan. * * * It was pursued with unparalleled energy and skill. It was, however, completely exploded and refuted by the facts in the case, and ended in complete discomfiture."

Requests for the re-publication of "The Woolly Horse," long since out of print, have been persistent. This great Republic is becoming great enough to listen to the truth and

8 PREFACE

learn lessons from the actual facts of history. If a young, scientific officer had been put in command of the Army of Invasion of Cuba, not ten men would have been killed, and the Army maneuvers would have been as skillful and scientific as the Navy's.

The other articles contain some facts learned by an active practitioner in New York, and general knowledge of them ought to better our financial, economic and moral conditions. The light of truth can do no harm.

Republics have not always heeded their warnings, but have rushed blindly on to despotism. We believe, however, that Americans have enough innate good sense and patriotism to correct hurtful tendencies and return to the early virtues of the Republic. When they correctly diagnose a political disease, they will apply the corrective, and will thus preserve the same blessings of liberty in the strength of national manhood that were enjoyed in the weakness of national youth. Imitation is the sincerest form of flattery, and if we so purify our laws, and so honestly execute them, that we are worthy of imitation, the whole world should follow our example and become republics, consecrated to liberty, equality, fraternity and peace. To reach this "consummation devoutly to be wished," we must know the actual facts of history, not a press agent's account of his own imaginary achievements.

February 15, 1909.

Alexander S. Bacon. 37 Liberty Street, New York.

PANAMA; A REVELRY IN CRIME.

The Panama swindle illustrates the salient and dominant characteristics of this age. Mammon reigns ; Mars is dethroned ; Mercury is prime minister. The God of War is servant to the God of Greed, and the God of Cheats and Swindlers rules them both. One generation ago, the great men were the Warriors, Statesmen, Poets, and members of the Learned Professions ; now — within the last twenty-five years — all these have become servants to the Tainted Check Book. Politics is syndicated, and lobbyists unnecessary, for the Great Men of this generation own legislatures, and exalt their lobbyists into honorable Senators.

"Get money ; honestly, if you can, but get money." Great corporations and even great nations enter the lists in a scramble to swindle. The public conscience is dulled by the example of The Great, and "Dere'r a Kleptomania feelin' in de air." Crimes of brutality are on the decrease, and the world grows better; but crimes of cunning are universal, and nations are controlled by the Predatory Rich. The distinctive crimes of this generation are crimes of subtlety and finesse, and behind every widespread swindle that extracts millions from the unwary poor, you will find a string of banks, and even governments. Mammon reigns, and Mercury is his Warwick.

Panama, the greatest scandal of the nineteenth and twentieth centuries, presents features that are startling and not generally known; it involves not only statesmen, newspapers, banks, and ordinary confidence men, but the two great Republics as well; the American end of the scandal is as disgraceful as the French ; the swindled victims are not only the confiding poor, but a confiding nation ; and the active agent who planned the international shame has grown fat and powerful in cunning and openly boasts of his power and influence at Washington.

Recent discoveries have revealed the fact that the Panama Canal is the most gigantic fraud of the centuries. Its whole history, past and present, is a revelry in crime ; robbing the peasantry of France to enrich, first, a few French swindlers, and later, an American Syndicate of Wall Street gamblers ; strevv'ing France with wrecks and suicides ; staining the soil of Colombia with the blood of tens of thousands in revolutions fomented in Paris, New York and Washington; robbing the French and cheating the American people ; all for the "Almighty dollar" in the scramble for which the two great Republics have violated almost every law, human and divine ; and the man who planned and executed the scheme and sold a gold brick to the U. S. has erected for himself a pedestal to stand upon and demands the homage of greatness.

Count De Lesseps.

It is now known that the Suez Canal was conceived and executed in iniquity. As an engineering problem it was simple, but its construction was honeycombed with graft. However, success is a mantle that covers a multitude of sins. It gave De Lesseps honor, fame and wealth ; he was proclaimed "the engineering genius of the world," "the greatest Frenchman." As a matter of fact, he was a promoter rather than an engineer, and he died a convicted criminal. Some think that De Lesseps was inherently dishonest, but most Frenchmen still look upon him as "The Grand Old Man" and say that, in his downfall, he was old and confiding, and that designing swindlers gained and abused his confidence, and deceived him while robbing the people on a scale hitherto unknown. The amounts involved in the Panama swindles are gigantic : the scandals nearly wrecked the French Government, and the re-

PANAMA; A REVELRY IN CRIME II

suits were more disastrous than war ; yet the great criminals go unpunished, and reap substantial profits, by cunning manipulations of their New York attorney, even after their conviction in the French courts, turning fines into 29 per cent, profits. It is a marvelous story.

