Tuxedo Park Page 6
Handsome, charming, and eccentric, the fifty-year-old Wood had earned worldwide fame as the investigator of scientific frauds, undertaking highly unusual inquiries—for a serious scientist—that led to his becoming quite well-known to the public. In 1904, Wood had been instrumental in discrediting the French physicist Rene Blondlot, who claimed to have discovered a new source of radiation, and had published an article in Nature, one of the leading international scientific journals, that exposed the N-ray delusion that had swept physics laboratories in France. He was also known for helping to unmask several leading spiritual mediums as outright fakes. He had no patience for scientific quackery and set ingenious “bear traps” for those who claimed to have made some secret invention that they were actually using to con investors. Shortly after the war, in perhaps his most famous escapade, he aided the New York police in the “Wall Street bomb case,” in which a big barrel bomb was exploded in front of the Morgan Bank minutes before noon, killing thirty-nine people, crippling scores of others, and wounding more than four hundred pedestrians. Wood managed to reconstruct the bomb from only a few fragments found on the scene, which resulted in his being dubbed by the popular press as the “Sherlock Holmes” of science.
While Wood was more scientist than inventor, he was not solely concerned with academic research. If he saw a practical application, he would pursue it but he rarely reaped any financial benefits from his findings because he left them to others to follow up and develop. Along the way, Wood was responsible for a number of significant inventions, including various applications of invisible ultraviolet radiation. He was one of the first to make successful photographs in infrared and ultraviolet light and applied this technique to the detection of art forgeries. He also used it to photograph the surface of the moon and planets in order to discover details invisible to the eye and was credited with a number of other advances in photography. He developed what is known as “Wood’s glass,” an efficient filter that, combined with a mercury lamp, suppresses the visible light while freely transmitting the ultraviolet. During the First World War, the “invisible light” was used for signaling without alerting the enemy. He also discovered that many substances fluoresce brightly when subjected to ultraviolet light and immediately spotted its potential for stage performances. Florenz Ziegfeld happened to be Wood’s East Hampton neighbor, and not surprisingly, any number of his optical effects found their way to the Ziegfeld Follies.
But for all his stunts and showmanship, Wood was a brilliant and creative experimenter. During his brief tenure at the University of Wisconsin, he invented what became the standard way to thaw frozen underground water pipes by passing an electrical current through them. He moved to Johns Hopkins in 1901 and remained there for the rest of his career. Like Loomis, he was a compulsive tinkerer and inventor whose curiosity knew no bounds. That Loomis was a lifelong gadgeteer and largely self-taught naturally appealed to Wood. Before long, the friendship evolved to the point where the flamboyant and unconventional Wood, almost two decades older, had become Loomis’ mentor and, in effect, role model.
By the spring of 1919 the war was over, but Loomis’ scientific education at the hands of The Amazing Doctor Wood—the modest title Wood later assigned to his biography, which he was rumored to have more or less dictated—was just beginning. Loomis returned to Winthrop & Stimson but only lasted a few months before his restlessness, combined with a redoubled interest in science and inventions, mandated that he make a fresh start. He was determined to escape the drudgery of law and to find a way of financing his interest in science. According to Luis Alvarez, it was axiomatic that for Loomis life would never be the same again: “He had had a wonderful taste of experimental physics,” observed the 1968 Nobel Prize winner in physics, whose first exposure to the subject during his junior year at the University of Chicago he compared to falling in love at first sight. “So he set up his own laboratory at Tuxedo Park where he lived.”
Chapter 3
THE POWER BROKER
Ward was not a man to do things by halves.
—WR, from Brain Waves and Death
LOOMIS returned from the war determined to make a fortune, and he looked no further than his brother-in-law, Landon Thorne, for his new partner. Landon Ketchum Thorne had been a year behind Loomis at Yale. After graduating from Yale’s Sheffield Scientific School in 1910, he had made a good start selling bonds for the Central Trust Company, the predecessor of Hanover Trust Company. He soon jumped to the old, respected investment house of Bonbright & Company as a junior salesman. Loomis thought Thorne was a comer and had introduced him to his sister, Julia, and could not have been happier when the two were married at the small church in Tuxedo Park in 1911.
At first glance, it seemed an unlikely alliance, with the gregarious, backslapping Thorne—a popular college athlete who had basked in the reflected glory of his cousin Brink Thorne’s Yale football career—almost in every way Loomis’ mirror opposite. But Thorne recognized his brother-in-law’s mathematical genius and its application to the financial game. He exploited what he later referred to as “the general unsettlement of thinking after the war” to talk Loomis into throwing over a promising legal career for the much more speculative investment banking business. “He somehow persuaded Alfred, who was the fair-haired young man at Winthrop Stimson at the time,” recalled his son, Edwin Thorne. “But my father was a good salesman, and he persuaded him to give up the law and join him. They were not good friends particularly, but they obviously knew each other, and Father had a great admiration for Alfred’s talents. It was an interesting jump, and an interesting combination of two people.”
“Landon was an Irish charmer,” said Evans. “He was smart, and so handsome, and full of such joie de vivre. He could sell anything to anybody. No one could say no to him, not even Alfred.”
