Through the morning, the price moved to a high of 162, destroying literally hundreds of bearish brokers and merchants who were forced to settle their margin accounts on terrible terms. (At the same time, banks in San Francisco, where there was plenty of gold, found themselves inundated with pleas from New York for wire gold transfers. These requests were ignored, as the San Francisco bankers feared causing a shortage on the West Coast.) Then, shortly before noon, word came that Boutwell had released $4 million in government gold through Brown Brothers. By 12:30, the price had settled down to 135. Amid the chaos that followed, depending on their position, brokers and merchants hustled to either repudiate or enforce contracts made in the madness at the peak of the high.
The Gold Exchange Bank nearly collapsed under the weight of the transactions (many in dispute) that needed clearing. Down on Broad and Wall Streets, sullen and strangely quiet mobs of ruined men congregated outside the Gold Room, Heath’s office, and the Tenth National (which did indeed experience a run). Across the East River in Brooklyn, a militia unit stood ready to move should events in Manhattan’s financial district get out of hand (which they didn’t). Meanwhile, the chaos in New York drew spectators in financial markets nationwide. Proper Bostonians huddled around the wire in the Merchants’ Exchange Reading Room, clinging to snatches of news. Investors who gathered on Philadelphia’s Third Street became agitated when the gold price indicator at one major bank, this connected directly to the Gold Room via telegraph, went blank. “Boys had therefore to be employed to run from the telegraph office to one broker’s office after another, and cry out the premium,” reported the Philadelphia Ledger the next day. “This added to the Babel.”31 Nearly a thousand individual investors were bankrupted on the day’s activity. Fourteen brokerage houses went under, along with several banks. When the dazed Gould and Fisk finally departed Heath’s building out a back door on Friday evening, they brought their guards with them and thereafter holed up for two full days at Castle Erie.
“[ Jay] has sunk right down,” Fisk told Corbin when the latter visited Castle Erie on Sunday. “There is nothing left of him but a heap of clothes and a pair of eyes.”32 Although at the end of the day he turned a small profit on gold, the week’s massive decline in stock prices meant that Gould owed significant sums on margin calls for securities. Thus the overall financial result of his gold corner scheme was a net loss for him (though not a loss as extensive as that absorbed by many other players). As well, Gould’s gold transactions were stuck in the purgatory of the Gold Exchange Bank’s backlog. On Monday, Gould obtained no fewer than twelve injunctions designed to protect his and Fisk’s interests, such as they were. One order appointed a Gould-friendly receiver for the Gold Exchange Bank itself. Another enjoined the Gold Room from attaching any contracts purchased by Gould’s or Fisk’s brokers on Black Friday. Further injunctions protected Gould’s man Smith from prosecution and forbade the Gold Room to seek any redress against Fisk or Gould except through the courts. Asked about the injunctions, the Gold Exchange Bank’s assistant cashier, Hiram Rogers, replied, “Oh, yes, they came in . . . by the hat full, until finally we did not know what to do. We were enjoined against performing almost every act.”33
When asked by Congress to explain what had happened to profits from the speculation, Fisk answered that these had gone “where the woodbine twineth.”34 The fragrant woodbine, also known as honeysuckle, was commonly planted about outhouses to mask their odors. Gould’s and Fisk’s anticipated returns had been, to put it less delicately than Fisk could, thrown down a shithole. And a messy one at that. As Maury Klein wrote concerning the hundreds of lawsuits stemming from Black Friday, Jay “orchestrated them over a period of weeks, months, sometimes years, never intending that any should go to trial on their merits.”35 The last of these would not be resolved until 1877.
In the short term, Jay’s attempted gold corner would cost him dearly in at least one other major way in addition to market losses. One of the brokerage houses that failed in the wake of Black Friday was Lockwood & Company. That firm’s chairman, Legrand Lockwood, served as treasurer of the Lake Shore & Michigan Southern Line, which ran between Chicago and several up-and-coming towns in Michigan and Ohio. The Lake Shore also owned the Buffalo & Erie Railroad, which connected the Lake Shore to both the Erie Railroad and the New York Central. When his firm collapsed, Lockwood found himself forced to throw his enormous block of Lake Shore stock onto a market considerably depressed in the aftermath of Black Friday. Stressed, and with his own affairs in disarray, Gould could not act swiftly. Instead, it was Vanderbilt who purchased 70,000 shares of Lake Shore at a bargain price, taking control and ensuring that the line would thereafter become an interchange extension of the New York Central rather than the Erie.
