Prologue

These are troublous times.

-Charles T. Barney
Knickerbocker Trust Company
October 21, 1907

Around 10 a.m. on November 14, 1907, Lily Barney and a friend were chatting in the Barneys' second-story bedroom overlooking Park Avenue when they heard the crack of a gunshot echo through the house. The women bolted toward the other bedroom across the hall. Stepping inside, they saw Lily's husband, Charles, lying on the floor near his bed in his pajamas. Beside him was a revolver containing three loaded cartridges and one empty shell. The Barneys had kept pistols on every floor of the house for protection, and this one clearly belonged to Charles.1

As Lily Barney came near, her husband raised himself slightly but slumped in pain to the floor. She knelt beside him, cradled his head in her lap, and attempted to ease his discomfort. Ashbel Barney, one of the Barneys' two sons, had been downstairs and had also heard the shot. Running to the bedroom and seeing his mother and her friend bending over his wounded father, he raced to telephone George Dixon, the Barneys' family physician. Then, with the help of his mother and servants the 20-year-old Ashbel lifted his father to his large, brass, canopy-covered bed. Charles T. Barney remained conscious, but silent.

Dr. Dixon reached the Barney house in Manhattan's fashionable Murray Hill neighborhood 10 minutes after receiving the call. After administering an anesthetic, he began an operation in which he discovered that a .38-caliber bullet had entered the upper left quadrant of Barney's abdomen; it had taken an upward course, torn through the intestines, traveled lengthwise through the left lung, and embedded in the left shoulder just behind the collarbone. Despite their ministrations, around 2:30 in the afternoon Charles Barney was pronounced dead from shock and severe hemorrhaging. Within hours newsboys were bellowing "extra" about the incident all along Park Avenue.

Over the coming days, rumors and innuendoes about Barney's death reverberated throughout the city. Stories appeared about previous suicide attempts (although none could be confirmed)2 and there were indications, later denied by Lily Barney, that she and her husband had become acutely estranged in recent months and that she had initiated a divorce.3 One leading newspaper even reported that the letters of "two women, one a Parisian, long a favorite of a French prince," had been found among Charles Barney's papers.4 Close associates called the man's morals into question. "Mr. Barney was not a God-fearing man," said A. Foster Higgins. "He could not live happily because his life was not moral. He lived a lie to his wife and children."5

Whatever his personal faults, though, the death of Charles T. Barney aroused extreme public interest and suspicion for one reason only: Barney had presided over New York's famed Knickerbocker Trust Company when its dramatic failure in October 1907 became the tipping point for a financial crisis of monumental proportions.

Charles Tracy Barney was truly a man of the Gilded Age. The son of a prosperous Cleveland merchant, he had married into the prominent Whitney family when he wed Lily Whitney, the sister of the financier and former U.S. Secretary of the Navy William C. Whitney. Barney pursued a career in banking, and his Whitney connections ensured him lucrative business opportunities in New York real estate development and speculation. By 1907 Barney had become a director of at least 33 corporations, and he was among the founding investors of New York City's new subway system.

Barney's ascent to New York's financial firmament coincided with his association with the Knickerbocker Trust Company. By the 1890s, he had become its vice president, and in 1897 he was elected to the firm's top office. The handsome but high-strung Barney emerged as one of the leading figures in New York's financial community, and he had developed a reputation as "one of the most imperious of Wall Street's bankers, who ruled every undertaking that he had anything to do with."6

Such a man, at the height of his wealth and power, could scarcely have foreseen how swiftly and ignominiously his downfall would come. In early October 1907, two speculators, F. Augustus Heinze and Charles W. Morse, had contrived an elaborate scheme to corner the market in the stock of a copper mining company. The attempt failed miserably. Such a scheme would hardly have bothered the members of New York's financial elite, such as Charles Barney, but Heinze and Morse had convinced a New York financial institution to fund their venture.7

Although the Knickerbocker was not a creditor of the failed speculation, rumors spread that the Knickerbocker-and perhaps even Charles Barney himself-was embroiled in the Heinze-Morse scheme. The 18,000 depositors of the trust company panicked. Simply an association with the speculators was more than most depositors could bear. On Friday, October 17, a "run" on the Knickerbocker was under way, and dozens of depositors clamored at the trust company's doors to claim their funds.

Given the close financial relationships among all the banks and trust companies in New York City, panic gripped investors and depositors alike. In an attempt to quell this spiraling hysteria, on October 21 the directors of the Knickerbocker Trust convinced Charles Barney to tender his resignation. In a statement issued later that night, Barney said humbly, "I resigned to give my associates in the company a free hand in the management." But when he was asked about the financial condition of the Knickerbocker, Barney laughed at any suggestion that the institution might be in trouble. "Nothing could be more absurd," he said. "The company was never in a stronger position. It remains the next to the largest in the city and as sound as any. There is not the slightest question of its entire solvency."8

A few days after his resignation from the Knickerbocker Trust Company, Barney drafted a statement in which he boasted of his role at the bank. "I built the Knickerbocker up from a company with eleven million dollars in deposits to one with over sixty-five million dollars," he said. "I am willing to take responsibility for anything pertaining to the condition of the company." Nonetheless, he steadfastly refused to accept that he should be culpable for the trust company's failure. "So far as the suspension is concerned," he said, "if there is any institution in New York that could without aid have withstood the run that the Knickerbocker experienced last Tuesday [October 22], I do not know it."9 Less than a month later, Charles Barney would be dead.

Many surmised that Charles Barney's death was caused by his fears of personal financial failure, but reports indicate he was nowhere near insolvency. In October 1907, Barney's assets exceeded his liabilities by more than $2.5 million, mostly represented by equities in real estate.10 Moreover, most of Barney's creditors were bank and trust companies, including the Knickerbocker itself. Just a week before his death, Barney's attorneys had worked out an arrangement that would have enabled him to stay afloat. "There was every reason why Mr. Barney should have been feeling encouraged," Barney's physician, Dr. Dixon, said. "Daylight had begun to break ahead financially. He had begun to see his way clear. If he was [sic] going to commit suicide, two weeks ago would have been the most likely time. But now, when things had begun to look up, was a time when he should have been feeling in better spirits than for two weeks."11

Friends of Charles T. Barney believed that neither financial crisis nor a professional reversal was his downfall. It was the loss of confidence that hurt him most. "Mr. Barney's heart was broken by the cruel treatment of his associates; that is the cause of his death," said Charles Morse, the man whose association most likely led to Barney's undoing. "It is absurd to talk of financial ruin as a cause of his act, for though he had lost money, he was by no means ruined. Mr. Barney was always an honorable man of business, and it was grief at being abused in the newspapers and suspected by his business associates that caused his death."12 Another family friend said, "Had there been a little leniency on the part of those who were forcing him to the wall, Charles T. Barney would be alive today and in a position to revive his business standing."13

The failure of the Knickerbocker Trust Company was a turning point in a panic that would engulf a turbulent and rapidly growing nation as it entered the twentieth century. The run on other banks and trust companies, some of which were associated with the Heinze-and-Morse scheme, continued unabated even after the Knickerbocker closed its doors. Lines in front of banks in New York and elsewhere extended for blocks, and Wall Street was gripped by a paroxysm of fear. In the coming days, money would become scarce, banks would fail, the stock market would plummet, and the city of New York itself would reach the precipice of bankruptcy. Only a small cadre of astute and cool-headed financiers and government officials could steer a course through the oncoming gale. Like Charles...