After Suez, De Lesseps sought other worlds to conquer, and a trans-Isthmian canal was the next natural enterprise for exploitation. The indorsement of the Panama route by the great De Lesseps was enough to silence all argument. He had given the Colon-Panama route an examination so trifling that it could not even be called superficial. He made a dogmatic proclamation, and no one dared reply : The new sea level canal would cost $120,000,000, and be finished by 1890. A twelve years' concession was obtained from Colombia in 1878. A company was formed in 1880 with the very small capital of 300,000,000 francs ($60,000,000), and this was eagerly taken up by the peasantry. The rich knew better. Two or three shares were the average number held by each stockholder. Bond issues followed each other in quick succession. These, too, were taken by farmers, janitors and small shop keepers, from their little savings, and the average bond holdings were small.

The French Swindlers.

Substantially every statement in preliminary prospectuses was knowingly false, and every franc was obtained in circumstances of false representations that amounted to larceny. The canal was started with much pretence, and a revelry of criminal extravagance began, unequalled in history.

The criminal waste at Colon can never be appreciated by those who have not seen it with their own eyes. The writer viewed the wreckage of this enterprise in 1898. Along the line of the railroad, out from Colon, were miles — literally miles — of permanent sheds, filled with expensive machinery, car trucks, etc., never used, yet rusted and worthless. If a locomotive jumped the track, no effort was made to put it back; a new one took its place. Several steamboats were conveyed by rail to the center of the isthmus and securely anchored on dry land, miles from water, on the site of an artificial lake, not yet built. These steamers, for years, outrode the gales of their mountain fastness, and were melancholy monuments of crime. It is needless to say that substantially all Canal purchases were attended with criminal rebates, false vouchers and fictitious values. The purpose of the plunderers was fully expressed in a toast at a dinner in Paris: "Here's to the Panama Canal; "may it ever be building and never be built."

Of course, the end came. New funds must be raised. The last bond issue had failed. Heroic measures were necessary to secure the passage of a bill authorizing a bond issue by lottery. The French are nothing if not spectacular, and one of the most startling climaxes in French history was seen in the Chamber of Deputies, when one member arose in his place and flaunted in the faces of his brethren a list of i6i members who had accepted bribes to vote for the lottery. Baron Reinach, the Company's lobbyist, committed suicide. A list of Paris and London newspapers that had received the Baron's checks in payment for influence, was published with the exact amounts received. The bubble had burst and criminal proceedings began. De Lesseps and many of his confederates were convicted and punished.

One curious part of the canal scheme was the early appointment of an American Committee, consisting of Drexel, Morgan & Co., Seligman & Co., and Winslow, Lanier & Co. (See Proceedings of Senate Sub-Committee, 1902, pages 201, 202) to whom about $2,400,000 was paid for no known return. It was a part of the general scheme to buy influence and make the common people think that great financial houses were behind the enterprise. This Committee had no direct relation, however, with the American syndicate formed later, in November, 1899.

PANAMA; A REVELRY IN CRIME I3

In 1889, all work on the canal and all interest on securities were suspended, and a receiver, or liquidator, was appointed by the French courts. He estimated in 1890, that it would cost $600,000,000 to complete a sea level canal. The obligations of the Company, substantially all of which were held by the French peasantry, consisted of $60,000,000 in stock and about $200,000,000 in bonds. If interest be added, the figures are still more stupendous. Probably about $200,000,000 of this sum was criminal waste or pure theft, by means of false vouchers, secret rebates, padded contracts and other well-known Tweed methods ; at least, there was, in 1889, little to show for the money.

The revelation of the Panama scandals, and the consequent suicides and panics, nearly wrecked the French government. The losses permeated every hamlet in France. The poor suffered ; the rich grew richer. It was found that among the offenders were Eiffel, the famous engineer, a man of great wealth, and wearer of the Cross of the Legion of Honor; De Lesseps, and his son, six banks and two newspapers. Among the banks were the Credit Lyonnais, doing the largest banking business in the world, and the Societe Generale, next to the Credit Lyonnais, the largest bank in France ; one bank was American ; the principal owners of "Le Matin" and "Le Journal," among the most influential newspapers of Paris, besides statesmen, contractors and common swindlers, were on the roll of dishonor and appear on the list of the "penalized."

While public wrath was at a white heat, a "proxy" for the bondholders was appointed by special law of July i, 1893. M. Lemarquis was named and, as stated by M. Lucien Napoleon Bonaparte Wyse, the original concessionaire of the Canal, the law said to M. Lemarquis :

"We entrust to you the interests and fortunes of all "the poor people who have put their last cent in the "Panama affair; defend them and protect their rights,

"and, especially, make disgorge all those who have "swindled the Panama Company."