Thorne had his own reasons for wanting to go into business with his brother-in-law. By the end of the First World War, Thorne, who had served as an army captain during the war, was also feeling restless upon his return to Bonbright, which had seen better times. In the intervening years, most of the firm’s founding members had died, retired, or lost interest, and the brash, energetic young Thorne had made quite a name for himself, in one year selling so many bonds that his commissions ran up into the six figures—more than the partners were pulling down in profits. At thirty, he was already widely regarded as one of Wall Street’s most resourceful and coolheaded operators. As a result, the powers at Bonbright huddled and invited him in as a partner. Thorne naturally accepted, only to discover that the partners had been kept in the dark about the company’s precarious financial health and the business was on the brink of ruin. The postwar financial slump had dried up a lot of the firm’s old business and left it with a vast assortment of unrealizable assets, not the least of which was a firm that owned prunes in now Bolshevist Russia.
After reviewing the company’s figures with Loomis, who had become well acquainted with the house’s affairs while serving as its legal counsel at Winthrop & Stimson, Thorne was convinced it might be possible to revive Bonbright’s flagging fortunes. He proposed a plan to Loomis in which the two of them, with the pledged support of Charles A. Coffin, president of General Electric, would form a partnership to quietly buy up majority control of Bonbright. Together, they could reorganize the firm and set off on a more lucrative course. According to Edwin Thorne, who followed his father and older brother into the family business, “Father figured he had to get somebody really knowledgeable, with a scientific turn of mind, because he wanted the firm to move into financing utility companies—he figured that was the area to be in.”
And Loomis had all the right contacts. At Aberdeen, he had met many of the top scientists at General Electric who were developing new things for the utility business, including bigger transmission lines and other modernizations. Loomis was quickly convinced of the partnership’s potential and wasted no time breaking the news to Stimson. Characteristically, his cousin was equally prompt in his repl
y. He sent Loomis a telegram expressing his hopes that they could still meet as planned, concluding simply, “ROBERTS [senior partner at Winthrop & Stimson] WILLING TO RELEASE YOU.”
Loomis returned to his old law firm only long enough to clear out his desk. By the fall of 1919, he had joined Thorne at Bonbright’s offices at 25 Naussau Street. The two brothers-in-law pooled their resources and scrounged capital from relatives. Thorne asked several family members, including his father, to back them, but only his uncle, Samuel Thorne, came through with the money. Then one day in 1920, they broke the news to their partners that the investment firm they had organized in secret, Thorne, Loomis & Co., had bought a majority share of Bonbright. There followed a series of sudden retirements, and the founders, William P. and Irving W. Bonbright, liquidated their interests. Loomis and Thorne took control of the company, and the bloodless coup—which came to be known as “the deal by which the Bonbrights vanished from Bonbright”—sealed the young upstarts’ cutthroat reputation. Almost at once, they began specializing in public utility issues and quickly emerged as leaders in the financing and developing of the electric power industry.
What appealed to Loomis was the challenge of shaping the nascent industry. He had no respect for the old school Wall Street capitalists’ skills. He relished the opportunity to reinvent their creaky methods and along the way rewrite the rules as he saw fit. Rural electrification was the future, the key to the growth of new factories, industries, and economic opportunities. Loomis had complete confidence in the new technology as a force for change and a force for good. If they could speed the growth of the power industry, both Bonbright—and the country—would benefit.
The brothers-in-law surprised even themselves with how well they worked together, combining Thorne’s sense of what his business needed with Loomis’ sense of how to deliver it. Little time passed before Loomis and Thorne grew to be close colleagues and friends, discussing business deals, supporting each other’s best efforts, and sharing their weekend enthusiasms for golf, tennis, fishing, and sailing. Thorne preferred the outdoor life and made the long commute every day to his Wall Street office from a large estate in Bay Shore, Long Island. He always carried a supply of chocolate bars in his pockets to sustain him on the journey and was known for passing them around when negotiations ran late. Thorne was the partnership’s public face and driving deal maker, while Loomis provided the ingenuity and imagination that made it possible to pull off what would later come to be regarded as textbook transactions. “Landon was the outside guy,” said his grandson Landon Thorne III, a lawyer and businessman in Beaufort, South Carolina. “Alfred sat there with the slide rule and figured out the bond yields, then Grandpa went out and sold them.”
A banker who worked with them reported: “Loomis had ninety ideas a minute; Thorne knew how to pick the good ones and put them to work.”
In the 1920s, public utility companies were growing rapidly, and Loomis and Thorne were among the first to recognize the need for credit to finance the huge expansion ahead. The percentage of American homes wired for electricity had increased from only 8 percent in 1902, to 24 percent in 1917, to more than 34 percent by 1920. The industrial demand for electricity had also increased exponentially as factories shifted from steam to electrically powered machinery and equipment. The rate of technical advance was tremendous, and individual operating companies were cropping up across the country, expanding electrical service to the public and materially reducing costs. The furious rate of expansion had created a bottleneck, with many operating companies unable to issue bonds and secure investment.