But long term, the gold corner was to cost Gould even more dearly in the way of an irretrievably tarnished reputation.
Chapter 20
MEPHISTOPHELES
THE DEMONIZATION OF JAY GOULD following the shipwreck of Black Friday was strident and fanatical. The juggernaut of negative press launched in late September 1869 has yet to stop, as is evidenced by annual “Today in History” blurbs that routinely damn Gould’s soul in newspapers nationwide every 24 September. In Gould’s own era, 1869’s images of ruined men (with their implicit corollary of once-prosperous families demoted to lives of destitution) formed the bedrock for a lasting reputation as a jackal and betrayer. Gustavus Myers, an early Gould chronicler and critic, wrote that Gould “became invested with a sinister distinction as the most cold-blooded corruptionist, spoliator, and financial pirate of his time. . . . To the end of his days [this image] confronted him at every step, and survived to become the standing reproach and terror of his descendants. For nearly half a century the very name of Jay Gould was a persisting jeer and byword, an object of popular contumely and hatred, the signification of every foul and base crime by which greed triumphs.”1
The process began with the pot calling the kettle black. In the immediate aftermath of Gould’s misadventure in gold, reporters resurrected and burnished a phrase uttered by Daniel Drew one year earlier. At the time of the Erie Corner, Drew had said of Gould, “His touch is death.”2 Thereafter, similar dark metaphors sprang up like mushrooms. The Times’s Norvell dubbed Jay “the Mephistopheles of Wall Street.”3 Cartoons depicted him flying on batwings, horns protruding through his top hat as he scowled down on Trinity Church and Wall Street. The same papers, which in the manner of the day did not bother to mask their anti-Semitism, cited standard stereotypes and meditated on the likelihood of a Hebraic background for the covetous, devious financial predator with the Jewish-sounding first and last names. The Sun went so far as to suggest a Faustian overtone to Gould’s skill: a pact with evil that, though it made Gould formidable in this world, would ultimately destroy him in the next. Wall Street operator James R. Keene, no saint himself, went on record denouncing Gould as “the worst man on earth since the beginning of the Christian era. He is treacherous, false, cowardly and a despicable worm incapable of a generous nature.”4 Meanwhile the Tribune chastised Gould for squatting, Drew-like, on the worst of his and Fisk’s gold contracts: “They use lawyers’ injunctions to prevent the payment of honest debts; obey the rules of the Gold Exchange when they make by it and repudiate when they lose; betray each other’s counsels, sell out their confederates and consent to the ruin of their partners.”5
Throughout October, newspapers revisited early episodes in Gould’s career and recast them to fit the contours of a villainous biography. It was now that Charles Leupp’s solvency and insanity at the time of his suicide were forgotten and his death moved up from 1859 to 1857, better to coincide with that earlier panic. In subsequent years, the story of Black Friday itself would be remade to include outraged, bankrupted mobs moving through the financial district hunting for Gould, all the while summoning his earlier crime with the chant “Who killed Leupp? Gould!” But according to contemporary reporting no such vigilantism occurred on the day in que
stion, and Leupp’s name never came up.6 It was also now that the darker version of Gould’s partnership with Pratt gained currency, even though the old man himself, when sought out and solicited for his opinion, starkly refused to comment on his former associate. (Approaching seventy-nine, Pratt was perhaps preoccupied with his latest wife, aged twenty-eight.)
