In the wake of the Northwestern episode, the Herald grudgingly congratulated Gould for “one of the most brilliant and successful strokes of financiering strategy on record in the annals of Wall Street.”13 But after the New York Commercial Advertiser commented favorably on the success of Gould and the rest of “the Vanderbilt party,” the Commodore wrote to distance himself from the affair. Vanderbilt’s letter to the editor of the Advertiser appeared on the 26th: “Sir: The recent ‘corner’ in Northwestern has called forth much comment from the press. My name has been associated with that of Mr. Jay Gould and others in connection with the speculation, and gross injustice has been done me thereby. . . . The almost constant parade . . . of my name in association with [Gould’s] seems very much like an attempt to mislead the public, to my injury.”14
One day later, a New York Sun reporter asked Vanderbilt to expand upon his disdain for Gould. Not wanting to go into the details of the past few years’ complex financial dealings, the old Commodore instead said that he disliked Gould because of his face. “No man could have such a countenance and still be honest,” said Vanderbilt. “. . . God almighty has stamped every man’s character upon his face. I read Mr. Gould like an open book the first time I saw him. . . . You have my authority for stating that I consider Mr. Jay Gould a damned villain. You can’t put it too strongly.” Asked to respond, a bemused Gould suggested that perhaps Vanderbilt, at seventy-nine, was senile. (Gould was thirty-six.) Then he added, “So far as his criticism of my personal appearance is concerned, he ought in his piety to attribute any defects in that respect to the same Wisdom that bestowed on him his good looks.”15
Jay realized that the case against him by Peter H. Watson and the Erie Railroad, backed by the damning Smith, Gould & Martin account books, was almost sure to succeed now that judges could no longer be bought. But he’d also heard through channels that the cash-starved Watson feared a long-running court fight, dragged out in typical fashion for years by the expert Gould. After running the calculus of these facts through his nimble mind, in early December Jay embarked upon a series of secret meetings with Watson, their shared aim to arrive at a mutually beneficial understanding. Finally, on 17 December, Gould wrote Watson a formal memorandum proposing terms. In settlement of all the Erie’s claims against him, Gould offered various stocks, bonds, and real estate (including Castle Erie) that together, he claimed, were worth more to the Erie company than the total sum claimed. “I do this,” Jay wrote, “for the sake of peace, because any litigation of such questions is more annoying to me than the loss of the money involved, and because I am sincerely anxious for the success of the Erie Company, in which I have a large pecuniary interest.”16 The Erie board voted on the 19th to accept Gould’s offer, news of which sent Erie stock up to 62.
Gould’s current stake in the Erie was not, in fact, great. What he did possess, however, were calls on some 200,000 Erie shares at the market price of 50. Thus the rally after the announcement of the Gould settlement netted Jay $2.4 million on the calls alone. As well, the property he gave up turned out to be worth nowhere near the $9.7 million Jay was supposedly repaying. (Much of the value handed over, including Castle Erie, was not even clear of liens.) But by the time this accounting was complete in early 1874, more than fifteen months after the original settlement, the Erie was in worse shambles than ever under its new management, and Gould was strong again: a financial behemoth, untouchable. As well, the last hope for the Erie’s case was shattered early that year when Morosini and Tommy Lynch paid a surprise visit to the New Jersey farm Henry Smith used as a summer residence. There, with Smith away in New York, the two Gould soldiers bullied a caretaker into surrendering a sea chest containing the Gould, Smith & Martin account books. How Morosini learned that Smith had hidden these at his farm is not known. Of course, the records were never seen again.
Chapter 23
TRANSCONTINENTAL
EARLY IN 1873, Jay made the acquaintance of a man who was to become one of his great collaborators over the next nineteen years. Twenty years older than Gould, Russell Sage, like Jay, came from humble Upstate roots. He’d been born on a farm near Oneida in 1816 and started out as a grocer in Troy, where he became active in politics. Sage was elected alderman of Troy in 1845 and served (1853–1856) as a Whig member of Congress, after which he branched out into banking and moved to New York City in 1863. There, six years later at the age of fifty-three, he married the forty-one-year-old Olivia Slocum. Olivia would eventually become a close friend of Jay’s wife, Ellie, and his daughter, Nellie. The couple lived just a block south of the Goulds at 506 Fifth Avenue.
