Monsieur Oscar Tschirky, the elegant, Swiss-born maître d’hôtel of Delmonico’s always maintained that John “Bet a Million” Gates did not like his nickname but did little to repudiate the claims that he would bet on practically anything. When Gates won $650,000 ($23 million in today’s dollars) from a bet on a horse in 1902, August Belmont, Jr., who was President of The Jockey Club asked Gates to limit his bets to $10,000 ($385,000 in today’s dollars), since such large wagers gave the impression that the races were somehow rigged. Gate’s fortune started with an industry rollup in barbed wire, a pioneering invention. His industry consolidation was capped by an IPO for $90 million in 1899 ($3.6 billion in today’s dollars), and somewhere along the line, $26 million in shares went missing ($1.1 billion in today’s dollars). The investing public did not seem to care that the capital structure was so watered and rubbery…in the two months following the IPO, the stock price had doubled.
The expanding America following The Civil War was a paradise for untrammeled and untaxed capitalists as the agrarian economy was transformed into our mass-production economy. Some were agents of profound change. Others had no time for niceties, but sought to enrich themselves to “build up the country” for the American public with their monopolistic trusts, their Wall Street stock pools, their private railway cars, their imitation Renaissance castles on Fifth Avenue, The Hudson River and Newport, and their huge yachts… all the while, planning to marry off their daughters to European aristocracy. It was the embattled farmers of Kansas in 1880 who first applied the nomenclature of “Robber Barons” to the owners of the railroads.
Many were architects of industrial progress. The list is long: Mellon, Huntington, Duke, Carnegie, Westinghouse, Morgan, Rockefeller, Harriman and Vanderbilt. Others are viewed with ambivalence through the lens of history, notably Henry Frick and The Bloody Homestead strike. Still others remain notorious to this day like Jay Gould, Boss Tweed, Daniel Drew and “Jubilee Jim” Fisk, who bought and sold judges and politicians. The Wall Street operators like James Keene, Addison Cammack and Bernard Baruch worked in the shadows of the likes of J.P. Morgan, Roswell Pettibone Flower and Jacob Schiff.
After The Civil War, over one million men returned to the civilian work force. The returning soldiers poured into the newly opened oilfields of Pennsylvania, the mines of Nevada and the building of the railroads. The railroads’ influence would penetrate every corner of American life when, at the driving of the ceremonial golden spike at Promontory which marked the completion of the transcontinental railroad, the country was still struggling to come to terms with the wrenching events of The Civil War. In the ensuing decades, the railroads would foist upon the country violent clashes amongst powerful tycoons fighting for the prize of monopoly, strikes that would remake the relationships between labor and management, and stock market frenzies. What struck European visitors about the America emerging from The Civil War was its enormous potential energy. When they came to take measure of America, they travelled by rail to see it.
The defining characteristic of the railroads was their size. The largest American industrial company in the 1850s – The Peppermell Mills in Maine- employed eight hundred laborers at its peak. By contrast, by the 1880s, The Pennsylvania Railroad employed fifty thousand. Between 1860 to 1890, total rail mileage increased from 30,000 to 165,000 miles. In their nascent years, the railroads had only a future usefulness, yet the people eagerly invested their life savings in this towering pyramid of hope. What rude awakenings many investors would have – repeatedly! (of note, one hundred and fifty railroads collapsed from 1893 to 1896 – oops!)
When the two lords of the railroads met decades later…J.P. Morgan and Ned Harriman in their climatic showdown at the dawn of the twentieth century…the entire financial world would feel the tremors. But that great test lay far in the misty future.
The Gilded Age financial system was in its infancy, allowing widespread, unchecked manipulation before the establishment of modern regulatory bodies. Wall Street pools were collusive, unregulated arrangements where financiers and industrialists often pooled capital to inflate shares through artificial trading. After driving up prices, the pool members would typically dump their inflated shares onto the market, causing the price to plummet and reaping massive profits at the expense of outsider investors. The 1880s witnessed the emergence of industrial pools and trusts – by 1890, there were over one hundred trusts governing nearly every imaginable sector of the economy.
