Politics in the Bonding Business¹

I am going to take advantage of our old friendship and ask you if you can help me out any [sic] in an effort to get fidelity and contract bonds from the powers that be in Brooklyn.
Franklin D. Roosevelt to Congressman J. A. Maher, March 2, 1922.

In early 1921 Franklin D. Roosevelt became vice president of the Fidelity & Deposit Company of Maryland and resident director of the company's New York office at 120 Broadway. Fidelity & Deposit of Maryland was an established insurance company specializing in the bonding and surety policies required on government and corporate contracts and a range of individual employments ranging from secretary of a trade union to employees of stock brokerage houses. In fact, a potential for bonding business exists wherever a contractor or employee can violate a fiduciary trust or fail to complete a contract, as in construction projects. In brief, bonding is a specialized field of insurance covering the risk of noncompliance. In 1921 Fidelity & Deposit was the fourth largest such bonding house in the United States, but not to be confused with the Fidelity and Casualty Company of New York, another insurance company, which incidentally had W. Emlen Roosevelt, FDR's cousin, on its board of directors.

Why did Van-Lear Black, owner of The Baltimore Sun and board chairman of Fidelity & Deposit, hire insurance novice Franklin D. Roosevelt as vice president of the important New York office? Almost certainly he hired FDR because the bonding business is unusually dependent upon political influence. Reading through FDR's Fidelity & Deposit letter files from 1921 to 1928, we find that only rarely do price or service appear as competitive elements in bonding. The main competitive weapons are "Whom do you know?" and "What are your politics?" In other words, politics is a substitute for the market place. Politics was FDR's forte and Van-Lear Black knew his bonding world when he acquired FDR. It is important to note the political nature of the bonding business because FDR's biographers have, in some cases, suggested that FDR, a business novice, was relatively useless to VanLear Black. For example, Frank Freidel writes:

Whether Van-Lear Black hired him because it was a smart business move or merely to collect a celebrity is impossible to determine. The worst Wall Streeters unfriendly to Roosevelt were able to charge was that the company wasted the twenty-five thousand dollars per year it paid him in salary.²

What then were the roles of politics and politicians in the bonding business in New York State in the 1920s?

POLITICIANS AS BOND WRITERS

The pervasive political nature of the bonding business is reflected in a contemporary, but anonymous, news clipping found in the FDR letter files and carefully marked by FDR himself. The clip refers to New York State government officials negotiating state contracts while at the same time acting as members of private bond-issuing firms selling security bonds to state contractors. The newspaper aptly headed the column "All Under One Roof" and reported that Daniel P. O'Connell, a member of the Albany bonding firm O'Connell Brothers & Corning and simultaneously in charge of the public affairs of the city and county of Albany, was endeavoring to exert a statewide influence over the issue of his bonds, to the dismay of competing bond writers:

Whereas, formerly Daniel P. has been somewhat busy going on the bonds of various and sundry constituents, hereafter he will do his utmost, it is said, to wish his bonds on other persons, especially contractors doing business with the city and county.
His advent into the bondwriting world has been about as welcome as a snowstorm would be to a blushing bride on a bright and sunny June morning. Local insurance men, Democrats as well as Republicans, it is said, who have been engaged in writing contractors' bonds for many years, resent Daniel P's coming into their field, while perhaps admiring his ambition and display of courage and all that sort of thing; and in state political circles it is said that Royal K. Fuller, state commissioner of the bureau of canals and waterways, is fearful that if Daniel P. succeeds in the local field [it will be] to his (Mr. Fuller's) detriment, or rather to the detriment of the bondwriting firm with which he is connected and for whose benefit, it is said, he uses the influence of his position.

Bond writer cum office holder O'Connell then wrote soliciting letters to all Albany city and county contractors to the effect that he was in the bonding business at the City Savings Bank Building, owned incidentally by Albany Mayor Hackett and which also happened to be the headquarters of the Albany county Democratic organization. O'Connell's letter to State contractors concluded with the appeal:

I would appreciate it if you will allow this office the opportunity of serving you. A telephone call or letter addressed to me at this office will receive prompt attention.

It is important to note this prevailing and apparently acceptable use of political office and influence to feather one's own nest. In the light of the evidence below, it suggests that FDR was merely following the contemporary mores of his environment. The use of politics to obtain bond business is reflected in the FDR letter files and essentially is the only way he obtained bonding business while vice president of Fidelity & Deposit Company. Of course, his letters soliciting business to the other Wall Street Roosevelts are entirely legitimate. We find for example, a letter to "Dear Cousin Emlen" (W. Emlen Roosevelt of Roosevelt & Son, 30 Pine Street) dated March 10, 1922 to inquire about obtaining the scheduled bond for the Buffalo, Rochester and Pittsburgh Railway Company, a bond then written by the competing National Surety Company. Emlen replied promptly on March 16 that he "was able to speak to the President about the matter." This must have stirred FDR's imagination because on March 16, 1922 he wrote to "Dear George" (George E. Roosevelt), also at Roosevelt & Son, inquiring about the blanket bond taken out by the firm itself for its own protection.

