Dark Genius of Wall Street
Page 20
One week later, Gould managed another meeting with Grant at Corbin’s house when the vacationing president passed through New York on his way from Newport to Saratoga. During their talk, Grant revealed that reports of enormous harvests in the West had brought him round to Gould’s point of view. American farmers would need to be able to sell their excess abroad, and the government would have to help them by condoning some well-timed inflation. Writing to Boutwell on 4 September, Grant stated categorically that it was “undesirable to force down the price of gold.”10 Immediately after this chat with Grant, Gould instructed his allies to begin buying gold contracts even faster than before. Pushing most of his personal trades through his old firm of Smith, Gould & Martin, Jay told his colleague Smith to work through a number of subbrokers in order to avoid the appearance of orchestration. By mid-September, Gould’s pool controlled contracts far in excess of the amount of gold to be found anywhere in New York outside federal vaults. Gould alone held contracts valued at $25 million, and the other members of his clique possessed contracts totaling $65 million more.
On the 13th, when the president returned to Manhattan en route to Pennsylvania for a visit with relatives of Mrs. Grant, Gould offered the chief executive a private Erie Railroad car to take him to Pittsburgh–thus reinforcing the general view that he had Grant’s ear. According to James B. Hodgskin, a broker who headed the Gold Room’s arbitration committee, it was common knowledge “that the parties who . . . were manipulating the gold market had in league with them pretty much everybody in authority in the United States, beginning with President Grant and ending with the door-keepers of Congress.”11 But this impression, which Gould certainly wanted to enforce, hardly reflected reality. In fact, Grant was wary of being manipulated by Gould or anyone else. In the same week that he accepted Gould’s hospitality on the Erie Railroad, Grant sent a second note to Boutwell in which he commented that “a desperate struggle is now taking place, and each party wants the government to help them out. . . . I think, from the lights before me, I would move on, without change, until the present struggle is over.”12
By now, the struggle of which Grant spoke involved Gould against some of his own recent pool members. The voracious buying of Gould and his cohorts had driven the gold price to 138 by 8 September, at which point Jay’s cabal began to show signs of fragmenting. On that day Corbin, nervous about the prospect for further heights, demanded and got from Jay the profits on the gold purchased for him. Kimber abandoned ship as well, taking profits on his $10 million in gold contracts before switching to the short side of the speculation, joining the numerous bear operators who were anxious to depress prices. Woodward could be induced to stay “long” only after Jay relieved him of $6 million out of the $10 million in his account. During the second week of September the bears had their way, causing gold to slide down to 135, where it remained for several days, a hiatus occasioned not only by Kimber’s defection but by the New York market’s receipt of fresh certificates from Boston, Philadelphia, and Chicago.
At this time, early in the second week of September, the press began to take notice of the operation. The New York Tribune’s Horace Greeley thundered against Gould and the other “goldbugs.” Greeley denounced what he called “a vast gold conspiracy.” He likewise called upon the U.S. Treasury to sell gold and purchase bonds, thereby relieving the growing currency tension.13 Concurrently, leading financial writers for all the other major papers (most notably Caleb Norvell of the New York Times, Ford Barksdale of the Sun, and George Crouch of the Herald) now zeroed in on the mechanics of the corner. The Times’s man, Norvell, became especially active, that paper still being embarrassed after having been duped into running Gould’s proinflation propaganda back in August. Meanwhile, a thousand or more small speculators eagerly placed their highly leveraged bets, long or short, remembering the killing they’d made a year before when Gould had sought to corner the Erie.
