Tuesday, April 5, 2011

Part 4 of Land and Loot

History of Northwestern Mutual Life and its Creators

Who exactly has been involved in the Northwestern Mutual Life Insurance Co.?   

There is more than one version of its history.  According to Hoover’s Handbook of American Business, 1993, John Johnston (at age 75), along with 36 leading Wisconsin citizens, founded Mutual Life Insurance Co. in 1857, and it became Northwestern Mutual Life Insurance Co. in 1865. 

According to Anton Chaitkin, the company was founded in 1858 by Henry L. Palmer, who was its president from 1874 to 1908.  During those years Palmer was also the Grand Commander of the Scottish Rite, Northern Jurisdiction.[1]  Chaitkin says that “[Alexander] Mitchell had been sent to Wisconsin from Britain by a Scottish investment trust which owned the Northwestern Mutual Fire Insurance Company, of which Mitchell became the president.  By the 1870s Mitchell had used his insurance company, allied to Palmer’s, as a 'bank' to consolidate Wisconsin’s railroads and control all of the state’s grain silos.”  Mitchell owned all the railroads in Wisconsin at that time.[2]

How did this “bank” work?  Historically, there had been a national bank created during George Washington’s administration, under the supervision of Alexander Hamilton.  It had been re-established in Philadelphia in 1816, after Hamilton’s death at the hand of Aaron Burr, and placed under management of Nicolas Biddle.  The bank had a monopoly on issuance of bank notes in order to balance the nation’s need for credit against its need for a stable currency.  This bank was abolished by Andrew Jackson, who placed U.S. government deposits into a number of “pet banks,” allowing speculation into risky ventures such as western real estate and railroads to proceed unabated—and leading to the Panic of 1837.

During the post-Jacksonian era, when there was no national monetary currency, a group of incorporators could establish a bank in the Wisconsin Territory by obtaining a charter from the territory, approval from Congress, and raising a small amount of capital in the form of gold, silver and notes of other banks.  Then the bank could issue its own bank notes based on those assets and lend it out at interest.  If the bank achieved a measure of confidence in repaying the notes on presentment, the notes would circulate in the economy just as money.  If more notes were returned for payment than the bank had on deposit, the bank could call the notes due.  During economic instability, a prudent bank would be more cautious in issuing credit and thus limit the monetary supply.

In 1837 three Wisconsin charters were approved by Congress, the stock in two of which charters was controlled by the following: 
  1. Henry T. Stringham of Detroit; 
  2. Morgan Martin; 
  3. John A. Welles (cashier of the Farmers and Mechanics Bank of Detroit, one of that city’s two pet banks); 
  4. James D. Doty; and 
  5. three other Michigan bankers.   
Stringham traveled to New York and Philadelphia in November 1837 attempting to sell the charters of the Bank of Wisconsin and the Bank of Mineral Point—both of which were suffering from the Panic of 1837to Nicolas Biddle, who was not interested. 

Alice E. Smith reported the banks’ outcome in Volume I of The History of Wisconsin:  From Exploration to Statehood:

Some months later still another opportunity to escape the burden of debt and reach safety appeared; George Smith of Chicago expressed interest in the two Wisconsin charters.  The Scot Smith was agent for a group of his countrymen who had set up the Illinois Investment Company in the American city.  Welles, with whom Smith conferred in Detroit, was wildly enthusiastic over the prospect.  Smith and his associates Patrick Strachan and William D. Scott were, he declared, “shrewd, safe, and money making men—close managers.”  They would connect the banks with an insurance company in Chicago, establish agencies in New York and St. Louis, take perhaps three-fourths of the stock of the two Wisconsin banks, and manage the business—and, he concluded, “no doubt realize for us all of the golden day dreams in which we have indulged.”

Two years were taken up by an investigation of the legislature into the operations of another of Stringham’s banks in Green Bay.  Fraud was found to exist, and by late 1839, the depression brought on the failure of other banks.  The Bank of Mineral Point, however, somehow continued to operate—which can only be surmised to be due to the fact that it was located in a mining community with a commodity that enabled its borrowers to repay their loans and to the fact that the U.S. Attorney General ruled that the U.S. Treasury had no authority to inspect banks of the territory.

