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How the Kennedy Empire was Built

...and Other Scandals

How the Kennedy Empire was Built The following are excerpts from : The Sins of the Father - by Ronald Kessler The Kennedy Men: Three Generations of Sex, Scandal, and Secrets - by Nellie Bly

-1- - Joe's father, PJ Kennedy, was a saloon owner who used his bar as a launching pad for his political career. - In 1885, PJ was elected to the Massachusetts House of Representatives, due in large part to the strong backing he received from the liquor lobby which was worried about the temperance movement. - PJ would serve five terms as a state representative before being elected to the Massachusetts Senate. PJ skillfully used his political power to enrich himself and advance the career of his son Joseph P Kennedy.

-2- - When Joe Kennedy was fresh out of college in 1912, his father got him a job as a state bank examiner. Here, Joe had access to useful information about the confidential affairs of companies and individuals who had credit lines with major Boston banks. He found out which companies were in trouble and which had extra cash, who was planning new products or acquisitions and who was about to be liquidated. - A former Harvard classmate, Ralph Lowell, said, "That bank examiner's job took him all over the state and laid bare the condition of every bank he visited. He acquired information of value to himself and others." - Joe's strategy was to obtain inside information about troubled companies from banks, then drive their stock down so he could buy them more cheaply. While still on the state payroll as a bank examiner, Joe made an acquisition that was aided by inside information. He bought a Boston investment company called Old Colony Realty Associates Inc. Joe turned the company from an old-line investment firm into one that made money on the misery of others. - Under Joe's direction, the company specialized in taking over defaulted home mortgages. He would then paint the houses, and resell them at far higher prices. By the time the company was dissolved, Joe's $1000 investment had grown to $75,000.

-3- - Joe began cultivating strong alliances with members of the press, including William Randolph Hearst, who would print glowing stories about Kennedy's successes. In January1914, when Joe was elected president of Columbia Trust, Hearst ran a series praising Joe as the youngest bank president in the country. The stories neglected to mention that Columbia Trust was owned by Joe's father and his friends. - Joe eventually assumed control of Columbia Trust by borrowing money from other family members who were never repaid. Kerry McCarthy, Joe's grandniece who interviewed some of those people for a research paper, said, "I found money was loaned to him by family members and not repaid. Since it was family, he didn't feel there was a need to."

-4- - In June 1914, Joe married Rose Fitzgerald, daughter of Boston mayor John Fitzgerald. Joe would use this new connection for all it was worth. - In 1917, with World War I already in progress, the United States government announced that young men would be drafted into military service, and that draft resisters would be executed. Although most of Joe's friends from Harvard had already volunteered to serve, Joe had no intention of fighting. - Joe had already been placed in Class 1 and was subject to immediate call-up, when his father-in-law, Mayor Fitzgerald, acquired a job for him at the Bethlehem Shipbuilding Corporation in Quincy, Massachusetts. Although Joe knew nothing about shipbuilding, he was made general manager, a job which effectively kept him out of the war. Daniel Strohmeier, vice president of Bethlehem Steel, said, "Joe was accommodated to skip the draft during World War I because of a lot of pressure from his father-in-law." - Seven months after the armistice was signed to end World War I, Joe left the shipyard. Having avoided the draft, he had no more need to work there.

-5- - Joe was given a job with the venerable Boston stock brokerage firm Hayden, Stone and Company, after Mayor Fitzgerald promised to swing business to the firm if they hired his son-in-law. - Galen Stone, a friend of Joe's father-in-law, taught his protégé how to make huge sums of money off unsuspecting investors by trading on inside information. While the practice of using inside information was not then illegal, it was unethical. Stone breached his fiduciary duty to his stockholders, while Joe made money because of his privileged position at Hayden, Stone. Joe told one Harvard friend, "It's so easy to make money in the market we'd better get in before they pass a law against it." It was easy, as long as one was willing to breach trust.

-6- - Besides using inside information improperly, Joe made fabulous sums through what were known as stock pools. This was a way of manipulating the market by forming a syndicate and arranging for the members to trade stock back and forth. By bidding the price of the stock higher, the pool members created the appearance that the public was bidding up the price. In fact, the syndicate members retained the profits, and when the trading public bit by joining the action, the syndicate members sold out, leaving the public with losses. Joe called the practice "advertising" the stock.

