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Banking in Oklahoma 1907â"2000

UNIVERSITY OF OKLAHOMA PRESS

A Brand-New State

Down east here they sneer at everything that comes from Oklahoma. It is a joke. It is "reub [sic]," has hayseed in its hair, and is wild of eye and altogether peculiar. But the people of the West are not so cynical. Oklahoma is young and progressive and enterprising. Perhaps Oklahoma has gone too fast, possibly has made mistakes. But it is American; it is a part of us, of our own people, and is entitled to be judged on merits, on performance.

"Deposits Guaranty Wins West," Guthrie Daily Leader, August 29, 1908

Between 1889 and 1906, no fewer than thirty-one bills were introduced in Congress for the admission of the Oklahoma and Indian Territories to the Union as either one or two states. Few bills made it to the floor, and most languished in committee until Congress adjourned. Prior to 1900, legislators dismissed statehood on the grounds that the Twin Territories were too small and undeveloped to warrant admission. The census of 1900, however, showed Congress that their populations and resources were more than adequate for statehood.

Confronted with irrefutable evidence that statehood was warranted, debates in Congress turned from statistics to politics. In 1902, northern and eastern senators denied statehood because they did not want to upset the sectional balance between parties. By 1904, plans for admission were being derailed by rancorous debates over the admission of Arizona and New Mexico. When President Roosevelt weighed in on the issue in December 1905, he recommended that the Oklahoma and Indian Territories be admitted as one state, and Arizona and New Mexico as another. "There is no justification for further delay," railed the Rough Rider in his annual message to lawmakers, "and the advisability of making the four Territories into two States has been clearly established."

It was not until January 22, 1906, that Representative Hamilton, cochairman of the two committees on territories in Congress, pointed the way out of the impasse with House Bill 12707. His bill called for admitting two states out of the four territories. Spirited debate in the ensuing months, including passionate appeals for single statehood from Oklahoma bankers and the territorial delegate, Bird McGuire, untangled the Twin Territories from their neighbors to the west. Further negotiations revolved around the sale of intoxicating liquors. Prior to 1889, the federal government banned liquor from the Indian Territory, but no such prohibition had been extended to the Oklahoma Territory when it was created by the Organic Act of 1890. Ultimately, Congress decided to extend prohibition over the entire state.

On June 16, 1906, President Roosevelt signed the Enabling Act, which called for joining the Twin Territories into a single state. Proponents of single statehood were vindicated when the census of 1910 showed population figures that warranted eight representatives from the new state for the next ten years. Oklahoma thus became the first state since the original thirteen to be admitted into the Union with as many as five representatives.

Machinations in Washington, D.C., were paralleled by events in the Oklahoma Territory. With the support of the Oklahoma City Commercial Club and major newspapers throughout the Twin Territories that banded together in the Single Statehood Press Association, single statehood gained momentum. In 1902, single statehood made its way into the Democratic Party's platform: "We here and now declare our firm conviction that we are entitled to the rights, privileges and responsibilities of American statehood. Nor are we unmindful of our brethren of the Indian Territory. Appreciating their splendid capacity and wonderful resources and achievements, we desire union with them in order that jointly we may build up the greatest of Western states. We, therefore, favor admission into the Federal Union, of Oklahoma and the Indian Territory as a single state."

Governor Frank Frantz and members of the Oklahoma constitutional convention set September 17, 1907, as the date for popular ratification of the constitution. As delegates rolled up their sleeves and went to work in Guthrie, prescient observers sensed that something new was in the wind. "It was not merely the birth of a new state; it was the birth of a new kind of state," wrote Frederick Upham Adams in the Saturday Evening Post. "Its founders claim that it is the first real democracy, the pioneer in the experiment of a true form of republican government. Its detractors assert that the visionaries and radicals from all other states poured into Oklahoma, and that the more rabid of them met and consolidated their theories into a hodge-podge which is certain to result in ever-lasting ruin; but I am of the opinion that it will take more than a freak constitution to hold Oklahoma back." When the appointed day of ratification arrived, voters approved the constitution by a vote of 180,333 to 73,059. At 95 pages and 45,000 words, Oklahoma's constitution was one of the longest such documents ever written.

In their first gubernatorial election, Oklahomans rejected territorial governor Frank Frantz and elected Charles N. Haskell of Muskogee, Indian Territory. In keeping with his Populist roots, Governor-elect Haskell, dubbed "Boss" Haskell in Guthrie's Republican-leaning Oklahoma State Capital, promised a barbecue at his inaugural as a way of thanking the farmers and laborers who had supported his candidacy. Meanwhile, the entire slate of Democratic candidates for executive positions glided into office on Haskell's coattails. The legislature, whose initial session was slated for December 2, 1907, consisted of ninety-three Democrats and sixteen Republicans in the lower house and thirty-nine Democrats and five Republicans in the Senate.