Trade unions were a special FDR target for business; as each union local secretary and treasurer is required to have a bond, this was a lucrative field. On December 13, 1921 general secretary treasurer E. C. Davison of the International Association of Machinists wrote FDR:

We are now carrying the bulk of our bonding business with your company, which we were influenced to do in a great measure by the fact of your connection with this concern.

Then on January 26, 1922 Joseph F. Valentine, president of the International Molder's Union of North America, wrote to FDR that he was most appreciative of all FDR's efforts for the union while acting as Assistant Secretary of the Navy and

I have a desire to give the Fidelity and Deposit Company of Maryland as much of our business as possible ... as soon as our existing bonds have lapsed, it will be a personal pleasure to have your Company handle our business in the future.

Union officials in Washington and elsewhere were prompt to request their locals to divert business to their old friend FDR and away from other bonding companies. In turn, local union officials were prompt to report on their diverting actions, information in turn promptly conveyed to FDR. For example, the president of the International Association of Boilermakers wrote to Secretary Berres of the Metal Trades Department, A. F. of L., in Washington, D.C.:

. . . You may rest assured that anything that I can do to be of service to Mr. Roosevelt in his new position will be a pleasure on my part, and I am today writing Mr. Roosevelt.

Naturally FDR exploited his old political friends to the utmost and with a commendable attention to detail. In a sales pitch dated March 2, 1922 addressed to Congressman J. A. Maher, FDR wrote two letters, not one. The first letter read in part:

Howe [Louis Howe, FDR's right-hand man] told me of his conversation over the telephone with you and I am inclosing a more formal letter for exhibition purposes. This is a little friendly note lest you think I have suddenly grown formal since I have adopted Wall Street as my business address.
Do come over and see me. I know it will do your soul good to hear the language which Brother Berres and various others connected with the Labor Bureau, are using in regard to the present administration in general and Congressmen in particular. If the Missus happens to be out of hearing when you arrive I will repeat some of the more quotable extracts.

FDR enclosed for Congressman Maher a more formal letter obviously to be shown around to Maher's friends stating precisely what it was he wanted: "fidelity and contracts bonds from the powers that be in Brooklyn:"

I am going to take advantage of our old friendship and ask you if you can help me out any in an effort to get fidelity and contract bonds from the powers that be in Brooklyn. There are a large number of bonds needed in connection with the city government work, besides the personal bonds which every city official has to give, and I am in hopes that some of my old friends will be willing to remember me. Unfortunately, I cannot take this matter up with them myself at the present time, but as all my friends are your friends I feel that if you have the time and inclination, you can be of real help to me. I assure you the favor will not soon be forgotten.

Later we shall see how successful this approach was for F & D.

POLITICAL INFLUENCE AND CONTRACT AWARDS

FDR's political contacts and influences were of course well known within Fidelity & Deposit, and he was repeatedly called upon by other members of the firm to use his political expertise and personal credit to generate bond business, even outside New York. This may be exemplified by a letter dated August 23, 1928 from F & D director F. A. Price, in charge of the Chicago office, about business from local Chicago politicians. Price wrote "Dear Franklin" with a message that, since the death of Chicago political leader George Brennan, several names had been proposed as leaders of the local Democratic Party machine. Brennan before his death requested that M. L. Igoe be his successor, Price writes FDR:

You undoubtedly got in touch with him while at Houston and in the event you have a personal acquaintance with him, I would like to have you give me as strong a letter of introduction to him as possible.

Price noted that recently when in Baltimore he had discussions with F & D company president Charles Miller about "the thought of making some deal with the new democratic leader in Illinois. It is with this view in mind that I wish the letter of introduction." As machine politics in Chicago has been notorious for its low ethical standards, it requires little imagination to visualize the kind of deal Price was suggesting and which FDR used his name and influence to further.