Amidst this turmoil, the legislature issued a charter to the Wisconsin Marine and Fire Insurance Company for 20 years in May 1839, with power to insure ships and buildings, receive deposits, make loans, purchase and receive stock, mortgages and real estate.  Almost all the stock was purchased by George Smith, and the first board of directors included Hans Crocker and William Brown, of Milwaukee, and Patrick Strachan, William D. Scott and George Smith of Chicago.  According to Alice Smith, since Smith arrived in 1834 from Scotland he had been using Scottish capital to make speculative land purchases of village lots in Chicago, Milwaukee and port settlements along the lake front, and on farm loans on both sides of the Illinois-Wisconsin border.

Strachan and Scott, whose names appeared among the five original directors, had been transferred from Chicago to New York City, where for the next twenty years they operated as brokers, commission merchants, and bankers.  Other of Smith’s countrymen took up location in Buffalo and rising cities of the present Midwest—St. Louis, Galena, Cincinnati, Detroit.  At these centers they established commission houses dealing in produce to be shipped to market, besides turning their hands to miscellaneous enterprises in response to local needs.  Although they probably operated independently, they were loosely affiliated with Smith and, together with his agents Strachan and Scott in New York, formed a huge network of co-operating agencies.  Smith himself remained in Chicago, and directed his expanding commercial empire from his office in the heart of the city.  Some acceptable medium of exchange was needed, and to supply this want, the Wisconsin Marine and Fire Insurance Company was created....

During the summer of 1839 shares in the Wisconsin Marine and Fire Insurance Company were advertised in Aberdeen, Scotland, at $25 a share, and by the end of the year 2,425 shares had been sold, virtually all of them Scottish owned.

Very little about these or other operations of the uncommunicative George Smith was known in Chicago. The insurance firm that had been quietly established in Milwaukee during the summer of 1839 was placed under the management of Alexander Mitchell, who was made secretary of the company at the annual salary of $1,100.  The 22-year-old farmer’s son, who had had two years’ apprenticeship under the law firm of Adam and Anderson in Aberdeenshire, assumed the varied responsibilities of a financial concern on the Wisconsin frontier.  He ran a substantial real estate business, sold insurance on vessels and on land property, negotiated loans, advanced money on produce being shipped to market, and furnished exchange service with the East and the British Isles.  On all these services the company exacted charges, which in time netted it substantial amounts.  But it was around one further service, accepting money on deposit and lending certificates of deposit, that the business revolved, and which actually became the basis of the Milwaukee and all the allied George Smith operations.

To evidence deposits received, the company issued certificates of deposit, but records reflect that the amount of CD’s issued more than doubled every year until 1846.  The reason for this increase in a city with a limited population seems to be that the notes were backed by funds raised by “subscription in Scotland.  Not only Mitchell, but also Smith and his affiliates in the West and in Buffalo and New York paid out and accepted the notes, thereby increasing their circulation and familiarizing the new West with what became known as ‘George Smith’s Money.’”[3]

The use was so widespread that the Wisconsin legislature began an investigation in 1843, which resulted in revoking the charter early in 1846, primarily because of the fact that the stockholders were foreigners “not amenable to the laws of the United States,” who could recall their officers and renege on the notes.  Nevertheless, the company continued its business unimpeded, having been advised that the only way to stop their operations was through a quo warranto proceeding.  Smith allegedly bought up most of the Scottish investors’ subscriptions and became one of Chicago’s wealthiest men.  Mitchell, joined by David Ferguson, another Scot from Aberdeen, continued to run the company in Milwaukee.  Between 1846 and 1852 the CD issues jumped from $95,000 to over $1 million.[4]

It is possible that Houston, Texas acquired its own affiliate when Strachan Shipping Company, established by a Captain Frank Garden Strachan and Captain George P. Walker in October 1886 in Savannah, Georgia,[5] set up a branch in Houston.  Houston's Strachan was a Scot from Banffshire who was involved in the London-China trade and had traveled from Scotland to New York in 1886 to discuss business opportunities in the South with Spence and Company.  Captain Walker was in the Chatham Artillery.  Strachan Shipping does not own ships, but acts as shipping agent and provides stevedores for persons wanting to ship cargoes (exactly as Smith’s agents from the same area of Scotland had done).