Sage could not have varied more dramatically from Gould’s previous protégé, Fisk. Although a millionaire many times over, he was personally quite cheap. Jay’s niece Alice Northrop would recall Sage proudly brandishing before her uncle a felt hat he’d just bought at a discount price. “One dollar,” he bragged to the amused Gould. “Never pay more for a hat. Not worth it. Wear mine as long as yours.” Alice likewise remembered her Uncle Jay examining Sage’s bargain “closely, politely, though with only perfunctory interest.”1 Slightly taller than Gould at five feet, ten inches, Sage wore secondhand suits and was notorious for never tipping. (After his death in 1906, his wife would make up for his lifelong parsimony by forming the Russell Sage Foundation and giving away roughly half his fortune.) On the Street, Sage was recognized as the innovator of such tools as puts and calls, spreads and straddles. A strict fiscal conservative, he made it a habit to sit on a large cash reserve. Sage was also unlike Fisk in that his talent at business rivaled Gould’s. Whereas Fisk had been content to follow Gould’s lead in speculation, Sage had his own ideas. In the coming years, Sage and Gould would partner on numerous deals, but they would just as frequently go their own ways and, on rare occasions, work at cross-purposes. Always, however, they remained friends.
Though he liked Sage immensely, Gould sometimes lost patience with his moody friend’s frequent outbursts of self-pity and his habit, when feeling low, to overdramatize the petty cares of business. A tale Gould once told to Chauncey Depew of the New York Central illustrates this. During a period in the late 1870s the market went briefly against Sage on a host of fronts, leaving him with large obligations. The commitments in question, though substantial and annoying, in no way touched the largest portion of Sage’s wealth. Nevertheless, recalled Depew, the shock “sent Sage to bed, and he declared that he was ruined. Mr. Gould and Mr. Cyrus W. Field became alarmed for his life and went to see him. They found him brokenhearted and in a serious condition. Gould said to him: ‘Sage, I will assume all your obligations and give you so many millions of dollars if you will transfer to me the cash you have in banks, trust, and safe-deposit companies, and you keep all your securities and all your real estate.’” The proposition–which by its very insolence demonstrated, as Jay meant it to, the massive net worth to which Sage could still lay claim–proved to be the shock necessary to counteract Sage’s panic. He shouted, “I won’t do it!,” jumped out of bed, and was instantly well again.2
Sage was sitting with Gould at Delmonico’s on 29 April 1873 when Joseph J. Marrin–an attorney representing several actions against Gould related to Black Friday–walked up to their table, accused Gould of bad faith in negotiations to settle the suits, and punched him in the face. Gould filed a complaint, and Marrin ended up being fined $200. Meanwhile, nearly every New York paper covered the episode with delight. The Herald said Marrin deserved a medal. The editors of the New York Times, though condemning Marrin’s violence, said they understood its genesis. (The previous December the Times had embarked on a series of exposés covering Gould and his business practices.) Similar opinions flowed from the New York Sun, World, and Evening Post. Meanwhile, in all reporting of the episode, it was emphasized that Gould had not behaved “honorably” when attacked, had not stood up to defend himself as most men would, but instead simply retreated with his bloodied nose. Again the image of the skulking coward, the vulture only brave enough to
feast on cadavers, was raised. Even as the victim in a case of assault and battery, Gould still wound up demonized.