Daniel Drew was one such financial buccaneer in an age where financial regulation of any type did not exist in America. Winners lived by their wits alone. When he was fifteen, he enlisted in the U.S. Army during the War of 1812 after being offered $100 from an individual who did not want to fight. Drew saw this as an easy opportunity to make money and served for three months but didn’t see any combat. After the war, he spent some time with a traveling zoo and used his $100 to build a successful cattle-droving business. In his spare time, he started speculating in Wildcat Bank notes which became commonplace when The Second Bank of the United States came under attack by the Jackson administration in December 1829.
President Jackson characterized The Second Bank as a corrupt institution, dangerous to American liberties. In 1833, as part of his effort to break the power of The Second Bank, he ordered the removal of federal funds from the Bank to favored state banks, encouraging the proliferation of state-chartered banks – some legitimate – others – the so-called “Wildcat Banks,” which were poorly capitalized.
During The Free Banking Era (1833 to 1864), state and municipal governments granted banking charters readily, and applied regulations ineffectively, if at all. Bank closures and outright scams regularly occurred, leaving people with worthless paper currency. Wildcat banks issued their own currency until the National Bank Act of 1863 imposed a 2% annual tax on state bank-issued notes, to encourage the proliferation of federal “greenbacks”. Many Wall Street speculators like August Belmont Sr. cut their teeth on trading in Wildcat Bank currency.
The Free Banking Era coincided with the first phase of railroad speculation, which was the nation’s leading industry. Not only did banks sponsor railroads, but railroad companies also entered the banking business to finance their operations, a development which most certainly caught Daniel Drew’s eye. Although most railroads were ultimately built, many spectacular railroad bank failures occurred.
The failure of many railroads and state banks in The South exacerbated “the Achilles heel” of The Confederacy. In the first year of The Civil War, The Confederacy faced a severe cash flow problem, since its leaders had failed to realize that a massive economic schism had grown between the North and South, such that The South’s railroad trackage and industrial base was one-fifth the size of the North’s. The Union’s ability to move troops, arms, raw materials and food on its railroads was a significant advantage over The Confederacy.
To provide liquidity to offset these economic weaknesses, The Confederacy thought it could pressure England and France to provide financial support by withholding The South’s cotton. However, buoyed by a bumper cotton crop from Egypt in 1861, England and France called The Confederacy’s bluff, causing the secessionists to try to use its cotton as collateral for a European bond issue (“the Cotton Bonds”.) But like any too-good-to-be-true investment, there was a catch – the collateral backing the Cotton Bonds was located in warehouses in the South, and the Union Navy was blockading many key Confederate ports.
Shortly after The Civil War, Jefferson Davis admitted that The Confederacy had misplayed “King Cotton.” It had bluffed, hoping to create a “cotton famine” and thus pressure the British and French for financial support. But Davis could have adopted a March 1861 proposal by The Confederacy’s Attorney General to purchase as much cotton from farmers as possible and immediately send it to England, where the stockpile would be gradually sold as needed to raise funds. If the cotton had been shipped to England in early 1861, Davis concluded, it could have been converted to enough hard currency to have “more than sufficed all the needs of The Confederacy during the war.” Fortunately, The Confederacy’s bluff was unsuccessful.
Politicians played an unabashedly open role in promoting railroads, oil fields, refineries and meatpacking. Take Senator Quay, whose control over the Pennsylvania Republican political machine for almost twenty years made him one of the most powerful and influential politicians in the country. Patronage in the hands of Senator Quay was profitable – an estimate in 1898 calculated that the Senator controlled 14,700 government positions available in Pennsylvania, where the holders or would-be holders could be dunned for contributions, raising large sums of money that he then controlled. Such money was key to his power.
He was succeeded by Senator Penrose, the most powerful political operative in Pennsylvania for 17 years, who added The Oil Depletion Allowance into The Revenue Act of 1913 to benefit Pennsylvania oil producers. The Senator was six foot four inches tall, nicknamed “Big Grizzly”. He had a huge appetite – he was known to have a dozen eggs at breakfast and a full turkey at lunch. He won a $1,000 bet in an eating contest of fifty oysters ($34,000 in today’s dollars) and a quart of bourbon that sent his opponent to the hospital. He never married and was known to boast of his love of prostitutes, stating that he didn’t “believe in hypocrisy.”