Bonbright led the way, reorganizing and liquidating old-fashioned companies formed by capitalists who had little knowledge of the new industry and replacing them with new ones. Loomis and Thorne helped create utility holding companies by bundling the management and facilities of smaller operators into larger integrated systems, or “superpowers.” This allowed the operating companies to obtain funds by issuing securities and thereby enlarge their operations. The holding companies were also a better medium for investors, who instead of taking common shares in one holding company were able to invest in a diversified group. Loomis and Thorne also understood early on that the only way to provide low-cost power to great population centers, as well as to serve large numbers of rural communities, was to finance and build power plants. They perfected the use of the holding company as an instrument for raising capital. Along the way, they researched and explained the intricacies of utility regulation to an increasingly interested press, public, and Congress, no doubt occasionally interpreting the rules to their advantage.
Loomis and Thorne were willing to underwrite security issues most of the old-line houses shied away from. When the boom in the utility market came along, they were perfectly positioned to reap the rewards: between 1924 and 1929, Bonbright, either alone or with associates, did upward of $1.6 billion worth of utility financing, underwriting roughly 15 percent of all the securities issued in the United States. Their clientele included most of the big American utility systems, and they played a major role in organizing and consolidating interconnected utilities into the two largest of the so-called superpowers: the American Superpower Corp. in 1923 and the United Corp. in 1929. As a result, they earned board seats and unprecedented influence in an enviable stable of companies, including Public Service of New Jersey, Electric Bond & Share, Consolidated Gas of New York, Niagara Hudson, and Commonwealth & Southern, among others.
Loomis and Thorne’s phenomenal nine-year run, reviving Bonbright from near bankruptcy to its vaunted status as the leading private investment house specializing in utilities, became a Wall Street legend. They were corporate capitalists of the first order, yet they were lauded not only for their spectacular success, but for not being motivated solely by a concern for private industry and for applying scientific principles and long-term economic planning to the management of public resources to provide cheaper, more reliable service to consumers. Together, they conceived and promoted the concept of the big holding company—which along with many other ideas was later adopted by the Securities and Exchange Commission—and were in large part credited with the friendly relations among the major eastern power systems. Their advice was sought after by foreign governments, and in 1928 they helped the Italian government set up and manage the Italian Superpower Corp., based on American Superpower, the model of the modern public utility. At the time, it was hoped that the influx of American investment would help speed the development of Italy’s power industry, reduce its coal imports, and help strengthen its faltering economy.
Fortune described their achievement in a gushing profile in the premiere issue of the magazine in February 1930: “Bonbright has become not only the industry’s banker, not only its spokesman, but to some extent its guide. Thus it is that some utility men consider Messrs. Thorne and Loomis, Bonbright’s president and senior vice president, as the most potent force in shaping the present and future organization of America’s huge, complex power and light business.”
IN a matter of only a few short years, Loomis and Thorne had become both powerful and very prosperous. But Loomis was never at peace with himself about spending his days preoccupied with money. He had come to believe science was a higher calling and was troubled by the growing sense that much of his work was self-serving and profited men he neither liked nor much admired. He could not forget the pride in achievement he felt at Aberdeen, culminating in the award of the chronograph patent. Even in the midst of exhaustively analyzing and preparing deals for Bonbright, he was always absorbed by some new discovery or advance in research he had stumbled across in his reading.
As he had done since boyhood, whenever he found some small problem that intrigued and puzzled him, he would devote hours in the evening and on weekends to clear up the matter. He usually devised some simple solution that went straight to the heart of the problem, and was forever toying with some new invention or gadget that he believed more efficient. Throughout his early years at Bonbr
ight, he repeatedly badgered a patent attorney, Robert Byerly, to apply for copyright registrations on various small “devices” he had invented, ranging from designs for his own slide rule for calculating securities to drawings for a “simple, reliable fire extinguisher.” After the U.S. Patent and Trademark Office rejected his customized slide rule, Loomis wrote dejectedly to Byerly in September 1922: “I don’t believe it is worthwhile to take out a patent on these slide rules. I appreciate very much the interest you have taken in this little device, and if you will send me your bill for the copyright and the time and attention that you have given to this matter I will have a check sent right over.” But Loomis persevered and eventually obtained a patent for his new and improved fire extinguisher, which replaced the then common pump model with a closed receptacle that contained the fire extinguisher liquid under constant pressure, as he put it, “so that it may be projected upon a fire by the mere opening of a valve.”
Loomis kept in close touch with many of the physicists he had met at Aberdeen and followed the new research they were doing. On a summer’s day in 1924, when Loomis was visiting his Stimson aunts in East Hampton, he decided to call on Wood, who had a farmhouse nearby that he kept as a summer retreat. Loomis found Wood at work in his barn laboratory behind the house, and they had a long chat about postwar research and swapped stories about everything and anything they had seen or heard of “science in warfare.” After that, Loomis got in the habit of dropping by to talk almost every afternoon, Wood later recalled, “evidently finding the atmosphere of the old barn more interesting if less refreshing than that of the beach and the country club.”