Only one newspaper roundly condemned the Marrin attack. The New York Tribune criticized Marrin for conduct unbecoming a gentleman, even going so far as to compare Marrin to the more lethal Ned Stokes. Picking up on the tenor of the Tribune’s coverage, the Times subsequently cited the Tribune’s reporting and editorializing about the Marrin affair as an example of Gould’s steadily spreading influence over the rival daily. As the editors of the Times were at pains to point out, after the death of Tribune editor Horace Greeley in 1872, Greeley’s assistant Whitelaw Reid had acquired control of the newspaper using funds lent by Gould, who took shares in the Tribune company as collateral. Thereafter, all criticism and negative coverage of Gould vanished from the newspaper, and it was widely suspected that Gould planted financial news there to aid his various Wall Street operations. The Sun criticized the Tribune as a “stock jobbing organ” run by “Jay Gould’s stool-pigeon.”3 At one point, the paper’s financial editor was physically attacked on the floor of the Exchange by brokers unhappy with the Tribune’s favoritism toward Gould. When the Tribune sought to build a new tower at its headquarters downtown, the editors of the Times proposed their idea of an appropriate sculpture: “Jay Gould, under the mask of Mephistopheles, with an armful of Tribune shares and an admiring crowd of the purchased legislators of 4 states.”4
Alice Northrop would one day claim that her uncle cared little about his coverage in newspapers. “Uncle Jay’s attitude toward the press,” she wrote, “was strictly passive: a mixture of aloofness and disgust.”5 But Alice had this wrong. In fact, Gould was one of the most media-savvy of the early Wall Street moguls. Not only did he harness the Tribune for his own purposes, but he would also eventually own the New York World outright for four years (1879–1883), and throughout his career he demonstrated a sharp knowledge of how to strategically work even unfriendly papers to his advantage. “The public heard from him,” recalled one editor, “only when he, not the public, would profit by the utterance.”6 When Gould gave interviews, whether in the Times or elsewhere, it was always for a purpose. His statements on these occasions, though overtly truthful, were often masterpieces of misdirection. As well, Gould took care to cultivate quiet relationships with reporters all over town, providing them advice on upcoming moves of various stocks. What Jay offered on such occasions was more than mere news; it was also advance notice of what the reporters should buy and sell for their personal portfolios prior to news publication. “A little W. Union won’t hurt you,” Gould would tell Times reporter William Ward in January 1874. “I think it is the next big card . . . & I would like you to write it up strong.”7 Through such communications as these Gould nurtured vital alliances with key reporters, providing payola in the form of intelligence while shaping editorial trends to his advantage.
Gould also used the press to nurture the popular image he’d emerged with after Black Friday: the dark, inscrutable, amoral, and ultimately pitiless master of financial markets. Morosini would recall Gould repeating Machiavelli’s advice from The Prince, that is was better to be feared than to be loved, and explaining that his image as an evil but brilliant wunderkind was his most valuable possession. “There is one man on Wall Street today whom men watch,” one newspaper editorialized, “and whose name, built upon ruins, carries with it a certain whisper of ruin. . . . They that curse him do not do it blindly, but as cursing one who massacres after victory.”8 Not yet forty, Jay already had a notoriety that enabled him to make markets swing on mere rumor. Though the bulk of his contemporaries loathed him, all their eyes were nevertheless upon him. Stocks routinely rose and fell upon whispered news that Jay was long or short in this or that. Brokers competed with each other to gain intelligence about his interests.
Jay’s formidable power to influence the Street sprang not just from his presumed skills and savvy, but also from his presumed malignancy. This malignancy was a notion that Jay himself frequently sought to promote and publicize, albeit in subtle ways. When asked by reporters to respond to the enraged Henry Smith’s charges that he was a traitor, a Judas, Gould just smiled cryptically and walked away, not bothering to deny anything and appearing not to care one lick about his good name. In this way he left the door open to speculation that he was everything the press made him out to be: not just a brilliant operator, but also a cold-blooded beast delighting in the destruction of others, and not caring who knew it. At about this same time, when rumors again emerged that Gould was of Jewish pedigree, Jay arranged for an editorial in the Tribune that said not a word about either him or his religion but defended Jews in general against the cliché stereotypes that were so often applied. A response such as this, in an organ known to be heavily under Gould influence, was bound to incite further speculation as to Jay’s background, and he knew it.
According to Morosini, it was to keep up his reputation as a villain that Gould always insisted on anonymity when it came to charitable giving. As Jay’s lieutenant was to recall, Gould donated generously to a host of worthy causes throughout the 1870s, 1880s, and early 1890s but routinely insisted that his name not be associated with these gifts lest one of the key pillars of his publicized character–his cold-blooded heartlessness–be undermined. Gould reportedly became annoyed when, during the mid-1870s, the New York politician and editor Thurlow Weed–like Jay, a low-born son of the Catskills region–confided to British reporter W. T. Stead that he served as Jay’s philanthropic adviser. “Whenever a really deserving charity is brought to my attention, I explain it to Mr. Gould. He always takes my word as to when and how much to contribute. I have never known him to disregard my advice in such matters. His only condition is that there shall be no public blazonry of his benefactions. He is a constant and liberal giver, but doesn’t let his right hand know what his left hand is doing. Oh, there will be a full page to his credit when the record is opened above.”9 As Morosini remembered it, Gould expressed relief when papers like the Times and the Herald refused to either believe or reprint the British report. For good measure, Gould told the Tribune to ignore the story while also admonishing Weed, a friend, to please be more discreet in the future.10
All editors, both friend and foe, were in for a surprise when Jay Gould seized control of the Union Pacific (UP) Railroad in 1874.