Another emigrant from Banff, Scotland at about the same time was a man named George Stephen, who became a director of the Bank of Montreal in 1871 and its president in 1876.  Stephen was a cousin of Donald A. Smith, resident governor of Hudson’s Bay Company, who, with railroad tycoon James J. Hill, obtained financing from George Stephen in order to buy out the Dutch bondholders of the bankrupt St. Paul & Pacific Railroad in 1878 that would later become the Canadian Pacific.  This information is contained in a biography of James J. Hill, published in 1955,[6] in which the author states:

1914 Portrait Lord-Strathcona Old PrintJust where Stephen got the money is still something of a mystery.  It was even charged that he “borrowed” it from the Bank of Montreal, but this was never proved, and it is well to say only that he produced the major portion of the purchase price, the sale was made, and the properties and land-grant agreement of the St. Paul & Pacific Railroad were presently taken over by the newly incorporated St. Paul, Minneapolis & Manitoba Railroad Company.  The incorporators were George Stephen, Donald A. Smith (later Lord Strathcona--founder of British Petroleum), Norman W. Kittson, James J. Hill, and John S. Barnes, the last representing the New York firm of J.S. Kennedy & Company, which represented, after a fashion, the Dutch bondholders.[7]  Hill was to manage the railroad.

Another account is found in a history of Canada, which says that in 1876 Stephen went to Chicago with fellow banker R.B. Angus to attend legal proceedings involving the failure of a steel company in which the Bank of Montreal was an investor.  During a break in the litigation, the bankers went to St. Paul to see James J. Hill, and somehow all parties who were to participate in forming the International & Great Northern Railroad Co. made contact:

In brief, [Jesse P.] Farley [of Dubuque, Iowa], the official receiver in bankruptcy, and Kennedy, the New York agent of the Dutch bondholders, were taken into the picture.  Farley, in fact, later brought suit against Smith and his associates for a share of the loot, which he claimed had been promised him for his help in persuading the Dutch to sell out; but the suit was thrown out of court because of Farley’s fiduciary position.  Meanwhile, Stephen made a trip to Holland to meet the Dutch bondholders.  The final result was that the Dutch sold out an equity of some $28,000,000 in principal and interest for $6,000,000 while agreeing to wait for their money until the tangle was resolved.

The partners (Stephen, Smith, Kittson, Angus, and Kennedy) signed a joint note for the amount to the Canadian Bank, of which Smith and Stephen were directors, and included an extra $780,000 for contingencies.  Money still had to be found to build enough road to secure the valuable land grants.  The four Canadians put up $300,000, Hill and Kittson flinging into the pot everything they owned...[8]

It was also in 1876 that Donald A. Smith made a trip to London, where his superiors in the Hudson’s Bay Co. made him chief commissioner for the company in Canada, “a position that gave him power to act in most if not all matters without the approval of the distant Board of Governors in London.”  With that power he began to encourage the immigration of Scots to Canada, as well as America, to land which his investors would acquire through land grants in exchange for building railroads.  In 1879 the partners in the new company divided up $15 million of stock in the St. Paul, Minneapolis and Manitoba Railroad, while selling $16 million in bonds to pay for the track. 

The Missouri Pacific railway company to the Mercantile trust company, of New York, trustee. First collateral mortage. Dated July 15, 1890By 1880 the old St. Paul & Pacific company, now defunct, was reincorporated into the Canadian Pacific with George Stephen as president, Duncan McIntyre as vice-president and Richard Angus as general manager.  James J. Hill, William Kennedy and Norman Kittson (who later "owned" what became the Burlington and Missouri Pacific railroads) also had a share.  Though not an officer, Donald Smith owned 5,000 shares.  Other shareholders included the banking firms of Morton, Rose & Co., and Morton, Bliss & Co.; Kohn, Reinach & Co. of Frankfort (which included the SGI of France).[9] 

These investment bankers were all fronts for the Rothschilds and Warburgs who, in 1913, consolidated all their power in the United States by passage of the Internal Revenue Act and Federal Reserve Act.  They put the seal on the consolidation in 1932 with the acquisition of the Washington Post by Lazard Freres/Rothschild lackey, Eugene Meyer.