Dogged buying by Gould and his remaining associates brought gold back up to 138 on the 15th, at which point Wall Street’s numerous advocates of “sound” (uninflated) money began to petition Boutwell for a narrowing of the spread between greenbacks and gold. Next, in a clumsy attempt to counter this lobby, the increasingly nervous Gould embarked upon an action that proved lethal to his cause. Gould instructed Corbin to write his brother-in-law a letter arguing, once again, against federal intervention. Then he had the letter hand-delivered by an Erie employee–W. O. Chapin–who called upon the president in rural Washington, Pennsylvania, eighteen miles outside Pittsburgh. Arriving at the temporary presidential retreat on the morning of the 16th, Chapin watched as Grant read the letter. Grant, however, offered no reply. An hour later, Chapin wired Gould that the letter had been “Delivered. All right.” But all was not right. Thinking it odd that his brother-in-law had sent a courier to find him in the wilderness and deliver a plea for support of gold prices, Grant at long last realized that Corbin was an interested party, long on gold and anxious to influence the president to protect his financial position. That same day, when the enraged Grant came upon his wife in the process of writing a letter to his sister Virginia, he gave her a very specific message to convey. “Tell your husband,” wrote Julia Grant, “that my husband is very much annoyed by your speculations. You must close them as quick as you can!”14
While Julia was penning those words, the Corbins were entertaining Jim Fisk and confidently telling him gold could not fail. The still-skeptical Fisk, seeking reassurance from the Corbins, was being recruited by Gould to replace Kimber and the weakening Woodward as an ally against the growing horde of bears. According to Fisk’s later testimony, his loyal friend lied in order to lure him in, saying Grant himself as well as General Porter were full partners in the scheme. “I know there will be no gold sold by the government,” the president’s sister told Fisk, backing up Gould’s story. “I am quite positive there will be no gold sold; for this is the chance of a life time for us; you need not have any uneasiness whatever.”15
With Gould’s and the Corbins’ assurance that federal policy was well in hand, Fisk now plunged in, agreeing to help Jay nudge gold up to a comfortable height, at which point they would both exit. According to their plan, Fisk would transact all his purchases independently of Gould, routing them through a network of brokers administered by his old partner Belden. As Jay would later say, “Our interests were entirely separate. He had his own gold and I had mine.”16 In addition to his fresh credit, Fisk also brought to the enterprise something else Gould sorely lacked: personality and panache, which by mere projection could nudge prices higher. “Gold!” Fisk replied loudly to William Fowler’s street-corner inquiry about where things were headed. “Sell it short and invite me to your funeral!”17
Meanwhile, newspaper editorial-page editors followed Greeley’s lead in boosting one side or the other. The World, on the morning of Thursday, 16 September, criticized bearish Republican bankers, hinting at their presumed close relationship with the administration at the expense of the common man. “Why even a ‘trooly loil’ gold-gambler should expect the government to assist him in making money . . . in his gold-gambling operations is a question which the heavily taxed, hard working, non-gambling people may well ask.”18 But the Herald, although urging Boutwell not to be unduly influenced by either lobby in the debate, nevertheless chose to err on the side of the judicious inflation endorsed by Gould: “The only people who want gold cheap at this season are the few merchants who [are short in] gold. Those who wish to see gold higher are the great body of produce and cotton merchants [who] desire to market their goods in Europe for the greatest sum of greenbacks possible.”19 In other words, according to the Herald’s analysis, in this instance only speculators would benefit from sound money, while working people would benefit from the lack of same.20
The following Monday, the 20th, the story of what was going on in the gold market leaped from the editorial and financial pages to the front page, with the Sun breathlessly announcing that an “alliance of the