That personal friendship alone was insufficient to get bonding business and that some variety of sweetener was used is brought out in a letter on the New York political situation dated September 23, 1925 from John Griffin, in charge of the New York office contract division, to "My Dear Mr. Roosevelt." It discusses the complex interconnections between New York political offices and the bond brokerage business. In part the letter reads:

The big victory of Walker over Hylan will, of course, make a new set-up in the bond broker situation. Sinnott & Canty, from whom we were able to get some bonds in the early part of the Hylan Administration and in the latter part were not so much favored, will no doubt be out of it and either Charles F. Murphy, Jr., Hyman & McCall, Jim Hoey, or a man named McLaughlin, a brother of the Banking Superintendent, will be the favored one. As I see it, our strongest connection will be through Al Smith into Charlie Murphy or McCall or McLaughlin as Hoey has his own Company—the Columbia Casualty Company. Perhaps Murphy receives from the National Surety Company, or the Company to whom he gives business now, a larger commission than we might be willing to give for his direct business, but a word into his ear through you and, of course, through the Governor and possibly Jimmie Walker, would at least put us under the most favored nation clause or [for] any division of these bonds as you know all of them must be divided between two or more companies.
I know all of these people pretty well and favorably, but mere personal friendship will not be sufficient.

A meticulous reading of this internal company letter suggests that kickbacks were the usual way to get bond business from New York government agencies; note the paragraph, "Perhaps Murphy receives from the National Surety Company, or the Company to whom he gives business now, a larger commission than we might be willing to give for his direct business." The concluding sentence, ". . . mere personal friendship will not be sufficient" has an ominous ring.

Politicization of the surety business, so obvious in Chicago and New York, extended also to the Federal government contract arena in Washington D.C. On May 5, 1926 F & D second vice president F. A. Bach in Baltimore wrote FDR about a $11/4; million Veterans Bureau building projected for construction that spring:

Dear Franklin,
Among other projects of the Veterans Bureau this spring is one involving approximately a million and a quarter dollars at Bedford, Mass., and I am secretly hoping that through influence such as knowing Mrs. Rogers, Representative of Massachusetts, that we might have some chance of getting a piece of that business although, of course, the biggest project will be at North Port, Long Island.

Similarly, to a contact in a "firm holding Navy contracts" FDR wrote:

A casual reference in a letter from one of my old friends in the Navy Department to the award of some 8-inch gun forgings to your company, brought to my mind the very pleasant relations we held during my term as Assistant Secretary of the Navy, and I wondered if you would feel like letting my company write some of the contract bonds that you are obliged to give the government from time to time. I would like very much to have one of our representatives call.

Louis Howe, FDR's right-hand man, also worked at F & D offices, also actively solicited bonds, and was not at all backward about canvassing business. Howe's letter to Homer Ferguson of the Newport News Shipbuilding Company in December 1921 noted that the company had entered bids on construction of the vessel Leviathan and thanked Ferguson for the bond:

If by any chance the fact that this was Mr. Roosevelt's company influenced you in making this award it would cheer Mr. Roosevelt tremendously if you could write him a little line to that effect.

These political methods of doing business are, of course, a long way from the competitive market place of the college textbooks. It would be naïve to think that political preference and personal friendship have no role, or only a minor role, in business relationships. In reviewing FDR's bond business, however, it is difficult to visualize another business in which politics plays such an all-encompassing role as it did in the bonding and surety business in the 1920s. The morality of kickbacks and of the use of political office to generate personal business is questionable, and the legality is definitely doubtful. Much less obvious is the consequent loss of economic efficiency and loss to society as a whole. If purchase and sale of such bonds is determined by price and past performance—and personal acquaintance can be a legitimate factor in judging past performance—then the market place will yield maximum economic benefits and efficiency for society. In a politicized business atmosphere these impartial competitive factors are eliminated, economic efficiency is foregone, and benefits are reduced. We have, in effect; a microcosm of a socialist economy in which all decisions are politicized to the detriment of society as a whole. In brief, FDR's bonding operations were to some degree antisocial.

Yet other letters in the Roosevelt files provide authentic glimpses into the back rooms of 1920 era politics, the wheeling and dealing that has so often degenerated into outright corruption. Witness an FDR letter dated July 11, 1928 to first vice president George L. Radcliffe in Baltimore relating to the manner in which John J. Raskob became Chairman of the Democratic National Committee. Raskob was vice president of Du Pont and of General Motors and consequently as much a member of the Wall Street establishment as could be found anywhere:

At a meeting last night the Governor [Smith] definitely decided on John J. Raskob as Chairman of the National Committee. He said he wanted an organizer and a man who would bring the Democratic Party into favor with the business interests of the country. My first judgment is that it is a grave mistake as he is a Catholic; secondly, he is even wetter than Smith, seeking the repeal of the Eighteenth Amendment: and third, he is the head of the largest business organization in the world. I fear that it will permanently drive away a host of people in the south and west, and rural east who are not particularly favorable to Smith, but who up to today have been seeping back into the Party.
I don't know Raskob very well, but expect to have a conference with him within a few days, and will mention among other things the possibility of V.L.B. [Van-Lear Black].