As the railroads stretched across America, their appetite for capital was enormous and abetted by politicians. To assist in the railroads’ development, an estimated 158 million acres was granted by the federal government to The Union Pacific, The Texas & Pacific, The Central Pacific and The Northern Pacific Railroad, to name a few, including gold, silver, copper, oil, coal, stone and timber rights. The U.S. Government purchased or guaranteed bond issues of many railroads. Other railroad financing came from towns that lay in the path of the railroad construction. Many railroad financiers threatened to bypass villages and towns unless the municipalities subscribed to or guaranteed their bond issues. One railroad historian estimates that the federal, state and local governments bought or guaranteed over $700 million in bond issues ($24 billion in today’s dollars) and granted over $350 million in land ($12 billion in today’s dollars).
Getting back to Drew.
In his time in the cattle-droving business, Drew would have his cattle lick salt and drink water before selling them to increase their weight. He adopted this tactic to railroad finance. He is popularly credited with introducing what would be called “watered stock” to America to describe unauthorized share increases, resulting in a dilution of ownership. To Drew, fortunes were best made not by the construction of a railroad but the floating of railroad paper. His attitude was “if I can make my fortune before a spade-full of earth has been moved, how much more convenient.”
In 1857, Drew became a member of the board of directors of The Erie Railroad and used his position to manipulate the share price. From 1866 to 1868, Drew engaged in “The Erie War”, where he conspired along with fellow directors Jubilee Jim Fisk and Jay Gould to issue shares to keep Vanderbilt from gaining control of the Erie Railroad. They made New York City Mayor “Boss” Tweed a Director of the Erie Railroad and a member of “The Erie Ring”. Tweed, in return, arranged favorable state legislation in Albany for them, legalizing the newly issued shares.
Cornelius Vanderbilt, unaware of the increase in outstanding shares, kept buying Erie stock and sustained heavy losses, eventually conceding control of the railroad to the trio. Vanderbilt lost an estimated seven million dollars in his attempt to gain control over Erie Railway Company ($185 million in today’s dollars). During The Erie War, the buying and selling of Erie shares was so rampant that the railroad was nicknamed “The Scarlet Woman of Wall Street.”
The Erie Railroad attracted the interest of the Erie Ring, in part because they could use the reservoir of cash that lay in The Erie Railroad’s treasury to manipulate the stock market. The Erie Ring would make sudden withdrawals of large amounts of cash from The Erie Railroad’s banks with little notice, causing money to tighten and the overnight rates on margin loans to skyrocket, thus squeezing other stock market operators. On one occasion, they withdrew four million dollars from The Tenth National Bank on a Monday and kept the currency under lock and key at Drew’s home. Margin loans were called all week due as interest rates approached 100%. Through their alliance with Boss Tweed, they had some control over the six to ten million dollars of New York City municipal deposits, which gave them close to twenty million in currency ($710 million in today’s dollars) with which to manipulate the money supply and the stock markets.
At the zenith of his career as a financier, Drew’s personal fortune was estimated at $13 million ($325 million in today’s dollars), and he was respectfully called “Uncle Daniel” on Wall Street. Drew’s business tactics caused him to often be vilified, however, with newspapers depicting Drew as “one of the curses of the market for years past.” In The Panic of 1873, Jubilee Jimand Gould betrayed Drew and by 1876, he filed for bankruptcy.
As a much-feared short-seller, Drew was credited with the expression “He who sells what isn’t his’n, must buy it back or go to pris’n.”
Like Daniel Drew, after a brief period in school, Jubilee Jim ran away to join a circus in 1850, where he joined Van Amberg’s Mammoth Circus & Menagerie. Later, he became a hotel waiter, and finally adopted the business of his father, a peddler. Jubilee Jim applied what he learned in the circus to his peddling and grew his father’s business. He then became a salesman for Jordan Marsh in Boston.
However, he lost interest working as a salesman, and moved to Washington D.C. in 1861 to sell textiles to the government. By his shrewd dealing in army contracts during The Civil War,he heard about the end of the Siege of Petersburg which virtually guaranteed a Confederate defeat, and quickly sent an agent on a fast boat to London to short as many Confederate bonds as possible before the news arrived. In 1864, Jubilee Jim became a stockbroker with Daniel Drew and together, they carried financial buccaneering to extremes, including an open alliance with Boss Tweed, the wholesale bribery of politicians in Albany and the buying of judges like Judge George Bernard.