He appears to have been faithful to his trust for a time — until, in 1900, American interests took him into camp. He then joined the enemies of the people. At first, he pursued with energy, both in the civil and criminal couns, all those swindlers "who like pirates around a disabled ship, had taken "possession of all its booty, and had realized, out of the de- "struction of the De Lesseps enterprise, tremendous illicit and "scandalous gains."

Some of these culprits were convicted ; one served five years in prison. Some 43 millions of francs were agreed to be due from these swindlers, whose crimes were perpetrated with the aid of forged vouchers, fictitious contracts and the other sleight-o'-hand performances of "respectable" swindlers. Forty-three millions of francs was, however, a mere fraction of the actual misappropriations. That sum was "owned up to."

M. Lemarquis, in the first stages of his career as "proxy" (later he became liquidator) seems to have conscientiously carried out the law of July i, 1893, that created his office, but he was immediately confronted with a crisis : —

The original concession of twelve years had expired in 1890. A temporary extension had been obtained from Colombia until 1894, on condition that a new company should be organized to finish the canal. In order that the concession might not lapse, and everything thus be lost, it became imperative that a new company should be organized.

In this year, 1893, Mr. William Nelson Cromwell, became the counsel of the old company, or, rather, of its liquidator. He was nominally the Counsel of the Panama railroad, substantially all the stock of which was, however, owned by the Old Company, which was now wholly in the hands of the liquidator; and from that time on Mr. Cromwell's influence was paramount, almost exclusive. The gigantic scheme that fol-

PANAMA; A REVELRY IN CRIME I5

lowed, which swindled the American people for the benefit of his crooked clients, was conceived and carried out while he was simultaneously the attorney for the old company, and the new company, and later, for the United States and Panama. He was top, sides and bottom: the attorney at law, the attorney in fact, and the active agent that represented all interests. This is what happened :

A new company must be organized to preserve the concession. An attempt to get subscriptions for stock failed utterly. No one was fool enough to invest a franc. Indeed, very few but the peasantry had invested in the old company, the average holding of stock in which was only two or three shares, and the average holding of bonds but a trifle greater. In the fervor of patriotic excitement the poor had invested their all, but they were not to be deceived again. Panama and every one connected with it were in disgrace.

A Fraudulent Company With "Penalized" Stockholders.

A company was organized on October 31, 1894, with the merely nominal capital of sixty-five million francs, of which five million francs ($1,000,000) was to be fully paid and given to Colombia in part payment for an extension until 1904. On one pretext or another, these shares were not, however, delivered to Colombia, although the extension was granted. The remaining sixty miUion francs ($12,000,000) was a ridiculously low capitalization to build a canal that had already cost $260,000,000, and was only just begun. The new Panama Company was a patent fraud — a mere skeleton — and the transparent object of the company was a pretext to satisfy, technically, but not honestly, the requirements of Colombia. But a subscription for even sixty million francs could not be obtained. Then a bright idea was conceived and executed : —

The swindlers who had looted the old company and who admitted an indebtedness of forty-three million francs, were forced to subscribe for the stock of the new company, with the promise that the criminal and civil proceedings against them should be dropped. The liquidator took sixteen million francs from the cash on hand of the old company, and bought shares in the new company. Forty-three millions and sixteen millions made fifty-nine million francs, and one million francs ($200,000) only were what were called "free shares" — all taken by people who were interested in the canal. The swindlers were known in France as "penalized stockholders." Their shares were kept in the hands of the liquidator, not to be put on the market until the stock was full-paid. An assessment of 50 per cent, only was called ; a further assessment of 25 per cent, was called in 1898; the last instalment of 25 per cent. was not called till after an American Syndicate had been formed, and this call was never used ; it was re-distributed.

We have here presented as the New Panama Canal Company, a mere name, a skeleton without resources adequate for anything except a temporary expedient. The stockholders were self-confessed swindlers ; that is to say, the new Panama Company was itself a fraud, without adequate resources, two-thirds of its stock was subscribed under duress, and most of its directors were either "penalized" stockholders or representatives of "penalized" banks.

