Dark Genius of Wall Street

by Edward J Renehan Jr

  By the time Gould arrived, Drew–known variously as “Uncle Daniel,” “The Great Bear,” “The Deacon,” and “Ursus Major”–was something of a legend on Wall Street: a completely unscrupulous master of financial poker. Drew’s particular specialty–aside from “watering” the stocks of firms in which he had authority, manipulating their values far in excess of reality by excessive issuances of securities–was the bear raid. During such a raid, Drew would pool with others to short a particular stock, borrowing shares that were then sold at market price. The speculation of Drew and his colleagues was that the value of the security in question would soon drop, allowing them to purchase more shares on the cheap for return to the owner while claiming the margin between the two prices as their own. In the midst of a typical bear raid, once he was sufficiently short, Drew would spread rumors and otherwise push the price of the selected stock lower. On such occasions, he left little to chance. He once told Gould that to speculate on Wall Street without inside information made as much sense as to drive black pigs in the dark.

  Both despised and envied, the outwardly reverent, Bible-quoting Drew provided a case study in speculative success for a whole generation of smart young men who–though they may have arrived on the Street with scruples–quickly realized that ethics and ambition could not easily coexist, at least not south of Washington Square. When writers of a later era chastised Gould for his brazen guile, they seemed to forget that he was hardly alone. In fact he was just one–albeit an inordinately talented one–of a pack and was considerably less brazen and cynical than some.

  Jay spent his first months on Wall Street nibbling around its edges, doing small deals, winning and losing, and learning from his mistakes. Intent as ever, the young devotee spent long days researching leads with a monklike dedication. He also studied the moves of the sharpest players and learned how instruments might be leveraged to provide either the cash or the credit necessary to make one’s desired next step possible. Every morning at the Everett House he rose early and rushed through breakfast. Then he devoured the financial news in the various New York papers. Thereafter he was on the curb and in and out of brokers’ offices, buying and selling all the day, until five or six at night, when he retreated to the Everett House, or to some restaurant, for dinner. Later he would visit Gallagher’s Evening Exchange, where the hungriest young self-starters–and Jay was certainly one of these–were always likely to be found.

  The round stopped only on weekends. Coming out of the Everett House on the morning of Saturday, 20 April 1861, two weeks after the battle of Fort Sumter, Gould would have seen more than 100,000 ardent supporters of the Northern cause rallying in Union Square. Just across the square from the Everett House, at the intersection of Fourteenth Street and Broadway, stood the brick-faced home of millionaire Cornelius Van Schaack Roosevelt, grandfather of the toddler Theodore. Both the Roosevelt home and the nearby Union Square Hotel flew massive American flags from their roofs. In the square itself, a newly installed bronze statue of George Washington sat wrapped in the very flag that had been fired upon at Sumter. The gathering on 20 April, as banker John Austin Stevens later recalled, was meant to provide a forum in which the general population of New York could entrust “the guidance of their action [to] the merchants of the city, the chief representatives of its wealth and influence.”3 One wonders whether Gould stood and listened as a score of speakers–among them Major Robert Anderson, the hero of the Sumter battle–called the city to arms in support of the Union.

  Jay Gould’s personal feelings about the Civil War are not recorded. No mention of the weighty political and social issues of his age–abolition, secession, or any other–shows up in his personal correspondence. If he ever received a draft notice, he, like so many others, most likely purchased a substitute to serve in his place, for we know that Gould never wore a uniform. Fixated on business and his own future, Jay appears to have cared little about the wider world and the course of history as it paraded before him. It would be a mistake, however, to presume that Gould was completely apolitical. By family tradition he was a Democrat, and most of Gould’s closest associates–such as the attorney Andrew Reeder, who had represented him in the Gouldsboro affair–were ardent proslavery Democrats. Gould’s domicile in New York, the Everett House, served as the city’s Democratic Party headquarters. And many of the New York politicos with whom Gould would ingratiate himself in future years–among them William Marcy “Boss” Tweed–were power brokers associated with the Democratic Tammany machine. Later in life, Gould would cultivate a number of Republicans as well, most notoriously Ulysses S. Grant. But his imbroglio with Grant was still far off.