Jubilee Jim had a relationship with Josie Mansfield, considered by some a voluptuous beauty by Victorian standards of female desirability. In 1868, she first met Jubilee Jim, who was known for handing out $100 bills to women who caught his eye ($2,400 in today’s dollars). She rebuffed Jubilee Jim ‘s advances and refused his money for three months, increasing his desire for her. Then she allowed him to pay her overdue rent, after which he moved her into the American Club Hotel suite.
Jubilee Jim eventually bought Mansfield an elegant home at 18 West 24th, furnished it, and supplied her with everything she desired. The four-story brownstone (after some $1.5 million worth of improvements in today’s dollars) was staffed with four servants, including a liveried butler. The home was a few doors down from Jubilee Jim ‘s Grand Opera House and the headquarters of The Erie Railroad on West 23rd Street. Jubilee Jim had a covered passage built linking the back doors of the headquarters and Mansfield’s brownstone. (The Erie’s headquarters housed the famous bond and stock certificate printing press that was so important in both defensive and offensive corporate maneuvers.)
Over the years, the newspapers breathlessly chronicled that Jubilee Jim gave Mansfield about $1.3 million in spending money ($33 million in today’s dollars) and about $4 million in Tiffany emeralds, since green was Josie’s favorite color ($99 million in today’s dollars). As a married man, Jubilee Jim’s relationship with Mansfield scandalized New York society.
Clarence Stedman, a stockbroker and writer, said the “bought” Judge George Bernard discharged pleadings by Vanderbilt against Jubilee Jim, Gould and Drew “like thunderbolts”. At the time of “The Albany and Susquehanna Affair”, he would issue whatever court orders were necessary to “The Lords of The Erie Railroad”…Gould, Drew and Jubilee Jim … sometimes holding himself in readiness, where necessary, for their call at the parlor of Josie Mansfield, where “he was not averse to the charms of cards, champagne and the vivacious feminine company.”
Judge Barnard was a man who appreciated fashion – he dressed like a riverboat gambler. His shirts were ruffled, his bow ties white, and he wore a Stetson hat at a rakish angle atop his head. He completed the picture with a droopy mustache that ran to the bottom of his cheeks. In court, he put his feet on the bench, slurped brandy, and whittled with a pocketknife while insulting lawyers who came before him. He had failed as a prospector in California and was serving as the New York City Recorder when Boss Tweed put him on the bench. The appointment shocked Judge Bernard’s brother, who said, “George knows as much about law as a yellow dog.”
August 1869 was a busy month for Jubilee Jim and Gould as they attempted to seize The Albany and Susquehanna Railroad, commonly called “The A&S”, which connected Albany to the Pennsylvania coal fields, to add to their Erie Railroad empire. The conflict highlighted the cutthroat nature of 19th-century American railroad expansion and the intense legal and physical battles for corporate control.
In the summer of 1869, Jubilee Jim and Gould began to buy up shares in the A&S, aiming to accumulate a controlling interest. Edward Ramsey, President of the A&S reacted by issuing to his supporters thousands of shares that had been sitting on the company’s books. He then had the railroad’s stock subscription books spirited from his office and buried in the Albany Cemetery. Incensed, Gould and Jubilee Jim had him suspended from the A&S by Judge Barnard. Gould and Jubilee Jim also conspired to falsely arrest three other A&S executives. Ramsey applied to Albany Judge Rufus Peckham to stop Jubilee Jim and Gould.
Jubilee Jim stormed the office of the A&S in Albany with hired thugs, but he was overpowered and taken to the Albany police station by A&S employees masquerading as policemen. As soon as he was free from jail, Jubilee Jim returned to the A&S headquarters with a restraining order signed by Judge Barnard and a new set of thugs. They then went to Binghamton, took over the A&S station, stole a train, and set off down the line to Albany, seizing stations as they went. The A&S men flipped a switch to derail Jubilee Jim’s train. Jubilee Jim and his recruits met their adversaries -the men of the A&S – in a tunnel near Harpursville where they attacked each other with all manner of weapons until the New York State Governor ordered state militia to take charge of the railroad.
In August 1869, Gould and Jubilee Jim went down in history when they attempted to corner the gold market. They had bribed the Assistant Secretary of the Treasury, Daniel Butterfield, for insider information on gold sales and attempted to convince the U.S. Treasury to stop the weekly sale of gold in order to trigger price increases. When he learned about their actions, President Grant ordered the immediate sale of gold into the market. On Black Friday, September 24, 1869, the price of gold dropped precipitously. Many gold investors were ruined, and the U.S. economy was seriously harmed for months afterward. However, both Jubilee Jimand Gould were able to escape unharmed, and were never held accountable.
