Dark Genius of Wall Street

by Edward J Renehan Jr

  As early as 20 March, Gould had Hamilton Harris (aided by Erie director John E. Develin) busy trying to lobby (i.e., bribe) that sizable and infamously bribable segment of the New York legislature known as the Black Horse Cavalry. But when Vanderbilt’s Albany representative, John B. Dutcher, a director of the Harlem, aided by yet another of Vanderbilt’s sons-in-law, Horace F. Clark, outbid Develin and Harris for votes on the Erie Bill, the legislation wound up being reported unfavorably out of the Assembly’s railroad committee on 27 March. After this, it crashed and burned on the floor of the Assembly with a vote of eighty-three against, thirty-two for. Word came that the bill might, however, be reconsidered. “The hint,” wrote Henry and Charles Francis Adams, “was a broad one; the exiles must give closer attention to their interests” in the form of more generous bribes.11 (At the same time, a New York State Senate subcommittee recently impaneled to investigate the financial manipulations of the Erie clique came down three to two against the Gould forces. Two of the senate investigators had received bribes from Gould, and two from Vanderbilt. A third senator, A. C. Matoon, took bribes from both camps and then finally sided with Vanderbilt.)

  With Harris and Develin having failed to obtain the required results in the Assembly, Gould decided a personal trip to Albany was necessary even though such a journey would have to occur on a day or days other than Sunday. Negotiating via messenger with Judge Barnard, Jay promised to appear in Barnard’s court on 4 April but insisted that he be left a free man, unaccosted, until that date. His safety thus secured, Gould departed Jersey City on 30 March with a suitcase full of money and a backup supply of Erie checks. Upon his arrival at Albany, Jay, who’d already decided to pay far more than the paltry $1,000 per vote previously offered by Develin, joined immediate battle against the Vanderbilt representatives. Both parties held open house in equally luxurious suites at Albany’s Delavan House Hotel, so that legislators could conveniently stroll back and forth from one cocktail party to the other, watching the value of their votes accumulate. For this round, Vanderbilt was represented by none other than the Grand Sachem of Tammany Hall himself, Boss Tweed, for the moment acting in his role as state senator. Tweed had no less than six bars set up in his seven-room suite, and Gould had almost as many. After a visit to Gould’s rooms, a Herald reporter wryly described Gould’s trunk as “literally stuffed with thousand dollar bills which are to be used for some mysterious purpose in connection with legislation.”12 Each team avidly bid up the price of votes, creating quite a bull market in democracy.

  Jay briefly interrupted these proceedings on 4 April in order to return to Manhattan. There he made good on his promise to appear before Judge Barnard. Deferring proceedings until 8 April, Barnard insisted that Gould remain thereafter in the custody of a court officer. Outside the court building, Gould glibly informed his somewhat witless guard that he must return to Albany. When the guard protested, Gould simply replied that he was free to tag along. Thus the chain of custody would be unbroken. On the 8th, Gould pleaded sickness and sent his lawyers to make excuses to Judge Barnard. As the Adams brothers would observe, Gould was “not too ill to go to the Capitol in the midst of [an early spring] snow storm, but much too ill to think of returning to New York.”13

  Reintroduced in the Senate rather than the Assembly, the Erie Bill–meant to legalize bonds ostensibly issued in order to finance repairs–received help from an ironic God on 15 April, when three Erie railway cars ran off a broken rail and tumbled down an embankment at Port Jervis, New York, killing twenty-six. Three days later, greased by many thousands of dollars, the Erie Bill cleared the Senate by a vote of seventeen to twelve. (This time Matoon voted with Gould. “A man more thoroughly, shamefacedly, contemptible and corrupt,” the Adams brothers fumed, “a more perfect specimen of a legislator on sale haggling for his own price, could not well exist.”14)

  Meanwhile, various newspapers had already come over to the side of the Erie clique by adopting antimonopoly as their editorial slogan. The highly respected Commercial and Financial Chronicle stated things unequivocally: “The question that concerns our great trading interests is this–shall the main avenues of our commerce be under the control of a gigantic monopoly, or shall they be stimulated and expanded under the wholesome competition of transportation companies?”15 James Gordon Bennett, Jr., of the Herald–a man who would hardly ever find himself on Jay Gould’s team in the future–sang the same tune. “It is obviously contrary to the interests of the public that any one party should have control of the Erie, the New York Central, the Hudson River and the Harlem,” Bennett wrote. “Such a monopoly could exact its own rates on fare and freight, except where restricted by legislative enactments, and the results would be deplorable.”16