-7- - On January 29, 1919, the Eighteenth Amendment was ratified. It prohibited the manufacture, sale, transportation, or importation of "intoxicating liquors" for "beverage purposes." For Joe, the law represented an opportunity to make huge profits. - He formed alliances with crime bosses in major markets, among them Boston, New York, Chicago, and New Orleans. These would come in handy years later when his son was running for national office. Among his mob associates was Frank Costello, former boss of the Luciano crime family, who bragged, "I helped Joe Kennedy get rich." Sam Giancana, who would later figure prominently in Jack's presidency, called Joe "one of the biggest crooks who ever lived." - Joe bought liquor from overseas distillers and supplied it to organized crime syndicates that picked up the liquor on the shore. Frank Costello would later confirm that Joe had approached him for help in smuggling liquor. Joe would have the liquor dumped at a so-called Rum Row - a transshipment point where police were paid to look the other way - and Costello and other mobsters would then take over. They distributed the liquor, fixed the prices, established quotas, and paid off law enforcement and politicians. They enforced their own law with machine guns, usually calling on experts who did bloody hits on contract. -Columnist John Miller wrote, "The way Costello talked about Joe, you had the sense that they were very close during Prohibition." - By the mid-1920s, Fortune estimated Joe's wealth at $2 million. Yet since Joe had left Hayden, Stone in 1922, he had had no visible job. While he made hundreds of thousands of dollars manipulating the market, only bootlegging on a sizable scale would account for such sudden and fabulous wealth. - Joe used the profits from his bootlegging operations to fuel his continued stock market speculating, and finance his efforts in the film industry.

-8- - By 1930 Joe had plenty to smile about. He had seen the Depression coming, and as Black Tuesday approached, Joe liquidated his longer-term investments while continuing to make money on the declining market by selling short. Selling Short - Usually an investor purchases stock and later sells it, earning a profit if the stock has gone up. Selling short reverses the process. The investor who believes the price of a stock will go down borrows stock - say at $10 a share - from a broker for a fee. If the price falls to $8, he buys new shares at the lower price of $8 and gives them back to the broker to replace the shares he borrowed at $10. He then gets to keep the $2 difference as his profit. - By selling short, Joe made sums estimated at more than $1 million and contributed to the eventual market crash by forcing prices down. - The fact that the market was unregulated was largely responsible for the crash. Salesmen had made wild claims to a gullible public. Stock pools such as those perfected by Joe Kennedy had defrauded legitimate investors. Reporters and columnists had acted as shills for companies peddling stocks in return for payoffs. - The crash set off a worldwide financial panic and depression that would last for years. By 1932, 12 million Americans were jobless. Governments responded with strict tariff restrictions that dried up world trade. In Germany, where 5.6 million people were out of work, the depression contributed to the rise of Adolph Hitler. - Considerably richer because of his short selling, Joe Kennedy gleefully told friends that he had sold off his Wall Street holdings before the bottom dropped out of the stock market. He said he was now waiting to pick up the pieces left by "dumb people." - Joe Kennedy's wealth was now estimated at over $100 million. By 1933, Joe was again manipulating the stock market to his advantage, even as federal investigators were swarming over Wall Street trying to expose the conditions that had led to the crash -The stock market crash and resulting panic would eventually lead to the creation of the Securities and Exchange Commission, to which Joe was named head.

-9- - By 1933 the states had also begun repealing prohibition, and with his usual foresight, Joe could see it was only a matter of time before the Eighteenth Amendment was repealed and liquor flowed freely again. - Kennedy used his connections in Washington to obtain permits to import ridiculously large quantities of Haig & Haig and Dewar's as "medicine." He stockpiled the liquor in warehouses so that when Prohibition ended, he would have more high-quality liquor in stock than anybody else. - Joe also took steps to make sure he had cornered the market in Scotch. In September, Joe invited the President's son, James Roosevelt, to join him on a trip to England. Joe used young Roosevelt to get access to those who controlled Scotland's distilleries. Returning with distribution rights to brands such as Haig & Haig, Dewar's scotch, and Gordon's gin, Joe proceeded to build Somerset Importers into a force in the liquor business. On December 5, prohibition was repealed and Kennedy was ready.

-10- - Joe took steps to protect his fortune and the future of his children. He moved to establish a series of trust funds that would eventually make all his children financially independent. These trust funds would eventually guarantee each of his children, and their mother, over twenty million dollars apiece.

The Robber Baron and the Film Industry

How Joe Framed an Innocent Man

Joe Buys into Politics

Anti-Semitism, Hitler, and Joe McCarthy

Joe has his Daughter Lobotomized

How Joe Made his Son President