Commercial Paper Market
A. G. BECKER & CO: INCEPTION AND FIRST YEAR OF BUSINESS
JUNE, 1893 TO JULY 2, 1894 (as a proprietorship)
As noted earlier, A. G. Becker's family life, as well as his
business situation, was completely uprooted by the death of his
brother-in-law, cousin, and business partner. Marne Friedlich
remembers her father telling her that he "adored" his
brother-in-law. His unexpected and macabre death, and all the
revelations which subsequently came tumbling out, must have been
devastating for "Abe," as his intimate friends called
A. G. Becker. A lesser man would have crumbled under this load.
In addition to the family turmoil involving his sister and her
children, now absorbed into his homestead, and the sorrow and
anxiety felt in the whole extended Becker-Schaffner-Friedman family,
A. G. faced immediate and intensive legal issues. Judge Scales
of the County Court presided over the Schaffner bank assignment.
Levy Mayer, a leading Chicago attorney, was counsel for the assignee,
American Trust and Savings Bank. He appeared in court almost daily,
as reported in the Chicago papers. Apparently, A. G. Becker was
under intensive examination almost the whole of June, 1893. Disbelief
and distrust were running high; tempers flared; depositors and
other creditors were hostile. A. G. Becker was clearly a central
target, but must have held up well under questioning, from what
can be learned from incomplete newspaper reports. For three months,
claims were permitted to be filed; hundreds of petitions and supporting
documents soon began to be recorded.
On July 6, apparently exiting from a visit to the court, A. G.
Becker was arrested under a warrant charging that he personally
had accepted deposit of $364 from August Klaas on June 2, on which
date it was alleged that he knew that the Schaffner bank was insolvent.
Such action was a violation of Illinois banking law. Mr. Becker
was taken before Judge Everett where he posted bond. This case
was still under consideration in late September when the Chicago
Tribune reported that a grand jury had indicted A. G. Becker for
the same Illinois law violation, though, in this case, for taking
a deposit of $20,000 from Cooper, Siegel & Co., a major retail
merchant in Chicago. The article noted that Henry Siegel and A.
G. Becker were good friends (or had been at least!). Some persons,
in newspaper articles in July and August, were assailing the character
of A. G. Becker for having placed funds of a building society,
of which he was Treasurer, in the Schaffner bank at a time when
he had knowledge of the bank's poor financial condition.
According to Marne Friedlich, her father told her that he started
up A. G. Becker & Co. in the following way. Shortly after
the failure of the Schaffner bank, a certain Mr. Burton from La
Crosse was visiting Chicago and came by to see Mr. Becker. He
said he wished to buy some commercial paper. Mr. Becker responded,
"Don't you know that the Herman Schaffner business has failed?"
To which Mr. Burton responded, "That wasn't what I asked
you -- I asked if you had any paper to sell?" After a moment,
Mr. Becker said, "Yes, I have some," pulled it out,
and sold it to Mr. Burton. "And that is how the business
of A. G. Becker & Co. started."
For many years, well into the 1900s, the business of A. G. Becker
was solely that of dealing in commercial paper. As he said to
a reporter in the early 1900s, "After the failure (of Herman
Schaffner & Co.), I separated the brokerage part of the former
business and continued it in the Home Building." Also, as
will be reviewed later, in a speech A. G. Becker prepared in the
early 1920s, he reminisced about the early days of his firm, and
how was a "pioneer" especially because he began, probably
very soon after starting his own company, to be a "dealer"
rather than a "broker" in commercial paper. As he reported:
"Chicago (had) no electric lights or electric railways,
or automobiles, or typewriters, and with five or six thousand
telephones. That is the Chicago in which I first began to deal
in paper and the first paper I dealt in consisted of the bills
receivable of our merchants, jobbers and manufacturers. I bought
it here but sold it largely in the East, and when I say "bought,"
I use the word advisedly, for that is one thing in which I was
really a pioneer. For many years after I entered the business,
paper was generally handled on consignment -- it was a brokerage
business -- but I had and held to a theory that I would not ask
a bank to buy paper in which I had not shown my confidence by
having bought it outright."