With Jubilee Jim consumed in the railroad wars and cornering the gold market, a neglected Josie Mansfield eventually fell in love with Jubilee Jim’s business associate, Ned Stokes, a man noted for his good looks. Stokes left his wife and family, and Mansfield left Jubilee Jim. In a bid for money, Mansfield and Stokes tried to extort Jubilee Jim by threatening the publication of letters written by Jubilee Jim to Mansfield that allegedly proved Jubilee Jim’s legal wrongdoings.
A legal and public relations battle followed, but Jubilee Jim refused to pay Mansfield anything. Increasingly frustrated and flirting with bankruptcy, Stokes confronted Jubilee Jim in New York City on January 6, 1872, in the Grand Central Hotel and shot him twice, in the arm and abdomen. A relatively young man of 36, Jubilee Jim died of the abdominal wound the next morning after giving a dying declaration identifying Stokes as the killer.
Jubilee Jim was vilified by high society for his amoral ways, but he was loved and mourned by the workingmen of The Erie Railroad. Thousands came to New York City to pass his coffin in mourning. He was known as “Colonel” for being the nominal commander of the 9th New York National Guard Infantry Regiment, although his only experience of military action with this unit was a controversial role in the Orange Riot of 1871. A Colt revolver is renowned amongst collectors as “The Jim Fisk Pistol”, as it was used by Ned Stokes. The 1891 U.S. $1,000 silver certificate, known as “The Courtesan Note”, depicts the image of a woman that was based on a photograph of Josie Mansfield. The certificates were redeemable for their face value of silver dollar coins.
A cartoon in Harper’s Weekly in February 1872 show Jay Gould and Boss Tweed pretending to mourn over Jubilee Jim’s grave, entitled “Dead Men Tell No Tales!”
Jay Gould’s genius lay in his ability to “insert, then extract”. He saw opportunities with railroads, telegraphs, newspapers and ships to capture strategic sections of America’s economy and create chokeholds and blockages, then levying huge tolls upon its users. His analysis of the prospects of the American West was an uncommonly penetrating one at the time. He felt that it was useless to engage in legitimate freight and passenger shipping business while the prairies and the West Coast were thinly settled. He saw that nothing justified the building and operation of railroads unless monopolies could be established and maintained which included all the mineral, timber and oil wealth.
He would create stock market chaos by printing rumors in his newspaper The New York World while shorting the shares to buy control, then create “prosperity” until it was time to sell. He gained control of the rich telegraph monopoly of Western Union this way, then the elevated rapid transit lines being built in Manhattan, then coal and stone mines, then finally the Union Pacific Railroad.
Between 1875 and 1879, Gould convinced his fellow directors of the Union Pacific to withhold interest payments to the federal government, which was owed $27,000,000, capitalize operating expenses, then issue $10,000,000 in bonds ($355 million in today’s dollars). As deferred maintenance spiked upwards, Gould got the Board to authorize $12,000,000 in dividends ($425 million in today’s dollars). In February,1879, Union Pacific’s share price surged to $70 ($2,486 in today’s dollars), and Gould bailed out. He remained on the Union Pacific’s Board of Directors yet used the proceeds to buy competing railroads. When asked by a Senate committee whether buying competing railroads conflicted with his duty as a director, he replied “I am not in business for my health!” He was ultimately able to extract some $20,000,000 from Union Pacific ($710 million in today’s dollars).
“Jay Gould’s touch is death,” Daniel Drew said, himself being no paragon of corporate virtue.
Gould was bested in 1872 by Lord Gordon-Gordon who was a British impostor, swindling today’s equivalent of $27 million from Gould. Gordon-Gordon had assured Gould that he could help him maintain control of the Erie Railroad with the help of some Europeans who owned shares in the company, on the condition that he give Gordon-Gordon negotiable Erie Railroad shares to form a stock pool. However, as soon as Gould delivered the shares, Gordon-Gordon turned around and sold them.
