One way or another, bankers always get paid. Of the banks taxpayers bailed out a year ago, 20 paid their top-five executives an average of $32 million each from 2006 to 2008.
An anomaly? Consider the Great Marcus Hook Swindle of 1941. That was the year the Roosevelt administration demanded that England—defeated in Europe and “blitzed” by Germany at home—give up some asset to prove to a skeptical U.S. public that it really needed help. The White House chose Britain’s largest, most profitable U.S. holding: American Viscose Company of Marcus Hook. It was quickly appraised and sold to U.S. bankers for $54 million.
That was a fraction of its worth. American Viscose had grossed, on average, $6.2 million annually for the previous 10 years. In 1940, it grossed $7.9 million, up 60 percent from 1931.
In any case, U.S. bankers then turned around and resold the company for $62 million. Never mind that its assets alone were worth $128 million.
“Some Britons—most notably Winston Churchill—thought they’d been fleeced,” wrote business historian Ron Chernow.
The story begins with rayon, the modern term for an artificial fiber invented in 1855 by a Swiss chemist. First called “artificial silk,” rayon is produced from processed wood pulp. Other inventors tinkered with the invention until, in 1894, a group of English chemists patented a process that produced a commercially viable fabric they called viscose.
“Viscose” was a derivation of viscosity, the scientific measure of a fluid’s thickness. The wood pulp from which the fabric was spun was viscous, or thick. Among artificial fibers, rayon was the pioneer—far ahead of nylon (first produced in 1935), Dacron (1941), olefin (1949), polyester (1953) and others. The textile industry adopted the name rayon in 1924.
Rayon was primarily used in clothing, furnishings, industry (medical products and automobile tire cord), and personal disposables like tampons and diapers. Today, its use has declined because its production generates large amounts of sulfurous waste.
The British rights to American Viscose were bought by Courtauld & Co., an English textile manufacturer. The market grew steadily and, in 1908, Samuel Agar Salvage knocked on the door.
A 32-year-old English immigrant who’d come to America in 1893, Salvage started out selling china and glass in Cincinnati, then worked for two different textile companies in New York. He started his own fabric importing business in 1897.
Among the imports was “artificial silk” from Germany. Salvage sold it to braid and trimming manufacturers, but found no other interest. Still, he was impressed with the product.
Salvage became Courtauld’s U.S. sales representative in 1908. A year later, he proposed that Courtauld purchase the American manufacturing rights for rayon and open a plant here. He recommended a site in Marcus Hook, probably because the Delaware River locale was convenient for shipping, and costs would be less than at similar sites near New York.
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Previously a resort and a center of shipbuilding and shad fishing, Marcus Hook had tilted toward heavy industry in the early 20th century. By 1910, it was also home to oil refineries operated by the Sun and Union petroleum companies.
Construction of American Viscose’s first factory was not yet complete when, a week before Christmas 1910, a group of Courtauld veterans sent from England got together with some raw American recruits to watch the first yarn form as the viscose solution was pumped through a spinning jet. By the next morning, the stuff was all over the floor, the walls, the benches and the ceiling.
“Only a few men who had come over from England knew how to handle the sticky, wet yarn,” reported the Chester Times. “Most, if not all, the rayon made on that Monday, and for some time to come, went into the waste basket.”
By 1916, U.S. demand had exceeded the plant’s capacity. Additional facilities were built in Roanoke, Va.; Lewistown, Pa.; Parkersburg, W.Va.; and Front Royal, Va. Marcus Hook remained the headquarters.
Courtauld’s patent expired in 1920, and DuPont entered the field. Competition drove down prices but expanded the market. By 1940, U.S. consumption of rayon was 488 million pounds annually, up from 61 million in 1927. And American Viscose had 31 percent of the market.
Salvage was made a Courtauld vice president, knighted and grew rich. Marcus Hook profited, too.
“The need to hire skilled, long-term workers put AVC in competition with other regional industries,” according to a recent report by the Delaware County Planning Department. “[This] led to the company’s decision to build a highly attractive model town where its employees could live at subsidized rents.”
With its Flemish, Tudor and Craftsman architecture, the 20-acre American Viscose Village had 261 houses, two boarding houses and a general store. In 1950, when suburbanization made plain Americans’ new preference for home ownership, the company sold the houses to employees. Viscose Village is now the focus of a preservation effort.
Despite its success—or perhaps because of it—American Viscose became vulnerable to the combined clout of the White House and J.P. Morgan. In the early 1900s, J.P. Morgan was the preeminent bank in the world, a position it carefully built with its own distinctive banking practices. It catered exclusively to prominent families—Vanderbilts, DuPonts, Guggenheims, Astors—by requiring personal accounts of no less than $5 million. Usually, there was no more than one office per country, though that lone outpost was furnished with leather armchairs, grandfather clocks and polished brass lamps.
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J.P. Morgan entwined itself into the power structure of many countries—especially the U.S., England and France. Its influence was only partially diminished by New Deal legislation that forced the company to split into a commercial banking division (J.P. Morgan) and investment banking (Morgan Stanley). Both were involved when Roosevelt and his treasury secretary, Henry Morgenthau, decided that American Viscose had to go.
Following his re-election in 1940, FDR became openly committed to helping the British cause, and Lend-Lease became his formula. Rather than send money or sell arms—forbidden by the Neutrality Act—FDR proposed that the U.S. “lend” war materiel (ships, aircraft, tanks, munitions) in exchange for (in the case of Britain) “leases” to bases in Newfoundland, Bermuda and the West Indies.
The proposal was widely interpreted—and was—a step toward war. The country, in general, disliked Hitler, but also considered Britain an imperialist power that had brought many of its problems upon itself. Even so, Congress and the public would require persuasion.
When Sir Frederick Phillips, a British Treasury official, visited Washington in July 1940, Morgenthau had presented him with a list of British holdings in the United States. At the top of the list—above Shell Oil, Lever Brothers, Dunlop Tire & Rubber, and Brown & Williamson Tobacco—was American Viscose. All were worth $833 million combined.
“How could Americans justify providing assistance to the British when the latter had such important assets in the United States?” Morgenthau asked.
Initially, Phillips didn’t take the question seriously. But when he returned in December, the treasury secretary was more insistent. “He had to demonstrate to a still-isolationist U.S. public and Congress that Great Britain was not asking for funds from Americans while it had its own sizable resources in this country,” wrote historian Mira Wilkins.
The British capitulated. In London, Churchill assigned Lord Thomas S. Catto—governor of the Bank of England and a Morgan partner—to deliver the news. Chairman Samuel Courtauld behaved “in exemplary fashion,” wrote Chernow. “He asked only one question: ‘Was the sale essential in the national interest, whatever the hardship on him and his company?’”
Catto said that it was. At J.P. Morgan’s recommendation, the sale was managed by Morgan Stanley and another firm.
After the war, when Churchill described the incident in cynical terms in his memoirs, Morgan Stanley partner Harold Stanley tried to get the former prime minister to rephrase. But Churchill wouldn’t budge in his conviction that American Viscose had brought far less than it was worth.
After the war—and bitter litigation—Courtauld received additional compensation from the British government. Not, it should be noted, from the banks.
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