Reporters at the Herald went into their files and, discovering the story of young Jay’s first trip to New York, revived and revised it. Now Grandfather More’s mousetrap became Jay’s invention. It also became a metaphor for all things Gouldian. The Herald said the device–merciless, ingenious, and fa- tally efficient–mimicked its maker, who had gone on to lay such clever traps for other, more speculative mice. (Several cartoons stuck with the rodent-catcher image, portraying Jay as a leering housecat fiendishly toying with wounded prey before the kill.) Looking to scoop the Herald, the Sun sent a stringer up to Roxbury to collect tales of Gould’s early days. From this expedition emerged the anecdote (true enough) of Jay’s land deal at the expense of Edward Burhans. The Sun also snared Jay’s “Honesty Is the Best Policy” essay, which it saw fit to publish in a sidebar beside several columns of blistering ridicule. In this climate, Gould’s recent exploits against Vanderbilt took on a new shade, as did the Erie corner and the war for the A&S. Even Fisk’s formerly amusing excesses came up for criticism. “The Grand Opera House,” intoned Greeley’s Tribune, “is built on the bones of men sacrificed to the Gods of avarice.”7
These were gods that the public believed had been fed, and fed well, on Black Friday. Although Gould understood with painful clarity that he’d ended the adventure of the gold corner significantly poorer than when he began it, the everyday man on the street could not have been convinced. In the popular mind, Black Friday was a cataclysm orchestrated superbly and controlled completely by the cunning Gould for the purpose of profiteering. The uneducated majority–who tended to view capitalism as a zero-sum game in which a dollar lost by one player instantly became one gained by another–assumed that the specter of hundreds of bankrupted investors equaled unrivaled (and unconscionable) gains on the part of Gould and his allies. Newspapers went with the flow. Scandals–simple ones summarized in just a few outraged paragraphs devoid of numbing complexities–added up to brisk sales for dailies nationwide. In a market hungry for a one-dimensional arch villain of Wall Street excess, Jay Gould suddenly fit the bill all too well.
That January, while giving testimony regarding Black Friday before the House of Representatives Banking Committee chaired by James A. Garfield, Republican of Ohio, Jay did himself no favors when he appeared evasive. Upon being asked how he’d known the U.S. Treasury was about to sell gold, Gould did not point to Butterfield’s personal sales via the Seligmans but instead said, “It is one of those conclusions that a man sometimes arrives at intuitively, that are correct in themselves, and yet, if you undertake to give the evidence by which they are reached, you could not tell how it was done.” The committee’s investigation focused entirely on discerning the extent to which Grant and other federal officials had been involved. Ultimately, although the Republican-dominated group gave the Republican president a completely clean bill of health, they stopped short of outright exoneration when it came to Butterfield. The committee simply noted that it could not conclusively prove the assistant treasurer had conspired with Gould. The committee also criticized Corbin for practicing the “worst form of hypocrisy,” which put on “the guise of religion and patriotism” to manipulate a powerful relative.8
Jay’s numerous miscalculations in his effort to corner gold, followed by his and Fisk’s significant losses overall, should have destroyed the emerging myth of his sinister inevitability. But that clarity went begging in Congress’s final summary of events, just as it did in the press. Thus, ironically, amid the debris of Black Friday, the press remained free to craft an illusory image of Gould as malicious, amoral, and unstoppable financial wunderkind. This was publicity Jay himself did nothing to repudiate, thereby entering into the first true Faustian bargain of his life. In the immediate future, his operations with the hopelessly unprofitable Erie would do much to reinforce his popular image as a coldhearted, deceitful financial vampire with a taste for the jugulars of his opponents. Later on, post-Erie, the legend of his audacious bad faith would follow him as he embarked upon his life’s real work: taking control of the Union Pacific and the Missouri Pacific, accumulating other major roads in the Southwest, building up the Gould system of railways, mastering the Western Union, and dominating the Manhattan Elevated.
As Maury Klein wrote, Gould’s infamy coming off Black Friday “spread like a lethal cloud across every enterprise he touched” for two decades.9 In the end, no degree of managerial success (and no amount of hard-won profits built up for shareholders over dozens upon dozens of quarters) would ever be enough to mitigate the easy stereotype of the thieving manipulator out to glut himself on spoils flimflammed from unwitting innocents. The presumption of guilt was to go with Jay to his tomb. For the rest of his life, his motives–which, after all, were simply to make money the same as any other capitalist–would be suspect. And to him a higher standard of virtue would always be applied. In time, the press and public came to view the petty ruses and gambits employed commonly by a host of speculators as despised tools of fraud and monopoly whenever adopted by Gould. In part this was because of his reputation for treachery, but it was also because he used the common tools of the Street in strikingly new ways, putting together previously unimagined and fantastically profitable combinations with a dexterity that spawned frustrated envy on the part of bystanders.
