“Clarence Dillon majored in poker at Harvard. Attending classes was nothing but an afterthought.”
That’s the rollicking opening of The Baron of Wall Street, a definitive biography of a forgotten wizard of 1920s Wall Street.
Written by Montecito resident William R. “Bill” Loomis Jr., the book describes the pioneering financier as brilliant and creative but also Machiavellian, greedy and cunning.
What Dillon was not was boring.
Loomis expertly traces Dillon’s path from a relatively modest upbringing in Texas to a life of chauffeur-driven Rolls-Royces and a fortune that had grown to $1.5 billion in current dollars by the time of his death in 1979.
As the CEO of Dillon, Read & Co., the financier reshaped bankruptcy law, created leveraged buyouts and invented junk bonds. Even when investors lost money on his deals — those risky bonds! — Dillon profited handsomely.
Loomis is a Wall Street veteran himself. A graduate of Williams College with an MBA from Harvard Business School, he is a former CEO of Lazard, the storied Wall Street investment bank.
He also pursued graduate studies in history at UC Santa Barbara after moving from Greenwich, Connecticut, in 2002.
“I fell in love with Montecito at first sight, and nothing has changed,” he said.
I interviewed the debut author who brings the secretive financier to life.
Clarence Dillon isn’t Morgan, Rockefeller or Vanderbilt. What drew you to his story?
I was in a research class at UCSB and writing about the House of Morgan handling our foreign policy in Europe in the 1920s and came across Clarence Dillon.
I was astounded by references to him a swashbuckler. Why? I had competed against Dillon Read and the firm was so white shoe as not commercial.
Of course, Dillon had passed away by then.
Clarence Lapowski, the son of Yiddish-speaking Jewish immigrants, reinvented himself as Clarence Dillon, a high-born Episcopalian. How did his transformation affect his business and personal life?
It largely worked on the surface. Some Jews, like Freddie Warburg, would not take his calls. Most Christians knew his background but didn’t really care about it.
The House of Morgan is an early study in diversity. At one point, the firm had 11 partners … one was a Presbyterian. Dillon’s wife was Episcopalian and the chapel in Peacock is in her memory.
Would Dillon agree with this line of dialogue from Citizen Kane? “It’s no trick to make a lot of money … if all you want is to make a lot of money.” Did Dillon want anything in addition to a fortune?
Prestige and acceptance, which is why he groomed his son, Douglas, to be ambassador to France and Treasury secretary under President John F. Kennedy and gave so much money to the Episcopal church.
How did Dillon create modern bankruptcy law, without intending to?
Paul Cravath, the famous lawyer, heard that Dillon was creative and called him to help when Goodyear was in financial trouble in 1921.
Instead of liquidating the company, lenders were given new securities. This became the foundation of Chapter 11 bankruptcy law.
What business practices of the early Dillon Read firm would be illegal or at least unethical today?
Unethical then and illegal now: undisclosed payments from Goodyear, inside information when bidding for Dodge Motors, pyramid stock schemes, nondisclosure of credit information to investors, and inflating results. The Pecora hearings and the creation of the Securities and Exchange Commission in the early 1930s put “a policeman on Wall Street.”
What was Dillon’s role in creating junk bonds decades before Michael Milken and Drexel Burnham Lambert were on the scene?
Dillon played a role in creating war bonds in World War I that introduced bonds to Main Street and the retail market.
He then opened 16 bond offices and reasoned that if you added a few hundred basis points to the yield, people would buy Bolivia as they would assume that bonds were safe.
So he sold bonds for several Latin American nations. All went in default as the first junk bonds.
You write that Dillon’s most important client was himself. In the world of private equity and investment banking, does that sort of self-dealing go on today?
Yes. Leon Black is a good example and others in private equity.
Also, the results of Morgan Stanley and Goldman Sachs depend on trading for their own account.
Was Dillon a “baron” or a “wolf” of Wall Street?
The term “baron” was his nickname at Harvard because of his demeanor and poker winnings and from a champion race horse at the time, but stuck on Wall Street.
“The Wolf of Wall Street” was used sometime after the Dodge deal but caused some confusion, as there was a 1929 movie by that title about a trader in metals. Then came Martin Scorsese’s 2013 film of the same title starring Leonard DiCaprio.
What was the occasion that Dillon wrote a check for $146 million in 1925, the equivalent of nearly $3 billion today?
Dillon wrote the check as the Dillon Read offer to buy Dodge Motors in competition with the House of Morgan offer on behalf of General Motors.
The check was the largest cash transaction to date in history and a surprise, as it was assumed that the Morgan offer including securities would prevail.
What is Dillon’s legacy in the banking and business world?
There are the innovations, some of which are referenced above. Dillon himself is now unknown.
He died in 1979 after he had made Dillon Read an ultra-conservative, white shoe firm that disappeared in the 1990s.
You draw parallels between Wall Street in the 1920s and the deregulated financial world of the ’80s. What changed, and what stayed remarkably the same?
Both decades had remarkable growth through lack of regulation and through innovation, the latter private equity, use of debt, savings and loans and so on as well as entrepreneurs.
After each decade, changes became institutionalized and before each, it had been much quieter on Wall Street.
If Clarence Dillon had been born in 1982 instead of 1882, still went to Harvard, and possessed the same brains, ambition and appetite for risk, what would he be doing today?
Well, he’d be 44 and maybe living at his family’s first place on Park Avenue and working at Goldman or Lazard or now, perhaps, Morgan Stanley, a firm that would not have hired him years ago.
I doubt that he would have created a firm. It was important that William Read was tiny and that William Read died the week that Clarence became a partner and that the 1920s began four years later.
Writers often say that research is like an iceberg. Only 10% should show. After amassing so much information, how did you decide what to leave out?
Frankly, that wasn’t an issue. The problem was finding information. This was research intensive geographically, and from basements to libraries.
Writers talk about a character’s moral trajectory, the person at the beginning of the story versus the person he becomes. Did Dillon change morally over the course of his career?
Not in my view. Upton Sinclair would agree that Dillon was amoral by nature.
After digging into every corner of Dillon’s life, what’s your assessment? Does the good outweigh the bad?
It is 50/50. For a talk in New York once, I took a yellow pad and made a line down the middle.
On the left “Good” and on the right “Bad.” An example is Goodyear. Good is forming the foundation of Chapter 11. Bad is skimming profits to a company secretly owned 48% by his wife.
What do you want readers to take away from your book?
A good story and some financial history even if without having a financial background.
What’s next for you, Bill? Another book?
Yes. The 1980s on Wall Street and/or Wall Street stories.