most powerful and influential firms in Wall Street, including notorious Erie speculators, has been effected with a view of obtaining the exclusive possession of all the gold in the market.”21 Two days later, the Times took issue with Gould’s idea that his maneuvering for higher gold prices would help agricultural prices. Caleb Norvell pointed out how the uncertainty over gold had created chaos in foreign exchange and produce markets, causing prices for a host of commodities to drop. “Large export orders for Flour, Grain, Provisions, Petroleum, &c., are held in abeyance on account of the difficulty of negotiating Exchange,” Norvell wrote. This problem was bound to continue until “the combination in Gold is broken down.” Imports from Europe could do it; so could action by the U.S. Treasury. But something had to happen in short order to create “a free supply of gold which speculation cannot lock up or control.”22
Despite all this journalistic hand-wringing, the fact is that by the close of trading on Wednesday, 22 September, Fisk and Gould had managed to bull the price of gold up to only 141 1/2. Not very impressive, considering Fisk alone by this point held contracts valued between $50 million and $60 million and other members of the Gould pool had likewise increased their purchases. (Henry Smith wound up with contracts totaling $50 million.) Still, the attempted corner had already had its unintended impact. With the bears fighting back ferociously, scarcity of credit now sent interest rates soaring, making the market for cash contract to a point where it began to affect both the stock and the bond markets. (Stocks, which nearly always moved inversely to gold, were already sinking. In the midst of all their other busy deal making that Wednesday, Gould and Fisk paused long enough to sideswipe their old nemesis Vanderbilt, mounting a quick bear raid of the New York Central that sent that stock down 25 percent in just a few hours.) Meanwhile, in the Gold Room, bulls were paying half a percent per day for the funds needed to carry their contracts. At the same time, some bear operators, after lending the funds for gold, used the return to borrow gold, which they, in turn, sold short.
“There is a panic on Wall Street,” Gould wrote Boutwell on Wednesday afternoon, “engineered by a bear combination. They have withdrawn currency to such an extent that it is impossible to do ordinary business.”23 Jay pleaded with Boutwell to increase the currency supply for the general good, but he never once brought up his own personal need for ready credit with which to finance his unique project. Shortly before sending his message to Boutwell, Gould suffered a conversation with the frantic Corbin, whose wife had just received the letter from Julia Grant. After a long discussion, Gould promised Corbin what amounted to a $100,000 bribe if he would just keep Julia Grant’s letter confidential. “I am undone,” Gould told Corbin, “if that letter gets out.”24 (Ironically, the Evening Mail painted a very different picture of how things stood with Gould, and one wonders if Jay himself didn’t plant the misinformation: “At no time for months have the bull clique of operators felt more sure of their ground than they were [on Wednesday]. They were even somewhat indifferent as to whether or not Mr. Boutwell came into the market, and boasted that they could put gold up to 150 if they chose to press matters.”25)
The next morning at Castle Erie, Gould did not tell Fisk of Julia Grant’s letter to Corbin’s wife. He explained simply that Corbin needed money. Later on, the still confident Fisk told his broker, Belden, to put gold up to 144. At the same time, in another office, Jay quietly and without Fisk’s knowledge instructed Smith to stop buying and to start selling on a slow schedule, so as not to raise suspicions. Concerned about looming federal intervention if gold went much higher, Jay shifted gears as swiftly as a locomotive and became a stealth bear. “The only hope,” commented Maury Klein, “lay in Jay selling out his holdings in a rising market, which could best be done if Fisk continued to play his role of bull to the hilt. When the price collapsed, Fisk and his brokers would suffer heavy losses but Jay would emerge relatively unscathed. The task then would be to extricate Fisk from the wreckage.”26 This would be done in the usual way: by using the courts as a shield and reneging on obligations.