Some fifteen years following Black Friday, long after Gould had proved himself a steadfast CEO capable of working in concert with a score of dedicated, long-term allies to maintain and expand several major corporations at once, the Railroad Times of London would editorialize, “Mr. Gould’s god is his pocket, to fill which he has prostituted every attribute with which he is endowed. Like the Ishmaelite of old, his hand is against every man, and every man’s hand is against him. Those who have ventured to look upon him in the light of a friend have invariably found, sooner or later, that they had taken unto their bosom a serpent whose sting is death. But to attempt to sketch the character of Mr. Jay Gould in its true colors would be futile, since no language is equal to the task. His cold, heartless villainy stands alone, like the man himself, who has so ruthlessly swindled those whom he regarded as his ‘friends’ that he has now none to swindle.”10
Chapter 21
A SPECIAL STINKPOT
AFTER TAKING HIS POUNDING in the gold speculation, Gould moved swiftly to shore up his personal finances as well as the accounts of his associates. Always, he kept his eye on ancillary deals that might be influenced via his position in the Erie. During a rate war with the New York Central to attract cattle shipments flowing east from Buffalo to New York City, Gould put his per-carload rate down to $75 from Vanderbilt’s original high of $125. When Vanderbilt retaliated with a drop to $50, Gould put the Erie at $25, only to have Vanderbilt go to a ridiculous $1 per carload, with a penny per head being charged for hogs and sheep. At first Vanderbilt delighted in reports that while his cars were packed, the Erie trains ran empty. Only later did he learn that Gould and Fisk had bought every bit of marketable livestock coming into Buffalo from points west, which they then shipped to New York via the Central, realizing enormous profits. “When the Old Commodore found out that he was carrying the cattle of his enemies at great cost to himself and great profits to Fisk and Gould, he very nearly lost his reason,” Morosini would recall. “I am told the air was very blue in Vanderbiltdom.”1
Gould also routinely played the stocks of firms such as the United States Express Company, a package and mail delivery service, that relied on the Erie for its livelihood. He never hesitated, as Erie president, to make ominous noises about severing relations or raising the rates for such a dependent organization. He would then short its stock and reap hundreds of thousands as it t
umbled down. Later a more positive word from Gould would revive the company’s prospects on the Street, along with its stock valuation, at which point Jay would ride the same security back up. As both Maury Klein and Julius Grodinsky pointed out, such machinations were not uncommon in Gould’s day. “While business moralists frowned on such behavior,” wrote Klein, “those operators below the rank of saint unabashedly sought corporate positions for the purpose of trading on their inside information. Gould may have been more imaginative than most, but he was no pioneer in the art.”2
While engaged in such lucrative side deals, Gould also took steps to shore up the Erie’s political friendships in Albany and elsewhere. “It was the custom when men received nominations to come to me for contributions,” Jay told U.S. Senate investigators in 1873, “and I made them and considered them good paying dividends for the company; in a Republican district I was a strong Republican, in a Democratic district I was Democratic, and in doubtful districts I was doubtful; in politics I was an Erie Railroad man every time.” These transactions were plentiful enough so that Jay claimed not to be able to count them off individually. “There has been so much of it; it has been so extensive that I have no details now to refresh my mind; when I went over a transaction, and completed it, that was the end of it; and I went at something else; you might as well go back and ask me how many cars of freight were moved on a particular day, and whether the trains were on time or late; I could not charge my mind with details; I can only tell you what my general rule was; my general rule of action.”3 So far as politics within the Erie was concerned, Gould made several key moves to consolidate his position. He’d already, as of May 1869, secured from the New York State Legislature a “Classification Act” staggering the election of Erie directors over a five-year period. Thus, after the annual election of October 1869, he, Fisk, Lane, and Tweed came away locked into their posts until 1874. Jay’s brother, Abram–now employed as a purchasing agent for Fisk’s Narragansett Steamship Company–also joined the executive committee, although he never attended meetings and gave his proxy to Jay.
Dark Genius of Wall Street Page 21