The liquidator transferred all the assets of the Old Company to the New Company, for nothing, except a share in remote profits. This included the Panama railroad shares, which had cost the Company ninety million francs ($18,000,000). The agreement between the old and the new company was a fraud on its face. If the canal was built, the railroad would belong to the New Company for nothing ; if it was not built, the New Company was to pay for it twenty million francs, or $4,000,000. That is, the only valuable asset was turned over to the New Company at less than 25 per cent, of its cost. The penalized stockholders could have sold out the next day and have recouped all their losses

PANAMA; A REVELRY IN CRIME ly

out of this one asset alone. This same railroad, however, when turned over to the United States was, according to the published addresses of Mr. Shonts and Mr. Taft, little more than two streaks of rust, and of trifling value.

The American Syndicate.

In November, 1899, William Nelson Cromwell, attorney for both the Old and New Panama Companies, well known in New York as a promoter, and as connected with many railroad re-organizations and trust manipulations whereby watered stocks inundate the unwary purchaser, organized an American Syndicate of Wall Street bankers and speculators to take over the Panama interests. The syndicate agreement, dated November 21, 1899, provided for a fund of $5,000,000, but it is understood that only $3,000,000 was found necessary to be called. The agreement gave Mr. Cromwell absolute, unlimited and arbitrary power to do what he pleased, and no questions, asked ; it is an unique instrument.

We quote from this agreement, as set forth at page 1147, Senate Document No. 401 (1906) : —

"Mr. William Nelson Cromwell is exclusively empow- "ered under the formal agreement with the board of di- "rectors of the Compagnie Nouvelle du Canal de Panama "(New Panama Canal Company, of France) to effect with "an American syndicate the Americanization of the "Panama Canal Company under the following basis : —

>K * >tJ

"It is also recognized that the unique character of the "enterprise, the international interests involved, and the "special circumstance of the case, require that plenary "discretion and power be possessed by Mr. Cromwell to "effect the Americanization of the canal.

"It is further understood and agreed that Mr. Crom- "well may proceed to negotiate, determine, and agree l8 THE WOOLLY HORSE

"upon all plans, terms, agreements, conditions, questions, "and details which he may deem necessary and advisable "in respect of the purposes herein generally indicated, in- "cluding the terms and provisions of all trusts and agree- "ments which he may deem advisable to have established "or made." * * *

The syndicate subscription agreement provided for $5,000,- 000 only, and contained the following : —

"Referring to the foregoing plan, we, the undersigned, "each for himself and not for the other, in consideration "of $1, to each of us in hand paid by William Nelson "Cromwell, the receipt whereof is hereby acknowledged, "and of our mutual subscriptions, do hereby severally sub- "scribe for, and do agree with said William Nelson Crom- "well to purchase and from him to take * * *

"It is understood and agreed that this agreement shall "not be binding unless subscriptions be made and allotted "to the full amount of $5,000,000 ; and that, owing to the "special circumstances of the case, and in the interest of "all, Mr. Cromwell shall have the right and power to re- "ject or to reduce any subscription hereunder at any "time before final allotment by him."

A month later (see Senate Document 401, page 1178) the Panama Canal Co. of America was organized under the laws of the State of New Jersey, by clerks in Mr. Cromwell's office. This corporation was, later, abandoned when the American Government was induced to take over the enterprise. At first, Mr. Cromwell claimed, in a letter, that they wanted no government aid, but his very disclaimer was a transparent bid for government assistance, and that claim was soon abandoned and the United States was asked to take over the enterprise.

Probably no other member of the Syndicate took a direct and active part in the remarkable events that followed. This

PANAMA; A REVELRY IN CRIME I9

Syndicate contained members, however, whose banking and political influences were as powerful in New York and Washington as were the penalized banks in Paris. They had their attorneys in the United States Senate and Cabinet. In short, Mr. Cromwell as autocrat of this Syndicate, and as agent of the Old and New Panama Companies, had behind him the greatest combination of wealth and political influence ever concentrated in one man.

Panama in Despair.

Let us now look at the condition of Panama affairs when Mr. Cromwell was clothed with these gigantic autocratic powers in 1900:

In the year 1898, during the Spanish War, the marvelous journey of the battleship Oregon around Cape Horn awakened the American people to a lively interest in an interoceanic canal. This project had been exploited for several centuries, but now it was taken up in earnest. The Government of the United States had spent millions of dollars in elaborate surveys of the Nicaragua route, and commission after commission of engineers had recommended it as preferable to the Panama route. It is a shorter route by about 800 miles between New York and San Francisco, and is largely by way of a beautiful river and lake, that would become one of the most fascinating tourist routes in the world ; its fresh water would clear sea-going vessels of barnacles, and it would develop a wide area of beautiful and healthful country. The fevers and doldrums of Panama are unknown in Nicaragua and this cheaper route has no unsolved engineering problems that so sadly perplex the engineers of the Panama route.