But back in the 1880s, when the Canadian railroad ran into difficulties in construction, James J. Hill and Kennedy withdrew from the company. The syndicate headed by George Stephen, who controlled the Bank of Montreal, kept receiving more and more stock at no cost, and issuing more bonds sold to the public, secured by the land grants, to pay the costs. In 1882 $30 million in stock was turned over to a New York firm, but no more stock could be sold the next year because of a recession, and the New York creditors pressed for payment.  Somehow a bill was passed for the Canadian government to make a loan to the railroad to pay off the creditors. 

By the next year, however, they again needed money.  They raised a small loan in Edinburgh.  Coincidentally, when that money was almost gone, there was an Indian uprising which was quelled because the government was able to send troops to aid the settlers because the railroad was in place.  As a result, in 1885 the $35 million of unissued stock for which there were no buyers was canceled, replaced by 50-year first mortgage 4% bonds, and the government forgave the previous mortgage, taking new bonds in place of the old.  Stephen took the remaining bonds to England and sold all of them to Baring Brothers’ Lord Revelstoke.[10]

When the railroad was completed in 1885, Baring Brothers bought the bonds held by the Canadian government for $20 million, and the railroad company paid the balance of the loan to the government by returning 6 million acres of land.  George Stephen continued to be a large investor in the railroads, but also in related industries such as steel and tank cars.  The first through train took 137 hours to cross the continent.  In 1894, after Great Britain “woke up to realize the value of a quick route to the Orient,” William Cornelius Van Horne, who later became president of the Canadian Pacific, was appointed Honorary Knight Commander of the Order of St. Michael and St. George.[11]  In 1897, at the age of 76, Donald Smith became Canada’s new high commissioner in London and was raised to the peerage to become Lord Strathcona.   Charles Stephen became Lord Mount Stephen. Two years later the Boer War began, at the height of the British Empire, and Lord Strathcona raised funds to send a special regiment of hand-picked Canadians to South Africa.

It was Lord Strathcona and the British Crown who sponsored Samuel Bronfman’s “rise to wealth in the bootlegging rackets” in the 1920s.[12]  Lord Strathcona was also the founder and first chairman of the Anglo-Persian Oil Co. formed in 1909 to operate the concession given to William Knox D'Arcy by the Shah of Persia in 1901 on which oil had been discovered by Burmah Oil Co., which owned  97% owned of the stock with 3% owned by Strathcona individually. Another of the founding directors was Sir Charles Greenway, who became managing director in 1910 and the second chairman in 1914, after Strathcona.  In 1914 51% of the stock was sold to the British Government which injected 2 million pounds into the company for the war effort.  Greenway retired in March 1927, and in 1935 the company became Anglo-Iranian Oil.  It became involved in petrochemicals and entered an agreement with the Distillers Company in 1947 (forming a joint company which later became British Hydrocarbon Chemicals).  In 1951 Iran expropriated the foreign oil company, precipitating three years of negotiations, resulting in the resumption of the Iranian oil development by a consortium of oil companies.  Anglo-Iranian then became British Petroleum and had a 40% share in the consortium.  The company was "privatised" in 1987 by Margaret Thatcher.[13]

In October 1879 the International & Great Northern Railroad gave a mortgage covering the assets of its railroad in Texas to John S. Kennedy and Samuel Sloan, as Trustees, in New York to secure the holders bonds issued for expansion of Hill’s railroad into Texas [8/765 Mortgage Records in Harris County].  Thomas M. Pearsall was president and Jacob Wetmore was assistant secretary who signed the mortgage in New York.