Ironically, the UP came to Gould bundled with a history every bit as twisted and unprofitable as the Erie’s. In the Pacific Railroad Acts of 1862 and 1864, Congress had set out to inspire and facilitate the construction of a rail line linking the Missouri River with the West Coast. While the UP was charged with extending America’s rail system west from the Missouri, the Central Pacific (headed by Leland Stanford and Collis P. Huntington) received the charter to build from Sacramento east, the two lines to meet somewhere in the middle. Whichever company laid track the fastest would wind up controlling the greatest amount of mileage and land. The 1862 and 1864 bills provided land grants (together with title to coal and iron found on those lands) stretching the distance of the proposed line. The bills also supplied capital in the form of subsidy bonds (representing a second mortgage) to be doled out upon the completion of each twenty-mile section of track. They further authorized other private firms to develop branches feeding the UP, which would eventually morph into such lines as the Kansas Pacific, the Denver Pacific, and the Missouri Pacific. To help fund its operations, Congress authorized the UP to issue its own first-mortgage bonds upon approval of its twenty-member board of directors, five of whom were federal appointees.
Irregularities cropped up early. Those who purchased the first-mortgage bonds and converted them to stock–among them Thomas Clark Durant, brothers Oakes and Oliver Ames (who’d amassed a small fortune manufacturing picks and shovels at their factory in Easton, Massachusetts, during the gold rush), Sidney Dillon, and a number of other investors–tended to have hidden agendas. Durant (known widely as “Dr. Durant” because he’d once flirted with a medical career) ha
d formerly been associated with the building of other railroads, notably the Mississippi and Missouri Railroad across Iowa. With regard to the UP, he’d been involved in lobbying President Lincoln and Congress (including Massachusetts representative Oakes Ames) to get the Pacific Railway Acts through. Later, in 1864, Durant purchased numerous UP bonds and secured himself a place on the board. Following a power struggle with the Ames brothers, in which he tried to snare the title of president, Durant wound up as vice president and general manager instead.
In this capacity, Durant made sure the railroad’s first exorbitantly priced construction contract (at costs per mile some two to three times higher than necessary) went to one H. M. Hoxie, agent for a Pennsylvania corporation that Durant, Oakes Ames, Dillon, and a few other investors had acquired a year earlier and renamed the Credit Mobilier of America. The Mobilier in turn subcontracted the work, on equally generous terms, to firms owned or controlled by various other UP board members. Three years later, in 1867, the Credit Mobilier awarded a new construction contract to Oakes Ames, who (like Hoxie before him) subcontracted with firms owned by board members to build still more road. Construction profits were later estimated at between $7 million and $23 million. This process depleted generous congressional grants to the UP and left the railroad under a heavy debt by the time of its completion in 1869.
As Maury Klein wrote, by May 1869–when, with great fanfare, representatives of the Central Pacific and the UP hammered in the Golden Spike at Promontory, Utah–the UP’s promoters were “balkanized into factions who had blustered and bungled their way through three construction contracts strung together by feeble compromises until their affairs had become hopelessly entangled in litigation.”11 Amid this quagmire, following the Golden Spike ceremony, Durant resigned from the UP board and from his paid position with the railroad. He left in his wake the UP’s president of three years, the intense but befuddled Oliver Ames. Although he had no railroading experience whatsoever, it nevertheless now fell to Oliver to deal with the firm’s large floating debt ($13 million), rumors of impending default, a falling stock price, and escalating costs for capital based on the company’s apparent insolvency. (One 1869 note cost the firm 17 1/2 percent in interest.) Early in 1871, with the UP on the brink of financial collapse, Ames resigned as president while retaining, however, his position on the company’s board of directors. Whether Oliver yet smelled the scandal that would soon engulf his brother is not known.
Dark Genius of Wall Street Page 25