A family-controlled bank was uniquely positioned to betray its legal trustee duty

Evidence

While in theory even a single injured bondholder could sue, in practice no individual bondholder would. In the first place, the legal costs of so complicated a suit would, even in the preliminary steps, be enormous—far beyond any injury the bondholder might have suffered or any damages he could realistically claim. More important, a bondholder contemplating an individual suit would be faced with a legal reality: suing as an individual would be viewed by a court as an admission that only he was hurt—why weren’t other bondholders suing?—so that the bondholders, or a substantial number of them, would have to sue as a group. To cover such a possibility, an agent had been appointed, in the contracts, to protect the bondholders’ rights—to, if necessary, sue on their behalf. The contracts had appointed a bondholders’ trustee.

And the trustee was the Chase Manhattan Bank, and the Chase Manhattan was the only large bank in the United States still controlled by a single family.

— Robert A. Caro, The Power Broker, 4596

Categorization

• XREF: Extends the earlier power-broker insight that institutional checks only work when the people running them aren’t entangled — parallels the recurring theme that family and dynastic control breaks normal accountability. — connects to: Entrenched power only fell because the trustee bank was run by the Governor’s brother — Robert A. Caro, The Power Broker: Robert Moses and the…, 4622
• QUESTION: Was Chase as trustee legally allowed to simply drop its bondholder-protection role, or did this require the real bondholders’ consent that was never obtained?