  Busy wheeling, dealing, and searching for a foothold, the serious-minded Jay Gould nevertheless found time to socialize. Even this, however, he did with deliberation and without humor. He seems to have approached all things, even his vain stabs at play, with a machinelike intensity that some found hard to take. Henry Clews told the story of what happened when members of Westchester County’s socially prominent Cruger family, whom Jay was anxious to cultivate, invited him out for a Hudson River cruise during the summer of 1861. No sooner had the expedition got under way–Jay’s hosts pushing their yacht from the pier at Crugers-on-Hudson, near Croton–when Gould began to make himself unpopular, worrying out loud whether they’d return in time for him to catch his train back to Manhattan. Throughout the afternoon the nervous Gould refused to let the topic drop, repeatedly suggesting that his hosts cut their outing short and return to dry land. Eventually–according to Clews, who got the story directly from a member of the sailing party–the senior Cruger decided he’d had enough and would teach his obnoxious guest a lesson. Coming into shore only minutes before Gould’s Hudson River line train was due, the elder Cruger purposely left the centerboard down, causing the yacht to run aground. Then Mr. Cruger told Gould he’d have to swim if he wanted to make his train. Not hesitating, Gould quickly stripped down to “aggressively scarlet undergarments” while the young Cruger females “hid their blushes behind parasols.” Then, holding his dry clothes over his head, Jay determinedly beat a one-armed breaststroke to land.4

  Such incidents reveal a socially uncouth young man who, though he may have possessed ambition, had yet to shake off many of his backwoods ways. Given as well his soured reputation after the Gouldsboro war, not to mention his recent career as a lowly Wall Street curb wheeler and dealer, it seems remarkable that Gould was able to cultivate a relationship with one of the flowers of Murray Hill society. Miss Helen Day Miller had been raised in an opulent family home on Seventeenth Street, not far from Jay’s residence at the Everett House. Helen’s mother, Ann, was a descendant of two of New York City’s oldest families, the Kips and the Baileys. Her father, Daniel S. Miller, himself the descendant of prosperous merchants, had since 1853 focused his energies on managing his various investments on Wall Street. Miller worked out of the offices of Dater & Company, a firm in which he held a partnership. A Dun & Company credit report of 1860 described him as reliable, bankable, and “more than ordinarily bent on making money.”5

  We have no precise record of how Jay and Helen, two-and-a-half years his junior, first met. Although they lived near one another, it seems quite out of the question that the very shy Gould would have simply struck up a conversation with a young lady on the street, as some biographers have asserted. Besides, this simply was not done. More likely, Jay had dealings with Helen’s father, who, finding him to be a young man of promise, invited him home to dinner. Despite the fact that Jay lacked polish, he possessed qualities likely to interest both Mr. Miller and his daughter. These included modesty, ambition, and smarts. As well, Jay was a sober fellow blessed with great personal discipline. Thus he himself represented a commodity that, as Miller surely knew, remained in perpetual short supply among the would-be millionaires on the Street.

  Jay and Helen were not unalike. Each was unimpressive physically. Jay was short and unmuscled. Helen–whom Jay soon took to calling Ellie–was equally
small, thin, and rather plain, with a prominent nose. The two were also similar in that they delighted in quiet pleasures, preferring intimate family gatherings and interesting books to galas and recitals. From her few written remains, Ellie appears to have been the classic “gilded bird” of Murray Hill, one completely content with her gilded cage: a strictly traditional Christian lady dedicated to all the proper charities and subscribing to all the popular bigotries. Like her parents, she loved Jesus Christ, Murray Hill, and the Daughters of the American Revolution, in that order. She likewise joined her parents in distrusting Catholics and Jews and in believing that Protestant America would be remiss in overtolerating either. Therefore it seems reasonable to guess that Jay’s Puritan background–and the fact that his great-grandfather was the hero of the Battle of Ridgefield–did not work against his cause as he sat in the Millers’ living room earnestly courting his Ellie through most of 1861.