In the early part of the year 1900, Panama affairs were in despair. The Old Company had been in the hands of a receiver for eleven years ; stockholders and bondholders had almost forgotten their small holdings or had marked them off to profit and loss ; the New Company had but 75 per cent, of its stock paid in, and it could do no substantial work on the canal. Nicaragua only was mentioned. The people of America were so incensed at the story of Panama crime that its very name became a by-word and a hissing, and no man would be rash enough to suggest any route for the American Government except the Nicaraguan, and Nicaragua and Costa Rica were willing to give concessions in perpetuity, with grants of lands that would far more than repay the entire cost of construction, while the lands bordering the Panama Canal would always be of little value to any one. This public sentiment in the United States, and the Panama revelry in crime, so depressed all Panama securities, that it is fair to say that they had substantially no value at all. Everybody in France, too, was despondent ; the very name of Panama would be met with a sneer ; the revelations of incompetence and crime were multiplying, and the American Congress was spending millions in surveying the Nicaragua route ; every conceivable disaster and disgrace at home and abroad tended to reduce the value of Panama securities.

The story of the Panama scandals was magnified. The American Syndicate and their Parisian allies were also "bearing" the market. The stock of the Old Company had long since ceased to be quoted — it was worthless, and its bonds were selling at about 3 per cent, of their par value. About $3,000,000 would have bought up the entire issues. Indeed, a Paris broker offered for sale in New York the entire interests of both Canal Companies for $6,500,000, but there were no takers. Knowledge of this fact was conveyed to President Roosevelt by letter, but this letter was acknowledged and ignored. It was written to the President by a well-known citizen of New York, and was dated September 9, 1903, — before our Panama revolution of November 3, 1903, and the Bill of Sale of the Canal of April 16, 1904.

The following quotation is taken from this letter to the President : —

"Just one word as to the price— $40,000,000. It may "interest you to know that about the year 1896 or 1897 I "was offered by a reputable broker of Paris, of good "standing, the control of the Old Panama Company, on "a basis of $6,500,000 for their entire property. I refused "to consider this offer, as I did not deem that route "worthy of consideration. The market quotations in "Paris for a number of years for the stock of the Panama "Company would indicate that the whole property was "regarded as of about that value. * * *

"I do not care to put in writing information that has "come to me in regard to the scandals relating to this "whole transaction, but if this project is carried out on "the lines now indicated, I am of the opinion that the "American Panama scandals will not be widely dissimi- "lar from the French ones which amazed and angered "France."

"What is the composition of this New Panama Canal "Company that has exercised such a weird and tremendous "influence and that to-day seems to have such power? It "is composed of Frenchmen and Americans. The Isth- "mian Canal Commission, which you appointed, states in "reference to the French subscribers as follows: 'The "scandals connected with the failure of the old company "have led to the prosecution and conviction of De Lesseps "and other prominent persons. Suits have been brought "against certain loan associations, administrators, con- "tractors and others who were supposed to have unduly "profited by the extravagances of the old company. A "series of compromises was made by these persons, by "which it was agreed that they should subscribe for stock "in the new company on condition that the suits be "dropped.'

"Who represent the American end of the new Panama

"Canal Company? They represent forces who have been "called through the years 'the enemies of the Canal.' "

The Year 1900,

The year 1900 was the psychological moment for the Syndicate, just organized. Word was sent to the "penalized banks," with their thousands of branches and correspondents in the various cities and hamlets of France, to pick up quietly the bonds of the Old Panama Company — to buy, not 100 at a time, but five or ten, that no suspicion might be aroused. Transactions on the Exchanges were slight. The quotations were, as already stated, almost nothing; 3 per cent, and under. The actual purchases from the peasantry of France were probably far below the quotations in Paris. Within a few months every bond, of which these numerous agencies could get knowledge, was picked up, and was held by the banks. For whose benefit they were held is an open secret in Paris. The stock of the Old Company was not purchased, as it had no value and was not quoted on the Exchange.

In other words, in the year 1900, a large proportion of the bonds of the Old Company was in the possession of the penalized banks — penalized for swindling this very Company. They had ceased to be the property of the peasantry. In this same year the liquidator was captured, and all parties and interests were under control — Mr. Cromwell zvas Panama. He represented all interests.

The stock of the New Company had never been, up to 1900, an asset ; it was always a liability. An assessment or 25 per cent, remained unpaid. This stock, too, had never been quoted. Indeed, all the "penalized" stock was held by the liquidator of the Old Company for eight years, and no one would buy the few "free" shares because no one would be willing to pay the assessment still due.