- The Washington Times - Saturday, July 15, 2006


By John Wasik

Palgrave Macmillan, $35, 271 pages


It helps to remember that the legends of America’s industrial golden age were just ordinary men. While greatness came because they mastered something important, the rest of the time they often were indifferent personalities at best. Think of Ford, of Carnegie or of Rockefeller.

Or of Samuel Insull, now largely forgotten, but who once ranked with the greatest of the great and whose triumphs influence the way we live today, the way the automobile, steel or oil have. Like some others his fatal flaw was a giant moral black hole, but unlike them, he was brought very low indeed, a victim of his own obtuseness.

Samuel Insull was born into poverty in 1859 in London’s seedy Lambeth district. He did not stay there long. He picked up the shorthand and the other organizational skills of an office clerk with such alacrity that by the time he was 21 he was in New York and the principal private secretary to the marvel of the age Thomas Edison. Famous already from his improvements of the telegraph, Edison was on the brink of building the first large electricity generating plant to illuminate Wall Street. The year was 1882 and the Golden Age of financial wheeling and dealing began to glow in earnest.

The genius inventor was a mess. Untidy in his person, Edison was an even sloppier businessman and remained always more interested in the technical side of his creations than in their most profitable use. For example, he viewed providing illumination for the area around his power stations as a way to sell his other breakthrough invention — light bulbs — and not as a way to sell electricity itself.

Sam Insull quickly brought order out of the chaos that was Edison’s financial life. While Edison often went without sleep while he experimented, Insull matched him in energetically organizing the financial structure of the shambolic maze of special-purpose corporations the inventor had organized to make and market his cornucopia of inventions.

In so doing he changed the focus of Edison’s electrical empire from specific products to an energy flow that could be — must be — metered as it was sold; this made it possible to charge different rates depending on the user.

From Edison the youngerInsull learned the benefits of single-mindedness and focus on the task at hand. “Just make it go,” Edison would exhort his aide.

Insull also began to learn the dangerous art of financial pyramiding from another instructor as amoral as any financier on Wall Street. Henry Villiard was a German-born adventurer, failed railroad promoter and Edison confidant who dreamed of creating an international electrical giant that would dominate the global marketplace they both were sure would develop.

Villiard was skilled at making each dollar of investment capital do the work of vastly larger sums. He brought the Edison General Electric company into a partnership with the Siemens brothers of Germany and used the synergy of some of their equipment with Edison’s vision to draw ever increasing sums out of selected Wall Street and London investment banks.

To Edison’s delight, Villiard’s house of cards did generate enough hard cash to buy out the inventor’s bushels of various shares and options and make him a secure multimillionaire with no further financial obligations to the corporation that bore his name. From that time on Edison did not give a damn what happened to Edison General Electric.

The trouble with a pyramid is that the only way to get off is to fall. In 1892, J.P. Morgan, the great consolidator, saw his chance and Villiard was unable to prevent him from buying enough shares to take over Edison GE and merge it with a larger rival firm, Thomson-Houston. Edison refused to help Villiard or Insull in the battle and so both men were ousted from the new giant General Electric Company mega-corporation.

Insull headed west to the rambunctious metropolis of Chicago, where he talked his way into control of one of the smaller electric generating companies competing in that frantic market. This is when his adventure really began in earnest. In time he would out-do Edison in self-centered focus and Villiard in financial recklessness. In the process he transformed Chicago and set the pattern for the modern American metropolis.

Rather than endure raising money the old fashioned way — selling shares or bonds for specific projects — Insull came up with a dandy little invention known as the open-ended mortgage.

Backed by bonds, the open-ended mortgage was an ever expanding line of credit that Insull could use on whatever project he fancied. He began to buy up other competing generating companies at the same time he pressed the producers of electrical equipment to provide him with ever larger generators, transformers and lines that would change electricity from a retail product to a wholesale service that city dweller, suburbanite and farmer had to have.

Author John Wasik, a columnist for the Bloomberg financial news service, comes into his own as he lays out the stupendous house of cards Insull then created through holding companies whose sole purpose was to mask the acquisition of ever more capital based on the same assets.

For 40 years, Insull ran ever faster to get ahead. He gobbled up gas companies, interurban railroads, real estate and, of course, electrical generating capacity. By the 1920s he had 200,000 employees (most of whom were shareholder investors), 2.5 million customers and 220 million railroad passengers under his aegis; a power grid that embraced much of the Midwest in an ever expanding arc.

To encourage electrical use, Insull gave away irons to housewives and hired architects to create suburban homes that made optimal use of kitchen and other appliances that saved labor — and consumed electricity. He championed new farming methods that boosted harvests — and consumed electricity. He promoted new suburbs and linked them with convenient commuter trains — that consumed electricity.

Insull the man remained strangely unsatisfied by this triumph. Orson Wells was right to use Insull (as well as William Randolph Hearst) for many of the ingredients in his classic film figure — Citizen Kane. His family life, his many civic gestures and personal patronage were all part of his broader obsession with control.

Not surprisingly, Insull generated enemies as well as electricity. When the Great Crash of 1929 swept Wall Street, his house of cards was one of the first to be toppled. The banks that had swamped him with ready credit whenever he asked suddenly demanded repayment. His employee-shareholders found their life savings had vanished as quickly as one could say “Enron.”

He had other enemies. Chicago progressives such as attorney Harold Ickes had long protested that Insull charged too much for his power. The New York governor, Franklin Roosevelt, quickly promoted Insull as the personification of greed and chief villain in the financial wreckage of the U.S. economy. Insull became an election issue and once Ickes and the other New Dealers came to power in 1933, the financier had to flee to Europe to escape arrest.

Despite being acquitted in several fraud trials reminiscent of the recent Enron spectacle, Insull was ruined and died broke in Paris. The irony is that his dream of electrifying America became one of the monuments of the New Deal itself. This is a well-told tale about why genius and single-mindedness are not enough.

James Srodes is a long-time Washington financial journalist and author.

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