Politics aside, the first order of business was a party, and what a party it was! The festivities at the temporary state capital of Guthrie began at 10:00 A.M., November 16, 1907, in front of the Carnegie Library, where Oklahoma Territory secretary Charles H. Filson, joined on stage by the governor-elect, read President Roosevelt's proclamation declaring Oklahoma a state. Next, to represent the union of the Twin Territories, the Reverend W. H. Dodson of the First Baptist Church of Guthrie performed nuptials between Mr. Oklahoma—personified by Gristmill Jones—and Miss Indian Territory—played by a young woman from Muscogee, described by veteran journalist Irvin Hurst as "a beauty of Cherokee descent." (The details of the highly symbolic and fascinating wedding are found in the epilogue of Banking in Oklahoma before Statehood.)

The marriage of east and west that brought Oklahoma into being was greeted with typical frontier boosterism across the length and breadth of the brand-new state. Speeches, parades, feasting, and surely a bit of drinking on the sly signaled that a new day was dawning—that the banking and commercial interests of the Oklahoma Territory and the natural resources of the Indian Territory would become an unbeatable combination. But flowing beneath the euphoria like an underground aquifer was awareness of a union of even deeper significance. Thanks to the marvels of communication and transportation, commercial practices spawned by the exigencies of the frontier were conforming to modern ways of doing business. Regulations were putting an end to fly-by-night banks and fostering ever more conservative banking practices. And for the first time in their careers, bankers were reacting to events rather than initiating them.

Oklahoma's statehood celebration coincided with the Panic of 1907. Even though financial downturns were a staple of the nineteenth-century economy, few saw this one coming, and for good reason: during the decade following the 1896 recession, agricultural prices rose to the point that farmers were able to shed debt to an extent unknown since the beginning of settlement in the Mississippi valley. Harvests of staple crops in 1907 were down a bit, but high prices made up for the shortfall. Railroads were in good shape too; if anything, they were suffering from growing pains as traffic increased and infrastructure had to be expanded. With the exception of coffee, commodities were flowing through the marketplace, from warehouses to retailers to consumers, in an orderly fashion, unhampered by inventory bottlenecks or price resistance.

Such was the pace of economic activity that the nation's annual growth rate between the mid-1890s and the end of 1906 was an astonishing 7.3 percent. The absolute size of all industrial production had thus doubled in only ten years. Capital markets in the United States and abroad were showing some strains, but not enough to signal an immediate crisis. According to one scholar of the time, "It would be difficult to find an equally long period of business activity at the close of which the relative development of different industries would seem to have been similarly satisfactory."

Yet trouble was coming, and it announced its arrival on April 18, 1906, when San Francisco was rocked by a catastrophic earthquake. Fueled by wood-frame buildings, massive fires consumed four square miles of the city—about half of the urban area. Five hundred people perished, and a half million people were made homeless. The natural disaster was followed by a financial one as stocks plummeted and enormous amounts of cash and gold were shipped to the stricken city. Outflows of gold from England raised fears of a liquidity crisis and fanned rumors in New York that British financial houses were in trouble. The Bank of England responded to the depletion of gold supplies by raising interest rates. Central banks throughout Europe followed suit. By the winter of 1906–1907, a credit crunch was in the making.

In the ensuing months, markets and the confidence they depended on were buffeted by declining stock prices and tightening credit. Clearly, the tempest was rising, but even the most prescient observers missed the warning signs. A key player in the escalating drama was Fritz Augustus Heinze, a swashbuckling adventurer who spent his twenties and most of his thirties in the copper-mining camps of Montana. Mergers after 1898 left three dominant companies in the nonferrous metals industry: Heinze's United Copper Company, Amalgamated Copper, and the American Smelting and Refining Company. By the time Heinze returned to his native New York, he had amassed enough money to purchase the Mercantile National Bank. In February 1907, he became the bank's president, and positions as director of other financial institutions were soon to follow.

Now that he was on a roll, Heinze bought a seat on the New York Stock Exchange for his brothers, Otto and Arthur, and established a brokerage house under the name Otto C. Heinze & Company. Relying on his experience and contacts in the copper business, he and his brothers used their brokerage house to unleash a scheme in October 1907 to corner the stock of United Copper Company. A contemporary economist, O. M. W. Sprague, characterized the target of their ambitions as "a copper company of secondary importance."

The plan promptly went down in flames. Rumors spread like wildfire as the usual constellation of factors—impending bank failures, revelations of swindles, and precipitous drops in the prices of securities and commodities—coalesced into a perfect storm. Frantic depositors lined up to empty their accounts, and the panic was on. Brokerage houses and banks that had participated in the plan tumbled like dominoes, including the third-largest trust company in New York—the Knickerbocker Trust Company, with deposits totaling $62 million. As the magnitude of the crisis sank in, spooked depositors throughout the country hoarded cash to the tune of $296 million, according to the United States Treasury.