Marne Friedlich remembers her mother saying how "we really
had to pull in our horns," and that for a number of years,
"there were no milk shakes." Marne also remembers her
mother -- a very shy woman -- telling her about purchasing a hat
just before the Herman Schaffner failure, but, anticipating the
need to husband funds, promptly and embarrassingly returning the
hat for refund.
In the business and family archives, there is a typed list of
the employees of the Schaffner bank presumably at the time of
assignment on June 3, 1893. At that time, Herman Schaffner &
Co. had two principals and 18 employees. The first names were
completed in pencil after the first name initial, and positions
were penciled to the right, after the employee's address. Perhaps
this penciling is that of A. G. Becker himself. It may be assumed
that some of these employees stayed on with A. G. Becker to pursue
the commercial paper business of the new firm. For instance, I.
D. Berg and Miss Elias are known to have become long term employees
of Becker. In addition, N.(with "athan" added in pencil)
Becker was shown in the list, immediately after Moses Mergentheim,
with the word "coal" appearing in front of his name,
and residing at 3217 Wabash Avenue. No position title was written
in after his address, as in the case of all others. What did this
mean? Perhaps "Pa" Becker helped out in the office,
or was on the Schaffner bank payroll for some reason?
Employees of Herman Schaffner & Co.,
June 3, 1893
It is not clear just how A. G. Becker funded the ongoing commercial
paper business during his first year of the new business. The
story (Howell Murray) goes that his sister, Rachel Schaffner,
received $50,000 in life insurance proceeds upon the death of
her husband, which funds were loaned to her brother to start his
new business. This explanation may well be accurate, but there
is little evidence to support it in the newspaper articles at
the time. These reports said that Herman Schaffner had only a
modest amount of life insurance at his death; that there would
be nothing from the estate for creditors; and that the widow would
realize little. In 1894, the Chicago Tribune reported on a suit
by widow Schaffner claiming $15,000 in life insurance being held
back by an insurer under a suicide clause in three policies. (Later,
in 1895, a jury determined, very controversially, that Herman
Schaffner did drown, but it was not suicide, but there was no
ruling for Mrs. Schaffner. This decision was to be appealed, and
the suit retried, but no information can be discovered as to the
outcome. Meanwhile, the A. G. Becker's business was well along
in development). It may be that the widow did receive insurance
proceeds of $50,000 in mid- to late 1893, but it is hard to imagine
that such information was not discovered and reported by the newspapers.
Thus, there is ample reason to believe that the early business
of A. G. Becker was funded by himself, perhaps augmented by some
loans from his Friedman in-laws, or perhaps funded by Mrs. Schaffner,
in some other way than insurance proceeds, as we will learn more
later. The staff would presumably have been considerably reduced
-- with no deposit taking, lending, and investing activity --
and with expenses cut to the bone, and the need for working capital
would have been relatively modest. In all likelihood, A. G. Becker
had some personal resources not involved in the Schaffner bank
business, remembering that in 1886 his net worth was estimated
in a very loose way at $100,000. Quite immediately, too, he was
probably able to broker paper left with him on consignment by
sources who believed in his character and honesty, and his marketing
contacts and ability, such as Mr. Burton of La Crosse. Mabye too,
he was able to borrow some modest funds from a bank or banks,
which, as we will see, the business was clearly able to do by
Meanwhile, in March, 1894, the assignee announced that a dividend
of 10 per cent of approved liabilities would be paid -- which
action was not carried out until in August (see later) -- and
that the likelihood of an additional dividend was very modest.
The overall liability situation of the failed bank was also summarized,
and it must have continued to bring great pain to A. G. Becker.
of 10 Per Cent Expected
Thus, during his first year as a sole proprietor, A. G. Becker
must have struggled both financially and emotionally, day by day,
trying to think ahead, but constantly dealing with the past. He
must have felt a growing moral responsibility for the depositors
of the Herman Schaffner bank, who had received nothing to date,
and who had the prospect of receiving only modest future restitution.
Posted: July 12, 2007