Wall Street And Early Manipulators
( Originally Published 1939 )
THE New York Stock and Exchange Board, which was the outgrowth of the button-wood group, and the forerunner of the present New York Stock Exchange, was organized in February, 1817. From the time of its organization, until 1830, the Exchange dealt principally in bank and transportation stocks. Aaron Burr, who broke the banking monopoly, paved the way for any number of new banks to open; and Fulton's Clermont having made its first successful trip up the Hudson, opened a new avenue of transportation. The Clermont's initial run was followed four years later by a number of steamers plying the Mississippi, and by 1825 the Erie canal opened. The canal formed the first transportation link between the Western and Eastern seaboard.
Rail stocks, however, for many years to come, were to play a major part in the activities of the Exchange. Railroads were some-thing new and novel, and while many people were skeptical, there were others who believed in their future. And then the country was awakened.
Until 1830 the nation had only 40 miles of railroad track in existence. The Delaware and Hudson gravity railroad in Pennsylvania was the first railroad on which a locomotive was ever operated in the Western Hemisphere. It was also the first railroad ever constructed with locomotion in view. Operations on this road were begun in 1829, and were immediately followed by the Charleston and Hamburg, later called the South Carolina, which was the first railroad in America intended for general public transportation and locomotive operation.
While the Mohawk and Hudson Railroad was chartered by the legislature of New York to build a road in 1826, between the Hudson and Mohawk rivers, they were held up by many legal delays and did not start construction until 1830. Its stock, the first to be listed on the Exchange, was admitted to trading in August, 1830, and the road began operation in 1831.
The Baltimore and Ohio Railroad preceded them in time of operation, however. It was chartered two years later, in 1828, and opened in 1830. Thereafter construction began rapidly. From 40 miles of track in 1830, the mileage crept up to 98 in 1831, two hundred and twenty-nine in 1832, and one thousand ninety-eight by 1835.
Thus was the foundation laid which was to provide North America, which has only one-seventh of the world's population, with practically one-half of the aggregate railway capacity to move freight and passengers.
Wall Street played no small part in this development. It provided a central concentration point to which funds could be sent or withdrawn with dispatch from practically any part of the world. Foreign capital seeking opportunity in the young and growing country dispatched millions to America, via Wall Street. At the end of 1840, the country had two thousand seven hundred and ninety-nine miles of track; and ten years later it had grown to eight thousand six hundred and eighty-three.
The big boom, however, came during the next decade, for the mileage again increased by 248 percent, with a total of thirty thousand two hundred and eighty-three miles spreading over the country at the beginning of 1860. Thirty thousand miles and more of railroad in less than thirty years was the young country's achievement.
The necessity for financing this unprecedented construction attracted some of the shrewdest brains of the country to Wall Street. Among the shrewdest, if not the most ethical, was the trio of Jay Gould, Daniel Drew and Jim Fiske.
In 1851 the Erie Railroad had completed its line from Weehawken, New Jersey to Lake Erie, and by 1868 it had nearly 800 miles of track. While the road had been organized in 1833, delays were many and it was not completed until 1851. Even then it was not very successful in its operation, and was finally forced into the hands of a receiver in 1859. At this time Daniel Drew entered the picture. He agreed to lend the road a large sum of money, predicated upon him being named a director.
From that time on dramatic Wall Street history began to center around the Erie Railroad. Daniel Drew, ultra religious, had control of the Erie, and so frequent was the manipulation of its stock that it became known as the "Scarlet Woman of Wall Street." Pool after pool was conceived and executed by his shrewd brain.
Commodore Vanderbilt, who had grown into a railroad power with his New York, New Haven, announced that he was going to get control of the Erie and throw Daniel Drew and'his crowd out. No sooner was the announcement made, when Drew added Jay Gould and Jim Fiske to the Erie's directorate, and from then on the war started.
It is said that Wall Street has never known a more unscrupulous bunch; that not only was Gould as shrewd as the devil, but he had borrowed the majority of the devil's own tricks. Perjury and bribery were legitimate weapons of their warfare and they were used without stint.
The first move in the Commodore's campaign was to buy in the Erie stock. He thought by buying enough of it he could control the Erie, and, once in control, he would quickly dispense with Drew.
But Vanderbilt failed to measure the ingenuity of the wily trio. Sometime previous he had sent them a note, in effect reading; "You have attempted to cheat me. I won't resort to the law, for that takes too long. I'm going to ruin you."
