Billy Durant soared like an eagle with the ego of a sparrow. To appreciate that, just look at the iconic buildings which dominated New York’s skyline for many decades: the Empire State and Chrysler buildings. Few people know both were built with Billy Durant money.
Let’s take a quick look at the man behind the Empire State building (the next post will tell about Chrysler).
John Jakob Raskob
You will be forgiven a frown: who? However, as the Roaring Twenties gathered momentum in America, you would not have been forgiven: Raskob was flat-out famous. As his biographer, David Farber, put it: “Raskob was a celebrated figure. Every big banker and corporate titan knew him and sought his friendship and his advice. During the 1920s Time magazine, the New York Times and the Wall Street Journal printed story after story on Raskob’s daring business escapades and financial moves.”
But because he never named a major corporation, or even New York’s most iconic building, after himself, almost nobody knows about him today. So, who was this mysterious man and what was his connection to Billy? As with most Billy Durant dealings, the answer is rife with people and connections.
Du Pont
Raskob came into prominence as Pierre du Pont’s right hand man. Du Pont was a family business which exploded when it commercialized dynamite, just in time for World War I. Through a series of shrewd moves the shy (some would say geeky) Pierre du Pont became the CEO and driving force of the explosives company.
Europe was fighting a series of wars before World War I broke out in 1914. Governments discovered dynamite is an explosive weapon, and Du Pont pretty much had a monopoly. You would think the bonanza the European wars brought Du Pont would please Pierre. You would be wrong. Very wrong. Pierre hated the war business. Why? The geek in him sought stability more than anything else. He understood that wars all have one thing in common: they end. When that happens, mothers and wives rejoice, but businesses cry: they have to lay off people, write off materials they bought for war contracts and even shutter entire factories. Pierre hated that. He hated it so much that when France place the first dynamite order in anticipation of war, he charged them the price of every new factory he needed to build on top of the actual dynamite products. Needless to say, when your customers pay your price and then pay for the factory to make their products, you end up with, shall we say, a boatload of money. Which, of course, needs to be invested. (One can only buy so many mansions and yachts.)
In contrast to the reticent and conservative Pierre du Pont, John Raskob was forward looking, aggressive and bold. They liked and respected each other and made a good team for a long time. Pierre Du Pont didn’t want to invest the war windfall in growing the dynamite business. Instead, he tasked Raskob with finding other business to invest in, preferably related. Raskob took to that assignment like a duck to water and that is how Du Pont became what it is today: mainly a chemicals company.
Rudkin
You can stop drumming the desk now, we’ve come to the Billy connection. Raskob’s stockbroker was Henry Rudkin (whom you briefly met in the post about his wife). Rudkin just happened to be Billy’s favorite broker (truth more interesting than fiction).
When Raskob asked Rudkin to recommend a stock to invest in, General Motors was on top of the list. Because of Billy? No, on the contrary.
Huh?
Billy, as you know by now, was banished from the corridors of power inside General Motors by the Wall Street bankers who bailed GM out in 1910. The bailout took the form of a five year loan, due to be repaid by 1915. During that period GM’s stock price was in the toilet. The bankers, you see, cared not one whit for the stockholders. They suspended all dividends on the common stock. Investors back then (wisely IMHO) stayed away from stocks which didn’t pay dividends. In those days, $100 was the standard stock price, but GM had dropped to around $30.
The reason Rudkin recommended GM stock to Raskob was because Billy was not running the company. The five year note was close to being paid off and the terms were that Billy would return once that happened. The stock naturally would zoom back to its normal level or more. Triple your money in two years, who wouldn’t jump at that? Rudkin arranged for Billy and Raskob to meet. The two hit if off and Raskob began buying GM stock (for his own account).
Kaufman
In addition, Louis G. Kaufman was tearing up the New York banking scene, gobbling up one big bank after another. (Incidentally, he is the one who pioneered branch banking, something we take for granted today.) Kaufman also hailed from Michigan and was the first big banker to help Billy with his latest venture, Chevrolet. He admired Billy’s vision and drive and became the first person in New York to get behind his fellow Michigander.
Kaufman also happened to have Raskob and Du Pont on his bank’s board of directors. When it became clear that the GM bankers were not going to honor their agreement (the only time that ever happened, right?) Kaufman, Raskob and Du Pont became Billy’s main allies, buying GM stock.
General Motors
What happens when people like Du Pont begin buying a stock in earnest? GM stock went from $30 to over $500 in a little over a year. Then Chevrolet bought GM for over $700 a share. Not bad if you paid $30.
That was 1916. General Motors went from strength to strength, even after Billy left for a second time. By 1920 Du Pont had become GM’s largest stockholder and GM became Du Pont’s largest investment. Raskob had stock in both, lots of stock.
Then the Roaring Twenties hit. Stock prices soared ever skyward. Raskob, as you can tell, was not a poor man. While Henry Ford was “overpaying” his people at over $100 a month, Raskob’s fortune was in the tens of millions. He felt duty bound to pass on his wealthy ways and in 1929 an article appeared in the Ladies Home Journal, modestly titled, “Everybody Ought To Be Rich!”
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