The Gold Room opened Thursday morning at 141 5/8 and closed at 143 1/4. Fisk and other members of the pool bought frantically while a number of the less solvent bears literally went broke trying to cover their short positions. Caleb Norvell, after looking down from the gallery at the frantic trading below, wrote that the “roar of battle and the screams of the victims” made it seem “as though human nature were undergoing torments worse than any that Dante ever witnessed in Hell.”27 Total Gold Room volume for the day exceeded $239 million, a 66 percent increase over Wednesday’s brisk trade. Belden operatives buying for Fisk secured $14 million in contracts in just four hours, and Smith arranged for an unwitting subbroker to acquire $3.4 million in Gould’s name as a smokescreen to hide Gould’s revised agenda. Another of Smith’s subbrokers sold more than $8 million of Gould’s contracts, the majority of these ironically going to brokers buying for Fisk. “My purchases were very light,” Gould said later, describing Thursday’s trading. “I was a net seller of gold that day. I purchased merely enough to make believe that I was a bull.”28
That evening, in Washington, Secretary Boutwell called on Grant, now returned to the White House from Pennsylvania. Boutwell had, in the previous hours, been bombarded with telegrams from merchants and bankers imploring him to sell gold to depress the price. He’d also received reports of the Tenth National Bank’s certifying checks for bullish “goldbugs” without requiring deposits to back them up. Boutwell informed Grant that he’d dispatched examiners to the Tenth National. They would be at the door when the bank opened for business the next morning. He also asked for instructions regarding gold–instructions Grant declined to give. The president said only that the price of gold was a bubble, and that Boutwell should act on the matter however he thought appropriate.
On the morning of Friday, 24 September–the day to be known ever after as Black Friday–the Times’s Caleb Norvell ran an outraged piece describing Thursday’s action.
[Fisk’s] presence in the Gold Room was signalized by the rapid rise in gold [and] the other engineers of the movement were not idle. . . . They had not only bulled gold with a will, but talked freely of the warrant which they had from Washington that the government would not interfere with them. The highest official in the land was quoted as being with them, and he, of course, controls the actions of the Secretary of the Treasury and the New York Assistant Treasurer. Although this must have been known to be false, there were abundant rumors and suspicions insidiously spread around the street to create the belief or fear with good men that the administration would not interpose by further sales of gold from the Treasury.29
At this juncture, Jay himself knew it was only a matter of time before Grant and Boutwell acted against him. And with the Times publicly challenging his influence, it seemed that now was the moment to bring things to a head.
Very early in the morning on Friday, Gould visited Butterfield at the Treasury Building, where the assistant treasurer told him that no orders of any kind had yet been received from Washington. Later Gould spent an hour at Castle Erie with Fisk, who by now understood the situation but had agreed to continue to act the part of bull for the sake of appearances. Then, at about 8:30, the two went down to the Broad Street offices of broker William Heath, who’d lately been assisting Belden with his buying. Gould and Fisk would remain at Heath’s for the balance of the day, protected by several large Erie Railroad guards and conducting their business out of two separate rooms. Telling Belden that gold would close at 200, Fisk sent him out to the Gold Room with orders to buy all he could at 145. Gould, meanwhile, issued very different instructions via Smith. “Sell, sell, sell,” Smith whispered to subbroker Edward K. Willard. At the same time, Willard was to make no contact with brokers buying for Fisk.30 Shortly thereafter, when the buy-side broker Heath asked Gould for more greenbacks and more margin, Gould scribbled a note instructing the Tenth National to certify some checks and extend some credit.
In
the Gold Room, shouted bids well before the formal 10 A.M. opening put the starting price at 150. Belden’s subbroker, Albert Speyers, led the bidding, while Belden himself pressured the most desperate bears to either put up more margin or make private settlements. Apprised of the five-dollar hike, Fisk instructed Speyers to continue buying at 150. Meanwhile, Gould sold steadily and slowly through 11 A.M., at which point–upon receipt of two ominous pieces of information–he quickly accelerated his divestitures. What caused Gould to speed his exit? First, returning from the Tenth National, Heath informed Gould that the bank could no longer be of service. Federal auditors had arrived on the premises. Word of impending failure was on the Street, and the president of the Tenth National anticipated a run at any moment. Immediately afterward, Smith reported to Gould that Joseph Seligman–the broker for Assistant Federal Treasurer Daniel Butterfield–had suddenly become a seller rather than a buyer of gold: a fact that indicated Butterfield now had knowledge of an impending federal move. (After taking his profits, Butterfield would shortly–very shortly, in fact–resign.)