Merchants State Bank Debacle, Part II

In Part I, I laid out the timeline for the brief existence of the Merchants State Bank. In this post, I’ll present detailed facts and figures but also the narratives. I get that not everyone does accounting (or has any interest in it) so I’ll try to keep it as simple as possible.

Keep in mind the editorials were mostly about politics so the relevant newspapers were The Globe-Republican, The Dodge City Democrat, and The Dodge City Times. George Cox was a Democrat who had also been supported by the Times. He was also Ford County Treasurer at the time the bank failed.

The bank had been in trouble for a while but it was a bounced check drawn on the City of Dodge City’s account which was the proximate cause of the failure. Either that or…you know…the lack of *any* money in the vault.

The second tile of this piece in The Globe-Republican includes the words “criminal carelessness.” You may be wondering why this all falls at George Cox’s feet. He made the mistake of securing Langton’s loan for the hardware store. So when Langton failed, Cox was on the hook for the note. He began making the monthly payments from his personal funds but that was unsustainable.

I don’t want to belabor the point too much but Cox was not just the Ford County Treasurer. Other organizations also trusted him with their money. And you will note the address for James Langton is listed as “unknown.” The Union Town Company represented the merger between the towns of Ryansville and Ford. You will also note “City Treasurer” and “Treas. Dist. No. 16.” A metric buttload of public funds was on deposit at Merchants State Bank.

George M Hoover was appointed assignee and it was reported even then that Hoover intended to reorganize the bank once everything was settled.

Of the $31,726.56 owed, $24,261.46 belonged to taxpayers in Dodge City and Ford County. That’s freaking huge…potentially catastrophic. The problem was the bank was loaning money against those deposits and those loans were essentially unsecured.

While Langton had left town and washed his hands of the mess, Cox stayed and tried to make things right. Since he was Langton’s security, all of his property was fair game.

Somehow, Cox was still County Treasurer as all this was taking place. The shenanigans precipitated an audit of Ford County finances from its inception through April 23, 1891.

If you ever wonder why people preach about segregation of duties, allow me to present Exhibit A:

So everyone was asking about the bond. In light of the circumstances, I think Cox probably wanted it to stay lost. This editorial is pretty hard-core.

And then these “facts” in the same issue:

I should probably note here that W. C. Shinn was the assistant editor and manager of The Globe-Republican at this time. You may recall, Shinn was Secretary of the bank when it was first organized.

The Globe-Republican published Cox’s response on the same page:

And here’s how the Democrat framed the issue:

As assignee, Hoover set about collecting from the all of the loan guarantors via sheriff’s sales and those legal notices ran for a couple years after the bank closed. Why didn’t they just sell the building? I really don’t know why that wasn’t an option as the failure became imminent. The building was finally put up for sale along with all other bank-owned property in December of 1893.

And here’s how that went:

It’s really unfortunate that depositors only received about 15 percent of their money back (rather than the 10 percent initially reported) but I guess it’s better than nothing.

Initially, I thought George Cox was simply a good guy who had difficulty saying no to people. I thought he was straight up conned by James Langton, who was a reckless speculator. But if you go all the way back to the bond, you can see he had to have known. There’s no way he couldn’t have known. Maybe he thought they could pull it off and no one would know the difference. Later, it was alleged that Cox’s deputy treasurer, Otto Mueller, was the diabolical brains behind the operation. Regardless, this mess was entirely preventable with simple internal controls.

Next time, I’ll look at the building itself as well as the occupants up until demolition during the Urban Renewal Project.

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