  Jay proposed in early 1862. Some biographers, among them Edwin Hoyt in his 1969 book The Goulds, have claimed that Ellie’s father disapproved of the match with a vengeance that forced the couple’s elopement. The existence of a printed wedding invitation among the papers of Jay and Ellie’s eldest daughter at the New York Historical Society, however, calls this assertion into question. According to the invitation, Jay and Ellie were married at the Miller home on the afternoon of 22 January 1863. Writing in 1897, Jay’s sister Bettie Palen recalled being present at the wedding along with her husband, Gilbert, Abram Gould, and Anna and Asahel Hough. Only Sarah and George Northrop, busy tending to the unpresentable John Burr Gould, stayed away.

  After the nuptials, Jay moved out of the Everett House and in with Ellie and her parents. Here he and his wife would remain for a full six years; and here their first three children would enter the world.

  For close to a year after the wedding, Jay continued to study the art of Wall Street as practiced by the most seasoned speculators. In time, he became a master of stock watering, short selling, pooling, bear raids, bear traps (wherein bears short in a stock are forced to cover their short positions at ever-escalating prices), and other standard tricks of the Street, most of which would not be tolerated today but were standard practice in Gould’s time. He developed, as well, into a maestro of margins, one of the many Wall Street wizards capable of creating capital out of thin air and gaining control of companies by using just a few dollars reflected in a hall of financial mirrors: funhouses of convertible bonds, proxies, and leveraged cash. Eventually, Gould’s skills at fiscal sleight-of-hand were unsurpassed. But unlike the Daniel Drews of the world, Gould valued Wall Street speculation for the most part as a means toward greater and more complicated ends. He sought, in the long run, to take control of companies that he could manage, improve, and merge. It was thus only a matter of time before he focused his attention on the one sector of the marketplace that offered not only the greatest range and flexibility of financial instruments, but also the greatest promise for long-term growth: railroads.

  During the autumn of 1863, D. M. Wilson–with whom Gould had briefly partnered in the leather merchandising firm of Wilson, Price & Company–approached the twenty-seven-year-old Jay with an offer to sell $50,000 worth of first-mortgage bonds in the Rutland & Washington (R&W) Railroad. As Gould well knew, the New York General Railroad Act of 1850, which allowed directors of railroads to issue bonds on their own authority to finance expansion, also permitted the easy conversion of these same bonds into common stock and then back again into bonds. Doing the math in his head, Jay must have quickly realized that just a small percentage of Wilson’s bonds, when converted, would establish a controlling interest in the R&W.

  Founded in the 1840s for the purpose of providing a link between the marble quarries of Rutland, Vermont, and the Hudson River port of Troy, New York, the small R&W ran just sixty-two miles, from Rutland to Salem and Eagle Bridge in New York’s Washington County. At Eagle Bridge, the road connected to the Rensselaer & Saratoga Railroad, which owned the track to Troy and beyond.6 By the early 1860s the R&W was underused and unprofitable. Its tracks and rolling stock were in poor repair, and its staff was demoralized. Anxious to get out of his significant investment in the road, Wilson offered Gould all his bonds at just ten cents on the dollar.

  Using some of his own cash, some of his father-in-law’s money, and a small amount of speculative paper, Gould transacted the deal shortly after Christmas in 1863. Effective New Year’s Day he assumed the titles of president, secretary, treasurer, and superintendent of the road. Thereafter, for a solid year and a half, Jay spent four to five days a week in Rutland working to improve the infrastructure, traffic, and profitability of the R&W. Gould made his office in the Bardwell House Hotel on Rutland’s Merchants Row. What he didn’t know about the railroad business, which was considerable, he made a point of learning. “I left everything else and went into railroading,” he remembered a few years later. “I took entire charge of that road. I learned the business and I was president and treasurer and general superintendent. . . . I gradually brought the road up and I kept at work.”7 After hiring experienced managers and making necessary repairs, he then needed to drum up new freight and passenger traffic now that the quarries were at a standstill: their men at war, and the large construction projects they routinely supplied being on hold for the duration.