Gould sued Gordon-Gordon, and he was put on trial in March 1873. Gordon-Gordon gave the names of Europeans whom he claimed to represent, and the court granted him bail while checking the references. He fled to Manitoba. Gould and his associates attempted to kidnap him, but were arrested themselves by The Mounties, which nearly caused a military confrontation between the United States and Canada. He was subsequently extradited to Britain on charges of larceny from jewelry that he had stolen before coming to America. Upon the eve of his extradition, Gordon-Gordon held a farewell party in his hotel room in Winnipeg where he gave expensive presents to his guests, then shot himself after they left.
In September 1872, America was rocked by the Credit Mobilier scandal. The officers of The Union Pacific Railroad had set up the company “Credit Mobilier of America” as a front to steer construction contracts to themselves. The company was a convenient tool to ensnare politicians in the Union Pacific web by plying them with shares, paid for with loans from Union Pacific. The scandal was a painful setback for Wall Street financiers hoping that the railroad industry would acquire at least the veneer of respectability.
In the new age of celebrity, Cornelius Vanderbilt’s image was engraved on the bonds of The New York Central Railroad. A bondholder said, “Commodore, I’m glad to see your face on them bonds. It’s worth 10% (the interest rates on the bonds were 4% at this time). When we see your noble brow, we know you won’t let anyone steal anything.”
In the Gilded Age, Wall Street’s power was massive. And so were the operators, either openly or behind the scenes, who drove share prices. One newspaper described Wall Street stock jockeys… “many and diverse are the characteristics of the men who have sway the stock market. One big operator will coax it; another will lift it bodily in a burst of enthusiasm; still another will undermine it; one will lead it up step by step, gathering strength all the way. But few have possessed the power to lash it…browbeat it…bully it…” as did J.P. Morgan, Jubilee Jim and Jay Gould…or behind the scenes operators like James Keene, Addison Cammack (“The Prince of Pessimists”), Bernard Baruch, Henry Villard and Charles Woerishoffer.
The market operations of Woerishoffer – “The Baron,” as he was called – were legendary, born out of that peculiar combination of German bellicosity and American chutzpah, aided by great perspicacity that produced extraordinary results. Woerishoffer said to the market, “jump,” and if the market failed to obey, Woerishoffer used the whip. He was devoid of fear. He backed that almost irresistible combination of Jay Gould and Russell Sage into a corner, and made them eat out of his hand. It was a feat that brought him tremendous prestige. He crossed swords with the biggest operators of his time, including Gould, Sage, Villard, Keene and Morgan.
A contemporary said of him at the time of his death in 1886:
“Mr Woerishoffer possessed peculiar personal qualities, which are denied to most men and to all women. He had the magnetic power of impressing people with confidence in the schemes which he inaugurated; that is to say, he had the power of organization– the same power has made other men great, and will continue to make men great who possess it in all walks of life.”
In 1878, when the market began its great upward movement, buoyed by the general prosperity of the country, Woerishoffer was a member of one of the big bull cliques and “The Baron” became a multi- millionaire. It took thirteen years from the time he set foot in America to accumulate his first million – one million dollars in 1878 was a lot of money.
The worsting of the mercurial stock jockey Henry Villard by Woerishoffer was one of the triumphs of his career. Villard had formed a blind pool with Woerishoffer and others for the purpose of gaining control of The Northern Pacific Railroad (“The Nipper”), in order to merge it with The Oregon Railway & Navigation Co. Woerishoffer did not agree with Villard’s timing in artificially forcing of the price of The Nipper upward. Villard accused him of selling the stock short and demanded that he withdraw from the pool. Woerishoffer promptly agreed and Villard, believing Woerishoffer to be short The Nipper, formed a secret syndicate for the purpose of squeezing Woerishoffer. Secretly, Woerishoffer was long The Nipper, and he netted millions in this transaction in 1883. It is considered one of the best planned and most dramatic victories ever accomplished single handed in the annals of Wall Street.
Villard was ultimately driven out of Wall Street – but managed to keep his mansion on Madison Avenue opposite St. Patrick’s Cathedral, which is now The Palace Hotel. Woerishoffer gave twenty seats on the NYSE to his faithful brokers, each worth $850,000 in today’s dollars.
After every trading day ended at 3PM, the Wall Street stock jockeys would meet for drinks at The Waldorf Astoria to continue trading and share inside information. “To belong to The Waldorf Crowd meant that a man had arrived,” recalled Bernard Baruch. Part of the hotel’s attraction was the chance to encounter celebrities such as Mark Twain, “Gentleman Jim” Corbett, and Chauncey Depew.