  With editorial and public sentiment swinging in favor of the Erie clique, some thought it a strategic retreat when Vanderbilt suddenly, four days after the Senate vote, stopped all lobbying and vote buying. One day later, on Monday, 20 April, the environment in Albany had changed completely. “Ere ten o’clock,” wrote the Herald’s reporter, “there was a perfect rush for Parlor 57 at the Delavan House, where the pecunious Gould had been holding forth. It is said that prices came down wonderfully. Those who had been demanding $5000 were now willing to take anything not less than $100. The great Erie coffers were closed, however. There was no longer any need.”17 Later that afternoon, the men of the Assembly–enraged at Vanderbilt, whose apparent surrender had cost them thousands–promptly passed the Erie measure by a staggering anti-Vanderbilt vote of 101 to 5.

  Observers wondered why Gould did not appear to delight in this unexpectedly cheap victory. We have no record of exactly when Gould and Fisk realized that both Drew (weary of New Jersey and annoyed at Gould for supplanting him) and Eldridge’s Boston group (ultimately uninterested in anything that did not immediately affect the fortunes of the BH&E) had been in secret talks with Vanderbilt. The settlement between Eldridge, Drew, and Vanderbilt was finalized in a meeting at the Manhattan Club on Sunday afternoon, and word must have reached Gould either late Sunday or very early on Monday.

  Combining all their shares, the Eldridge group, Drew, and Vanderbilt agreed to three key items. First, much of the stock Vanderbilt had so recently purchased would be bought back from him at a price approximating what he’d paid. Second, Vanderbilt’s nephew Frank Work and others hurt by Drew’s manipulations of the pool would be compensated and made whole. Last, Drew would withdraw from all future management of the Erie. This final item was actually not a large issue with the old man, who had already been effectively removed by Gould and Fisk.

  The two key figures in the late fight were left with very little to show for all their troubles. In fact, the New York courts were still contending with Gould and Fisk on the subject of their freedom. This situation led the pair to descend on Vanderbilt at his Manhattan mansion, 10 Washington Place, in a surprise visit early one morning in May, about a week and a half after the Assembly’s passage of the Erie Bill. Testifying in 1869 before the New York State Senate committee investigating the Erie Wars, Fisk recalled that when they arrived unannounced at Vanderbilt’s house, Gould “wanted to wait until the Commodore should have time to get out of bed, but I rang the bell, and when the door was opened I rushed up to his room. The Commodore was sitting on the side of the bed with one shoe off and one shoe on.” (The embarrassed Gould, meanwhile, lingered discreetly in Vanderbilt’s downstairs parlor.) When Fisk–stalking back and forth across Vanderbilt’s bedroom–insisted that Vanderbilt call off Judge Barnard’s dogs, Vanderbilt in turn insisted that Fisk and Gould join Drew and Eldridge in relieving him in an “honorable way” of his large supply of Erie stock. Vanderbilt, Fisk recalled, “said I must take my position as I found it, that there I was and he would keep his bloodhounds . . . on our track; that he would be damned if he didn’t keep them after us if we didn’t take the stock off his hands. I told him that if I had my way, I’d be damned if I would take a share of it; that he brought the punishment on himself and deser
ved it. He said the suits would never be withdrawn till he was settled with.” Confronted by this threat, Fisk agreed to most of Vanderbilt’s terms. “I said (after settling with him) that it was an almighty robbery; that we had sold ourselves to the Devil, and that Gould felt just the same as I did.”18

  As it was, Fisk and Gould stood to gain little from their adventure. Nevertheless–and despite a tacit agreement–Drew, Eldridge, and Vanderbilt appear to have made at least one stab at seeing that the pair got nothing at all. When Eldridge failed to appear for a promised meeting with Gould and Fisk early in June, the two went directly to the nearby home of Judge Edward Pierrepont (soon to be appointed U.S. Attorney General under President Grant). Here, according to rumors on the Street, a secret meeting of the Erie board was in progress. Barging into Pierrepont’s back parlor, Fisk and Gould found Drew, Eldridge, and Work along with the rest of the Erie board finalizing the details of the agreement with Vanderbilt, an agreement that left no slice of the pie, not even a sliver, for the two new arrivals.