Once Canada’s railroads spanned from east to west, Hill concentrated on moving south into America, through Minnesota along Lake Superior, and he organized the Northern Steamship Company to carry products across the Great Lakes.  As a friend of John Murray Forbes of Boston, who headed the Chicago, Burlington & Quincy, Hill worked out a deal that allowed his lines to carry freight and passengers to Chicago.  Fifteen years later (1901) Hill bought the entire Burlington system.[14] 

In 1889 he organized the Great Northern Railway Company, which took over operation of the St. Paul, Minneapolis & Manitoba, and several years later put his roads under control of a holding company, Northern Securities Corporation.  Hill was chairman, and ten of the 15 board members were connected to Hill and J.P. Morgan.  This company was opposed by Theodore Roosevelt who called it a new trust and ordered prosecution under the Sherman Act. 
The Life and Legend of E. H. Harriman 
As a result, in 1904 the holding company was dissolved, and “Harriman forces received a paper profit of some $58 million.”[15]  Harriman died in 1909 and Hill in 1916, following decades of hostile rivalry.  Why did this rivalry exist?  Both J.P. Morgan and Harriman have acted as investor/ nominees for certain members of the British royal family.  Do they represent different factions which are themselves at odds with each other?  If not, why the pretense that they are competing?

NOTES:

[1] Anton Chaitkin, Treason in America:  From Aaron Burr to Averell Harriman (New York:  New Benjamin Franklin House, 1984), pp. 330-31.
[2] The story of this monopoly is an interesting one which begins after the reorganization of the Milwaukee & St. Paul railroad in 1861.  The bondholder/creditors formed an association through which they owned the common stock of the corporation.  In two years the value had increased from 12 cents to 90. [State Historical Society of Wisconsin Publications, pp. 291-96.].  Its chief rival, Milwaukee & Prairie du Chien (French for Prairie Dog), was the subject of great stock speculation in 1866 when the brokerage firm owned by Henry Stimson (a Skull and Bones member and Yale graduate who, as Secretary of War, recruited many other members of Skull and Bones to serve in the Administration of Franklin Roosevelt) quietly bought up all of Prairie Dog's common stock at low prices and loaned some to unsuspecting neighbors.  Then he called in the loans, but since he had cornered the market, the borrowers could not find any stock to buy, causing the price to quadruple in 10 days.  Stimson, however, had overlooked a clause in the charter which prohibited owners of common stock from voting for directors, so he had no control.  He remedied this by sneaking through a bill in the Wisconsin Assembly at the end of the session.  Then in April 1866 he sold his holdings to Milwaukee & St. Paul in exchange for almost 30,000 shares of preferred stock and 25% more of common.  Mitchell also obtained control over the McGregor & Western and the West Wisconsin.  When he returned to Scotland in 1868, he bought controlling interest in the Racine & Mississippi from the City Bank of Glasgow--thus giving him control of every through route from the shore of Lake Michigan to the Mississippi River.  By that time, the only other significant routes in the state were owned by the Chicago & Northwestern, which had similarly absorbed all its rivals.  All competition ceased for two years when the two railroads elected interlocking directorates, and by 1870 the consolidation was complete when Alexander Mitchell became president of both railroads.
[3] State Historical Society of Wisconsin Publications, p. 296.
[4] State Historical Society of Wisconsin Publications, p. 306.
[5] Houston:  A Profile of Its Business, Industry and Port.
[6] Stewart H. Holbrook, James J. Hill:  A Great Life in Brief (New York:  Alfred A. Knopf, 1955), pp. 49-50.
History of the Atchison, Topeka, and Santa Fe Railway[7] J.S. Kennedy & Co. was correspondent of the Scottish American Investment Trust, which had been organized by Robert Fleming of Dundee in the 1870s.  The founder of Barings was originally from Bremen, German, and had immigrated to England in 1717.  The partners of the first Baring firm in New York—Baring, Magoun & Co.—included Alexander Baring who formerly worked for Kennedy, Tod & Co., which held the mortgage on the Atchison, Topeka and Santa Fe Railroadin Houston.
[8] W. G. Hardy, p. 275.
[9] Hardy,  p. 316.
[10] Hardy, pp. 364-65.
[11] Holbrook, p. 81.
[12] Anton Chaitkin, EIR, April 26, 1996, p. 43
[13] This information was obtained from http://www.bp.com
[14] Holbrook, p. 109.
[15] Holbrook, p. 144.


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