A notable stock jockey in “The Waldorf Crowd” was James Keene who made a fortune in Nevada mining companies. In 1881, Keene created a pool with Addison Cammack, Jay Gould and Russell Sage to “break“ the share price of Western Union to get control. Western Union’s board would no more welcome Jay Gould as a director just as The New York Yacht Club would not admit him as a member, nor would Mrs. William Astor ever invite the Goulds to her quadrilles. Gould bootstrapped a competitor, The Atlantic and Pacific Company, then had his newspaper The New York World raise the cry of monopoly – all the while shorting Western Union with his confederates Commack, Keene and Sage.
Loyalty amongst stock operators was in short supply. In 1884, Cammack heard rumors that Keene was head of a syndicate that was long twenty-five million bushels of wheat and was over-extended. Cammack and Gould fell on him like a pack of wolves by shorting wheat, which triggered margin calls on Keene. Keene lost seven million dollars and filed bankruptcy. However, he began a remarkable comeback a few years later when he was hired as a behind-the-scenes operator for Morgan and William Havemeyer, who was head of The Sugar Trust.
Remarkably, one’s status as a convicted felon did not create undue obstacles for Gilded Age stock operators. Take Charles Yerkes, a “financial buccaneer of no ordinary caliber.” In 1865, as an employee of the City of Philadelphia, Yerkes was convicted of larceny and sentenced to thirty-three months in The Eastern State Penitentiary. In an attempt to remain out of prison, he tried to blackmail two influential Pennsylvania politicians. The blackmail plan initially failed. However, the damaging information concerning the politicians could have eventually been made public, and politicians including President Grant feared that the revelations might harm their prospects during the upcoming elections. Yerkes was promised a pardon if he would deny the accusations that he had made. He agreed to these terms and was released after serving seven months in prison.
In 1886, Yerkes and his business partners gained control of the majority of Chicago’s street railway systems on the north and west sides. Yerkes was not averse to using bribery and blackmail to obtain his objectives. In an effort to improve his public reputation, Yerkes decided in 1892 to fund the world’s largest telescope and observatory for The University of Chicago, now called “The Yerkes Observatory.”
Unlike its precursor in 1873, the Panic of 1893 was not triggered by the wave of railroad bankruptcies, but the failure of one of the most respected trusts established in the previous decade, The Cordage Trust, which controlled 90% of America’s rope market. The problem was that the trust was opaque to investors and lenders. The market was devastated when the trust was placed in receivership in May 1893. The Commercial and Financial Chronicle rued the lack of financial transparency of America’s largest industrial concerns – “we know little about Cordage…because so little is known about the other industrials…that confidence in them has been grievously disturbed.”
Mark Twain is famous for saying that “history does not repeat itself, but it often rhymes.” Following the financial crisis of 2007-2010, the economy has been awash with money. Like the largely unregulated railroads and telegraph companies in The Gilded Age, the stock market today is driven by AI and outer space travel, which has garnered unprecedented valuations with an eye-watering degree of opacity – and little regulation.
Similarly, by the end of the 1890s, Wall Street was awash in money. Ever creative, Wall Street operators figured out exactly the right way to put this torrent of capital to work. They pioneered industry roll-ups by means of trusts. Typically, these trusts had market caps which far exceeded the industries’ book values, but the trusts proliferated at such a dizzying pace that investors put any concerns aside. It was an era in which “the assumption was that the old rules and precedent of finance were obsolete – this time was different,” noted the Financial Editor of The New York Times.
For the first four months of 1901, the mania for stocks was unabated. On April 30, the volume on the NYSE reached a high water mark that was untouched again for twenty-seven years. Some operators like Jacob Schiff never shed their disquiet about a bubble and liquidated everything at the market peak. During the afternoon of May 8, the market began to weaken. By May 10, investors were drowning.
Years later, Bernard Baruch recalled the night that “panic struck The Waldorf…and transformed it from a preening ground of all that was fashionable to a lair of frightened animals.”
This is the first of a two-part summer reading series on The Gilded Age.
Hugh Larratt-Smith is a Managing Director of Trimingham and a regular contributing author to The ABF Journal.
Jeremy Land is an Associate at Trimingham.