  Through fast and loud talk, and not-so-veiled threats of their own court actions, Fisk and Gould endeavored to improve their position to the extent that they could. That is, not by very much, but by some. The final agreement called for Vanderbilt to be relieved of 50,000 Erie shares priced variously at $70 and $80, these amounts to be paid with $2.5 million cash and $1.25 million face value BH&E bonds. Vanderbilt also received another $1 million for a four-month call on another 50,000 shares of the Erie, and two seats on the Erie board. (Over the coming weeks, the total of 100,000 shares was to be eased into the marketplace slowly with an eye toward maintaining the price.) Drew, already out of the treasurer’s job, resigned from the Erie board and repaid the road $540,000 in exchange for the dropping of all other claims against him. Eldridge’s Boston group likewise resigned their seats on the board and exchanged $5 million face-value BH&E bonds for Erie acceptances. And Frank Work and Richard Schell received $464,250, representing what they’d lost in Drew’s manipulations of the pool.

  At the end of all this finance, the Erie was left as an empty husk. Mired down by more than $9 million in newly minted debt, the corporation consisted of more than $21 million in outstanding stock, few tangible assets, and a bad reputation. This booby prize, as one reporter called it, now went to the two apparently not-so-smart young men who had orchestrated the late drama. By the close of the meeting Gould had become treasurer and president of the Erie, replacing Eldridge in the latter position. His first act was to appoint Fisk as controller and to form a new executive committee consisting of himself, Fisk, and Erie chief counsel Frederick Lane.

  None envied Gould. The Erie seemed hardly worth having. Besides, the thirty-two-year-old man’s hold on the road was by no means assured. Gould himself did not own enough Erie stock to guarantee his position. He might well be out when the new board elections came along in October. And even if he stayed, what–exactly–was he president of? “There ain’t nothin’ in Ary no more, C’neel,” Drew told Vanderbilt.19

  Chapter 17

  SCOUNDRELS

  ONE OF JAY GOULD’S most valuable acquisitions in the Erie was a thirty-four-year-old Italian immigrant and former seaman named Giovanni Pertinax Morosini. He claimed descent from a prominent and ancient merchant family of Venice. But after coming to the United States in 1850 the physically imposing and naturally intelligent Morosini worked five years as a deckhand on clipper ships. Then fate intervened. Morosini’s fortunes changed one summer night in 1855 when he stumbled upon a young man in a suit being beaten by waterfront toughs near New York’s South Street. Morosini rescued the teenager, who turned out to be the son of an officer of the Erie. He received as his reward a clerkship in the offices of the Erie auditor. Over the next thirteen years the smart, diligent Morosini rose to the post of assistant comptroller. He also married, started a family, and established a small estate (Elmhurst) in the Riverdale section of the Bronx. As a hobby, he collected medieval armor, sabers, and gold coins.1 Such was Morosini’s situation when Gould, a self-made man with a natural affinity and trust for other self-made men, came into possession of the Erie. Gould swiftly removed Morosini’s longtime boss (an old Drew crony) and installed Morosini as acting auditor, formalizing the position a few months later. In time, Morosini would also become Gould’s confidential secretary, bodyguard, and sometime broker, remaining a staunch friend and ally of the Gould family until well after Jay’s death, and always profiting from the relationship. (Today Morosini–who died in 1908–is still close to Gould, occupying a Woodlawn mausoleum that is nearly as elaborate as Jay’s own.)

  The financial affairs Morosini found himself auditing were necessarily complex. As Fisk was to recall, the first thing he and Gould found upon their arrival at the top of the Erie mountain was “a very well dusted treasury.”2 To shore up that treasury, Gould and his cohorts avidly took to the printing press throughout the summer, creating some $20 million in convertible bonds that were then instantly made over into stock. “For the issue of $20,000,000,” complained the Commercial and Financial Chronicle, “there is nothing to show beyond $5,000,000 of bonds of another corporation [the BH&E], the interest of which is guaranteed by the Erie Company, the laying of a new line of rails, some minor improvements of no great consequence, and ordinary repairs which should have been covered by the current earnings.”3 In the end, although Gould did succeed in replenishing the Erie’s treasury, he did so entirely at the expense of stockholders, who saw the value of their equity cut by more than a third as a result of the new issues. (Erie stock stood at around $70 in June, before the new issues. By the end of August, with so many certificates on the market, the stock hovered just above $44. All the while both Fisk and Gould personally shorted Erie stock, and made hundreds of thousands.)