Gould and his crowd only laughed. They had an ace in the hole. Sometime back the directors of the Erie had authorized the issuance of ten million dollars worth of bonds, which could be converted into stock, and, as Vanderbilt's brokers began to buy, they began to load him up. During the entire proceeding they manipulated the stock, up and down, up and down, closing it up a little higher with each swing.
Vanderbilt continued to pour his millions into Erie stock, and it seemed that the more he bought the more became available. Finally he secured what he thought was a corner, and then the trap was sprung.
The Erie committee voted to issue and sell the bonds they had previously authorized, and, with a great deal of secrecy, they were placed on the market. Drew and Gould's brokers bought them, and, with the same secrecy, converted the bonds into common stock. Thus Vanderbilt found himself confronted with 100,000 shares of stock he had not anticipated.
Injunctions flew fast and furiously. One was secured removing Drew from his official office; another instructed him to return 68,000 shares of Erie stock, supposedly issued illegally. The trio only laughed at the injunctions. However, when it did appear that it was not a laughing matter, and the arm of the law started to close in, they took their millions, together with the records of the Erie, in the silence of the night, and fled to New Jersey.
In Jersey City they established new headquarters for the Erie and were given protection. A cordon of Erie Railroad detectives, as well as the Jersey City police, guarded them night and day to prevent them from being kidnapped and forcibly carried back across the river.
After months of hiding out, Drew began to weary of the fight and made overtures to the Commodore. When Gould and Fiske learned of his negotiations, they, in turn, started to negotiate with Vanderbilt. Hence it became a matter of dog eat dog. Drew was trying to double-cross his partners and they went him one better. The details are not available, but it is understood Gould and Fiske gave the Commodore a portion of his money back and consolidated their position with his. This move forced Drew out of the Erie, and with their return to New York, temporarily disbanded the trio. Vanderbilt said he had enough money to fight them all, but not enough to compete with a printing press.
It seems a strange philosophy. On the floor of the Exchange practically all contracts are oral; and, so rigid is the code of ethics that few men in history have ever been known to renege on their word, notwithstanding it has often cost them millions. However, there have been men, who, under no circumstances would renege, would on the other hand employ any trick they could devise, if it so suited them, to double-cross their most intimate friends and associates. Hence we find Drew trying to double-cross Gould and Fiske, and they successfully turning the tables on him.
The activities of Drew, Gould and Fiske, during the ten year period between 1860 and 1870, centered principally around the Erie Railroad, and it is said that during the time Gould and his crowd controlled the Erie over sixty million dollars worth of stock was issued, and not one dollar added to the real investment of the road.
After the break-up of the trio, however, the magnetic influence of Gould finally brought Drew back into the partnership. They made up a manipulative pool to bear the market. Millions and millions of dollars were coralled into the pool and deposited with various banks. Their scheme was ingenuous and uncanny.
A bull market was in force at the time, and, in selling Erie and other stocks short, they sold at the top of the market. Prices were higher than they had been in several years and the bull forces bought everything which was offered.
Once more Gould was ready to spring his trap. The millions which his pool had deposited in banks were suddenly withdrawn. Not in checks, but in cash. Call money shot up to 160 percent, and liquidation rapidly started. The more liquidation the greater the supply, and the greater the supply the cheaper the price. Thus Gould was able to cover his short sales at his own price, and once more reaped a harvest of wealth from his ingenuity.
As far as downtown was concerned, Gould had the reputation of being absolutely without scruples. He squeezed and broke everyone who was foolish enough to give him their confidence. Even his earlier partners, Smith and Martin, were victims of his manipulation and double-crossing. He broke and ruined them both, with Martin dying in an insane asylum. Gould also eventually broke Daniel Drew, the latter dying penniless, despite the many millions he had possessed and controlled.
Possibly the most spectacular of Gould's operations, was his effort to corner the gold market. Following the Civil War there was about a twenty-five million dollar floating supply, and Gould shrewdly drew his plans to corner this supply.
His plans were laid with the same uncanny and skillful ingenuity which marked his other operations. He contacted President Grant's brother-in-law, Corbin, and, through the latter's influence, succeeded in having General Butterfield, who was friendly with Gould, appointed to the Assistant Treasurership, in New York.
At that time the markets in the West were demoralized and the farmers refused to sell their wheat. Gould entertained the idea that, if he could create a scarcity of gold the price would go up, which, in turn, would advance the price of wheat. The advance in the price of wheat would influence the farmers to sell, and millions and millions of bushels would be released to be shipped East. Naturally a great part of this would be transported over his railroad, the Erie. Such was his astute reasoning, and he started in to corner the gold market.