  Jay issued new bonds as necessary over the course of eighteen months, both to support infrastructure improvement in the line and to help finance payroll in the short term. One Charles Frost–a native of Salem who was to have a lengthy career as a baggage man and conductor on the road (eventually a branch of the Delaware & Hudson Railroad)–began working for Gould as an office boy in 1864. “The duties to which he was assigned were not many or strenuous,” wrote Salem town historian William A. Cormier, “and he received in return fifty cents a day. He kept the office clean, ran errands, and at times, went out on the road with his superior.” Frost recalled Gould “as a man of small stature and having a countenance of stern and commanding features which were greatly intensified by a thrifty and carefully barbered beard. He chose to remain closely secluded in his private office the greater part of the time when he was in Rutland. . . . He was a man of snap judgment, curt in his remarks, and exacting. Action was ever his hobby, and he was relentless in his efforts to bring about the accomplishment of those things which he set about to do.”

  At one point when Frost asked for an increase in salary, he was refused on the grounds that fifty cents a day was “big pay for a man.” On another occasion, when Frost accompanied Gould to the nearby town of West Rupert, Vermont, for the purpose of measuring wood that had been delivered for locomotive fuel, the famished boy was at first delighted when–in the midst of their ride–Gould proposed a stop for lunch. Disappointment came soon thereafter, however. Instead of taking his assistant to a tavern for a sit-down, Gould picked up his small leather satchel (“such as he was accustomed to carry”) and out of it produced an assortment of crackers and dried prunes, which he amiably split with Frost.8

  Another old local–Elisabeth Hughes, who was interviewed in 1937–remembered that shortly after Gould became involved with the R&W he also made a small investment in the region’s burgeoning slate industry (hoping, perhaps, to stimulate freight traffic). “Ben Williams was the quarry boss for Jay Gould,” recalled Mrs. Hughes, who had been a little girl at the time, “and every time Jay Gould came to Middle Granville [Vermont] the children would run out to greet him. On seeing us he would say, ‘Hold up your pinafore,’ and Jay Gould would always drop some copper coins in our aprons for us. I can see him now. He was one of the best-looking men I ever saw. He was always full of pep and dressed so nice.” He also–as Mrs. Hughes’s story made clear, and as she herself commented–“always loved children.”9

  Early in his career with the R&W, Gould demonstrated his lifelong disinclination to separate himself from family. He always returned to his Ellie every weekend, riding his own trains between Vermont and Eagle Bridge, then continuing
to the Hudson River on the Rensselaer & Saratoga line. Frequently he chose to stand in the front engine with the various crews, all of whom he got to know on a first-name basis. Somewhat ironically, given what was to come, most of his journeys on the Hudson between Albany and Manhattan seem to have been on the steamboat Daniel Drew. Passing the river towns on the western shore below Albany, Gould routinely got a good though distant view of his native Catskills. But home and hearth for Jay were now quite different from what he’d known in those mountains.

  “I am missing my fond wife terribly,” he wrote the very pregnant Ellie near the end of January, his first month overseeing the R&W. “I am hoping she is not feeling too delicate or indisposed. I know she is as brave as she is beautiful; and I know the great gift she is about to bestow.”10 Jay was at work in Rutland, after a weekend home in early February, when word came that Ellie had given birth to a baby boy: George Jay Gould. “And how is the little emperor?” Jay asked from Rutland two weeks later, after a lengthy stay in Manhattan to enjoy his new son. “Tell him his father–who misses both he and his mother quite completely–will be home soon, and that the good men of the R&W are quite tired of hearing about his handsomeness. Some say Robert Lincoln is the ‘Prince of Rails,’ but George’s mother and I know better.”11 In a long missive from Pennsylvania, John Burr Gould congratulated the daughter-in-law he would never meet on the birth of a grandson he would never see, but puzzled over where the name “George” had come from. John Gould said he had no recollection of any Talcotts, Burrs, or Goulds who’d worn that stamp. (As he might have guessed, the name came from Ellie’s side of the equation, specifically her Kip lineage.) “The boy chirps like a bird,” Jay wrote his sister Sarah that May. “We push him in the carriage quite proudly round Union Square and then up to Madison Square and back.”12