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c h a p t e r 4 The Public Interest in a Private Industry Life Insurance and the Regulatory-Promotional State  Following the Panic of 1837, the American economy sank into a deep depression that lasted from 1839 to 1843. Yet even as unemployment rose and countless businesses declared bankruptcy, contemporaries believed New York Life Insurance and Trust “to be above the common ills of our condition,” with its stock “quite above par, and accounted better than old gold.”1 NYL&T had accumulated substantial profits during the 1830s, and in 1841—even in the depths of the depression—the firm confidently began making plans to declare its first dividend. President Bard conservatively calculated that the company could safely pay stockholders a minimum 14% return on their investments annually for the next five years, spreading the profits out over a series of years so that “the public, who would not consider that we have been ten years working it up, should not be shocked by a very large dividend.” This cautious approach would also ensure the continued fiscal soundness of the company and guarantee that dividends would persist unabated into the future. These dividend payments, which were mainly based on profits “understood to be derived from Life Insurance,” were slated to begin in early 1843.2 The ongoing success of the company provided contemporaries with a ray of hope during the otherwise gloomy economic times: “Whatever else might go wrong, it was never doubted that in this powerful institution everything would be right.”3 Then, in the late fall of 1842, a scandal rocked NYL&T, resulting in “the severest shock to confidence in corporate institutions which has been felt for a long time.” Adding to a long list of economic ills—“depreciation in prices, bankruptcy of debtors , mismanagement of agents, blunders, embezzlements, and frauds of every possible device,” all of which had “dissipated the surpluses of the rich, and the little savings of the poor”4—NYL&T became just one more example of a capitalist system gone awry. The dividend plans of the nation’s leading life insurer were quickly suspended as the scandal wiped out the company’s cash surplus and undermined its pristine reputation with current and potential policyholders, investors, and—most critically—the State of New York. 98 The Creation of an Industry In December 1842, President Bard received two anonymous letters informing him that the company secretary, Edward A. Nicoll, had “abstracted” company funds and was “engaged in dealing in lottery tickets.”5 Bard initially expressed his confidence that the company would not be affected by Nicoll’s personal transgressions: “We have not however after the most careful examination of Mr. Nicoll, and of such means as are immediately within our reach any reason to believe that Mr. Nicoll has taken any thing from this Co or done more than committed a folly ruinous to his reputation and destructive of his high standing.”6 Unfortunately, this optimism was premature; just two days later Bard was reporting that Nicoll had stolen between $40,000 and $50,000 from the company. As the investigation continued into early January, this amount rose precipitously to $300,000.7 Combined with the effects of the ongoing depression, the crime was disastrous for the company: “This loss and the deficiency on some of our securities occasioned by the times, will we fear take our accumulated surplus from all sources, which we have estimated at about $450,000 and not leave much more than our Capital clear.” Thus the first casualty of the scandal was necessarily the dividend: “Prudence will probably oblige us to forego our dividend, but I trust that increased economy and double vigilance will soon bring us to a better position before long.”8 The second casualty was President Bard; although no blame had been directly laid at his feet, he was symbolic of the failure of managerial oversight at the company. He tendered his resignation on January 21, 1843 (although he would stay on as company actuary until the early 1850s).9 In addition to forgoing its dividend plans, the company was forced to quickly rebuild its capital stock and cash reserve. On January 10, 1843, the finance committee resolved to call in over $100,000 in outstanding loans (ranging in amount from $233.36 to $18,000).10 New president Stephen Allen then continued the effort to cut costs, writing to the editors of nine newspapers to cancel subscriptions “merely as a matter of retrenchment of expenses,”11 and...

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