His propaganda was extensive. He agreed to purchase a million dollars in gold, in Corbin's name, without him having to put up any money. He was depending on Corbin influencing President Grant to accept his theory, that it would not be to the interest of the country for the Treasury to sell gold. As soon as he could receive this assurance he was ready to start operations.
But, alas, his plans went astray. Corbin became frightened and withdrew, for President Grant had become suspicious. When Gould learned of this he knew he was hopelessly overboard. He had purchased over one hundred million dollars in gold, and he knew the market could never absorb it.
However, his never-failing ingenuity found a way out. He did not take Fiske into his confidence, but instructed him to go out and put the market up. The bulls were greatly encouraged over this renewed sign of Gould's activity, and readily played into his hands by joining in with Fiske. Every offer found a buyer, and the rise in price did not stop the bull rush. They did not know that Gould was the seller, secretly supplying the gold to meet the demand he had instigated.
The next day was a repetition of the first, with the market going high, and higher, as an avalanche of buying orders swept into the Exchange from elated and optimistic bulls. At the close of the day's market Gould had successfully unloaded the one hundred million dollars of gold he had previously purchased in anticipation that the Government would refuse to sell, and with only a twenty-five million dollar floating supply, he could demand his own price. On the other hand, with the Government committing itself to sell, he knew the price established would be far under what he had purchased his contracts and ruin would be inevitable.
The following day, after he had unloaded, September 24th, 1869, is known in financial history as Black Friday. Fiske, bullish and optimistic as ever, went on the Exchange unaware of what Gould had done. There were few if any offers. The market was exceptionally strong. Fiske paraded around, shouting wildly. He offered 150, then 155, and with no takers he offered 160. Finally he secured two hundred thousand at the last offer and then there was a lull. No more sellers. "There's no top to the market!" Fiske shouted. "I'll bid 162 for five million!"
This was the most dramatic moment of early financial history. The bubble burst. Someone had advance information that Washington was going to sell gold, and a few minutes later the information became general.
The floor went wild. Panic reigned. Down, down, down, went the market, and with it went hundreds and hundreds of unsuspecting traders who had followed the bull rush. Not only were they caught and ruined, but many responsible brokers were caught in the same net. The Street ran riot! Gold kept sinking down, down, 150, 145, 140 and down to 135 within two hours after the news became general. Jay Gould had broken his own market; and once more he had broken faith with his associates. Two days before he had been facing bankruptcy, with his long position of one hundred million in gold, and now, he had piled millions upon mil-lions of profit to his already stupendous wealth.
Jim Fiske, the pawn in game, acting on Gould's orders, had gone broke. But Gould set about to save him. All orders that Fiske had issued to brokers were verbal, and, after an all-night conference, it was decided that Fiske was to repudiate all' of his obligations, and his brokers were to declare themselves bankrupt.
Boss Tweed was a friend of Gould's and a director of the Erie Railroad. At that time Tweed was the New York political power, and he had a friendly Judge issue an injunction restraining the enforcement of any contracts against Fiske. It is reported that out of the millions of dollars in gold contracts that Fiske bought, not a single contract was enforced against him. The manipulation was so raw, that a Congressional investigation followed, but nothing ever came of it. Many firms, whose books revealed that they were solvent, were forced into bankruptcy through Fiske's repudiation. Someone had to settle on the contracts Gould had caused to be executed.
Jim Fiske's career ended with his untimely death from the bullet of an enraged rival, in a quarrel over a show girl. The panic of 1873 caused the downfall of many others. Daniel Drew was broke; Henry Smith in bankruptcy; Jay Cooke, another large operator, was wiped out. The colourful figures of the Street were gone. But not so with Jay Gould. He continued his activities for the next ten years, growing stronger and stronger. In 1880 he controlled over ten thousand miles of railroads, together with the Western Union Telegraph Company, and the New York City Elevated lines.
Gould died in 1892 and was succeeded by his son, George jay, who established even a stronger railroad empire than did his father. His daughter, Helen, became a nationally known philanthropist and made extensive gifts to American hospitals during the Spanish-American war.
Thus ended the career of a former poor boy, born in Roxbury, New York, in 1836. Like many leaders before and after him, Gould possessed no scruples in financial matters. They can kill off ten thousands victims, without one pang of conscience.