Later in this book we shall record the enormous funds poured into the Democratic Party by Raskob and the quid pro quo for big business: the New Deal and the National Recovery Administration (NRA).

On August 24, 1927 another letter to George Radcliffe outlined the manner in which the bonding industry could get together on behalf of James Beha, then Superintendent of Insurance in the State of New York. This quotation confirms the fact that "regulated" industries are no more than political devices to keep unwelcome competition at bay and that the regulators can be in the pockets and act on behalf of the supposedly regulated industry:

Vic Cullen³ and I have just had a talk in regard to Superintendent Beha. Vic says that he thinks there is some move on foot initiated by Joyce, to get Beha into the National in some capacity and Cullen makes what to me seems a most worthwhile suggestion. It is that Beha might become the head of the Surety Association. We all like Beha and trust him; he is a man of courage and independence, and I cannot think of any one better suited for the position. Of course, it would cost a high salary—my thought is $35,000 a year—but this divided up among all of the members, amounts to but a drop in the bucket.
If you think well of this suggestion, Cullen and I both feel that you are the man, rather than either of us, to approach the heads of the American, U. S. F. & G. and one or two others in an informal and confidential way.

On the other hand, there were attempts in New York to eliminate abuses in the bonding business. One such effort was that by State Architect Sullivan W. Jones to eliminate a state requirement for bonds. Governor Al Smith was at first induced to extend his approval to the Jones plan. This brought a swift letter to FDR from R.H. Towner at 160 Broadway to the effect that the Jones Plan would be disastrous and (if) "Governor Smith (has gone) astray some of his friends ought to put him right." FDR's prompt reply to Towner was, "I hope to see the Governor in the next couple of weeks and will then talk to him like a Dutch uncle about Jones' plan." We read no more in the FDR files about abolishing compulsory surety bonds in the State of New York.

That F & D's office was hard nosed about its own interests is reflected even in relatively minor matters: for example, no New York business association was able to win F & D financial support. On August 5, 1926 a request from the Better Business Bureau of New York for a subscription evoked a cold response from F & D. FDR passed the letter to vice president Cullen to prepare a "suitable reply," and Cullen promptly turned down the Better Business Bureau. This turn-down was supported by president Charles R. Miller in Baltimore, "I am not so keen on making a contribution toward the Better Business Bureau at this time...." Then the Merchants Association of New York wrote FDR on May 23, 1925 about membership of F & D in their association. Again Cullen argued that "the Merchants Association is of absolutely no benefit to us." No law requires membership in better business associations, but these brush-offs make suspect do-gooder social appeals from these nonjoiners.

THE PAY-OFF FOR FIDELITY & DEPOSIT COMPANY

This brief review of Franklin D. Roosevelt's career from 1921 to 1928 as vice president of Fidelity & Deposit Company in New York suggests the philosophical road Roosevelt followed for the next two decades. The bonding business was pervasively political, and FDR in politics was like a duck in water. Political contacts made during his service as Assistant Secretary of the Navy were utilized to the full, new political contacts, encouraged by the Baltimore management of F & D, were made, and FDR had seven years to practice this art of politics in business. The results for F & D were exceptionally good. Business expanded, in some measure perhaps because almost all business expanded in the 1920s, but almost certainly to a major extent because of FDR's political activities. In the period January 1st, 1923 to January 1st, 1924 Fidelity & Deposit showed a gain of $3 million in the year and surged into third place among the bonding companies, a good jump ahead of U.S. Fidelity and Casualty Co., its displaced competitor. The figures read:

Surety Company Bonds in the State of New York

The Fidelity & Deposit office at 120 Broadway was FDR's base of operations in the 1920s, but the bonding business, successful as it was, was not FDR's only business activity. Other interesting endeavors will be explored in subsequent chapters. These seven years in a politically charged business atmosphere—a microcosm of a socialist society, because socialist societies are also politically run economies—were undoubtedly a determining influence in FDR's later approaches to solutions of national economic problems. This was FDR's first exposure to the business world. It was not an exposure to the competitive market elements of price and product quality; it was exposure to business on the basis of "Whom do you know?" and "What are your politics?"—ultimately the most inefficient and unprofitable bases possible for business enterprise.

Footnotes

1. This chapter is based on the FDR papers at Hyde Park, New York: specifically Group 14, file entitled "Fidelity & Deposit Co. of Maryland, Correspondence of FDR as Vice President, 1921-1928."

2. Freidel, The Ordeal, op. cit., p. 138. Freidel is unfair to Roosevelt. No evidence is given of Wall Street criticism of the appointment. Criticism is unlikely—given the political nature of the business, that politics was FDR's strength, and the long Roosevelt tradition on "the Street."

3. Cullen was Manager of the New York production office.