Total disaster in October 1907 was averted when J. P. Morgan, the colossus of turn-of-the-century finance, summoned the presidents of major New York banks to his Italian Renaissance–style palace on Madison Avenue, locked the bronze doors to his fabled library, and kept them there until they agreed to pony up a collective $25 million. Acting like a one-man Federal Reserve System, the cigar-chomping titan decided which firms would succeed and which ones would fail. By engineering what amounted to a financial bailout of New York City, Morgan added his considerable heft to the too-big-to-fail argument. Predictably, the panic fanned out to all parts of the country, including the Twin Territories—just three weeks shy of statehood, primed for a big-time celebration, and hardly in the mood for a financial meltdown.

Early on, the Oklahoma Territory's business community was unfazed by the hubbub back east. Journalist Fred L. Wenner described Saturday, October 26, 1907, as the end of a week of fine weather and record harvests. "Oklahoma City has nothing to fear," declared Frank P. Johnson a year after his rise to presidency of the American National Bank. Declaring that the Knickerbocker Trust Company's failure was the result of stock speculation and "the efforts of the copper crowd to corner the Heinze interests," the Oklahoma City banker touted the territory's resilience. "Local banks carry so little money on deposit in New York banks that any failure would hardly hit any of us. Our bank carries only a small account for checking purposes when a customer wants eastern exchange. There is plenty of money here to carry on our business independent of the New York financial dealings."

The Daily Oklahoman, Democratic to the core and, like its readers, wary of goings-on in New York, touted the Oklahoma Territory's independence from Wall Street as the best defense against the looming crisis. Declaring that "there never was a time in the history of the west when there was less excuse for a panic," the Blackwell Times-Record assured its readers that the flurry would soon pass and that "the banks of this city and county never were in better condition, and are unquestionably solvent." The news from Shawnee on October 29 was equally upbeat: "Reports from the Trust Companies all over the city late today state that normal conditions obtained and that incipient runs on several minor companies had failed to develope [sic]."

But as the contagion spread across the land, complacency turned to conviction that something had to be done about mounting withdrawals from banks and dwindling supplies of cash. The cancellation of currency shipments from Kansas City and Saint Louis left banks without a source of the cash required for marketing grain and cotton and moving livestock. In desperation, bankers from Guthrie, Oklahoma City, Tulsa, Ardmore, Muskogee, and Enid gathered in the acting governor's office on Sunday evening, October 27, to request a banking moratorium. For political leaders, the situation was awkward in the extreme. The Twin Territories had just ratified a constitution and curbed Republican control in Guthrie by electing a heavily Democratic slate of legislators. The last thing they needed on the eve of statehood was a full-blown bank panic.

Having lost his bid for the governor's office to Charles N. Haskell, territorial governor Frank Frantz was in Washington, D.C., to await Roosevelt's statehood proclamation. In his absence, acting governor Charles H. Filson, pressured by bankers and supported by Herbert H. Smock—who served as the last territorial banking commissioner and who would soon be appointed to that office in the new state—proclaimed a bank holiday beginning on Monday, October 28. Filson's proclamation, issued at four o'clock that morning, was both a plea for cooperation and a paean to the can-do spirit of his fellow Oklahomans, and it left no doubt about the gravity of the crisis:

Invoking the patience and indulgence of the citizens of Oklahoma, I entreat them to show that high forbearance and consideration and confidence in themselves and in their financial institutions and neighbors that has given Oklahoma such high place in the business and banking world and to refrain from making such comments or remarks as may be calculated to destroy confidence in Oklahoma institutions, firmly believing that conditions will soon become normal; and that necessity exists for the issuing of this proclamation and for the protection and maintenance of our financial institutions which, without warning, are confronted with a situation without parallel in the history of the world.

News of a different sort arrived in Guthrie via telegram from Washington, D.C., at noon. In a message to the people of the Oklahoma and Indian Territories, President Roosevelt announced that he would approve Oklahoma's famously verbose constitution and grant statehood to the two territories on November 16, 1907. That was certainly good news, but it did little to dispel the gathering gloom. By the terms of Filson's proclamation, banks in the Oklahoma Territory were to remain closed until Saturday, November 2; their counterparts in the Indian Territory had to be handled separately because they were under federal authority. In virtually every town except Tulsa and Muskogee, depositors were limited to cash withdrawals of $5.00 a day or $20.00 a week from deposits made prior to the banking holiday. Limits in Tulsa and Muskogee were $10.00 and $40.00, respectively. Compliance with acting governor Filson's orders was far from uniform and depended on local economies. Some bankers refused to close their doors at all. Others came up with their own restrictions on withdrawals, and some circulated their own certificates and currencies. Merchants cooperated as best they could by accepting payment in whatever medium of exchange passed through their hands or by expanding credit sales.

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Excerpted from Banking in Oklahoma 1907â"2000 by Michael J. Hightower. Copyright © 2014 University of Oklahoma Press, Norman, Publishing Division of the University. Excerpted by permission of UNIVERSITY OF OKLAHOMA PRESS.
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