  At the same time, Gould prepared carefully for the October board elections. Through September, he used some of the Erie’s own money to buy proxies. He also made an executive decision to close the Erie transfer books on 19 August, more than a month before they would normally be shut prior to the annual Erie election. It was of course no coincidence that on 19 August, though not necessarily one day later, the bulk of the newly manufactured shares (a plurality more than large enough to control the election) sat on the books of brokers friendly to Gould. Thus, on 13 October, the Erie elected a board of Gould’s own choosing. New members included Gould’s brother-in-law Daniel S. Miller, Jr., and Boss Tweed, along with Tammany chamberlain Peter Sweeny, the Erie’s recent nonfunctioning receiver under Judge Barnard. By recruiting the former Vanderbilt ally Tweed and gifting him some stock, Gould also brought onboard Tweed’s entire operation and crew, including the once annoying but now instantly tamed Barnard. “Barnard’s roaring by degrees subsided,” commented the Adams brothers, “until he roared as gently as any sucking dove, and finally he ceased to roar at all.”4 (Soon Gould and Fisk would go so far as to name the Erie’s newest locomotive, an ornate thing decorated by the famed artist Jasper Francis Cropsey, the George C. Barnard.)

  The new board dutifully reappointed Gould, Fisk, and Lane as the executive committee, Gould as president, Fisk as controller and chief operating officer, and Lane as counsel. The board also approved a key change that Gould proposed in the language of the Erie bylaws. Henceforth, Erie stockholders would be required to vote in person at annual board elections. By eliminating the possibility of proxies, this new rule effectively disenfranchised some of the largest holders of Erie stock who were located abroad. Going forward, Gould would not have to exert himself quite so much to ensure smooth elections. At the end of the day on 13 October, Gould went home jubilant to his family on Seventeenth Street, and Fisk went home jubilant to his mistress. “My dear Josie,” he wrote her in a note messengered that morning, “. . . Mr. Tweed and Mr. Lane will dine with us at half-past six o’clock. Everything went off elegantly. We are all safe. Will see you at six o’clock.”5

  Feeling quite safe indeed, Gould now–as had always been his custom–reached for a place eve
n higher than the elevated and powerful perch on which he found himself. He and Fisk got in touch with their old mentor Drew and made him a proposition. How would the “Great Bear” like to participate in the ultimate bear trap, one of staggeringly unprecedented proportions? “Drew might have enjoyed life and the consolation of religion on the few millions he had left,” commented Henry Clews a few years after the start of Drew’s destruction, “if he had retired in company with his Bible and hymn book to some lovely, secluded spot in the peaceful vales of Putnam County; but he was under the infatuation of some latent and mysterious force of attraction, the victim of some potent spell.”6 Bear raids and short selling had become a part of his nature. They possessed an allure and offered an adrenaline rush that he simply could not resist. Besides, what the audacious Gould proposed was quite breathtaking. Drew may have found the plan appealing for its promise of a final great triumph, a fitting Olympian end to his long career.

  Gould’s idea was a play that involved not just Wall Street but also London’s Lombard Street, along with the whole money market on two continents. Briefly sketched, his plan that autumn was to constrict the U.S. money supply, causing interest rates to rise and, conversely, the price of stocks–the Erie included–to plummet. Armed with some $10 million in Erie cash reserves, Gould had a good head start toward locking up greenbacks. Cash was usually scarce on Wall Street in the fall anyway, as significant amounts were routinely withdrawn for the payment of farmers after harvests. To tie up the $10 million, Gould drafted checks against the Erie funds and then had the checks certified, a mechanism that obligated banks to place these funds in reserve. To further strain the money supply, Jay took the certified checks to still other banks, where he used them as collateral with which to borrow cash over the counter, this to be locked up in deposit boxes. Meanwhile Drew, the erstwhile puppetmaster, was simply asked to add $4 million to a blind pool (directed by Gould) designed to short Erie stock in the bear market that would inevitably follow a rise in bond coupon rates.