To ensure the company’s “proper direction,” the new group, along with Junius Morgan, bought 100,000 shares of Erie, promising to hold them until a new board was elected. Although they tried to rescue the Erie and put it back on track, another railroad scandal soon rocked the American public. At the beginning of 1873 the newspapers reported that the builders of the Union Pacific had created a company called the Crédit Mobilier that had siphoned off all the railroad’s profits and paid them to members of Congress in exchange for more government funds.
Americans were appalled at the sleaziness of their leaders: from the federal government to local cities and states, corruption greased the pockets of almost everyone in power. In London, bankers faced other problems. Central European banks and London financial institutions had made money readily available for speculation in railroads and real estate. Developers in Paris, Berlin, and Vienna were furiously erecting elaborate public buildings and private homes in the beaux arts style, even using the promise of future houses as collateral on new mortgages.
The rampant rush to buy more land at low interest rates sent property prices soaring. Yet even as the costs rose, real estate opportunists continued to borrow until they reached a point where buyers could not afford the land. The speculators were unable to pay back the interest on their loans. When the worthless mortgages caused a few European banks to collapse in the spring of 1873, the British institutions, wary of more shaky mortgages held by the rest of the banks, raised their lending rates. The bubble burst on the Continent.
Moody’s magazine observed a few years later: “The world as a whole was money mad.… All the great European cities seem to have had booms at this time. Vienna and Berlin were the most frenzied. The prices of sites went to purely fictitious figures, and the phenomenon was prevalent of the speculator who bought property, mostly on credit which he did not expect to use, with the expectation of forestalling the deferred payments by a sale at an advance.” The editors continued, “At the same time, Europe was pouring the oil of its money on the flames of American speculation. Railways spanned the continent and gridironed the states.
“Suddenly something snapped, and the machinery stopped. A Vienna banking house broke under the weight of too heavy a load of Missouri, Kansas & Texas securities, followed by another carrying too much Canada Southern. The financial organism winced like a leviathan with a harpoon in his vitals.” As the spasms spread from stock exchanges to banks, and from banks to investors, from Istanbul to Stockholm and from Edinburgh to Alexandria, the world crouched in pain. The wounds had come from speculation, but, said Moody’s, “No war ever made more misery.”
British investors had been funding American railroads at a furious rate. Europeans held 80 percent of the American bonds, but with their heavy losses and money now scarce, they could no longer support the debentures. Other recent events were sending the markets spiraling downward. The Chicago fire, followed one month later by a major fire in Boston that destroyed sixty-five acres of downtown property at a loss of $100 million, had burned the insurance companies and banks and caused them to hold back on new loans.
The scarcity of funds triggered disaster: merchants defaulted because they could not find money to run their businesses; farmers went bankrupt because they could not borrow to plant their crops; railroads lost income because of the smaller shipments of food. The railroads were already suffering from the Erie Ring outrage with its worthless stock and corrupt activities in Washington; the Union Pacific scandal, which, like the Erie, uncovered stolen profits and bribed politicians; and a general loss of confidence in railroad management.
For weeks the stock market had been quiet in New York. When the New York Warehouse and Securities Co., which had backed the Missouri, Kansas & Texas Railroad, closed its doors on September 8, Wall Street men drew in their breath and sighed, hoping this was an isolated case.
Then the mood changed precipitously. Ten days later the Northern Pacific Railroad, which had been running at a loss and spending money to lay track faster than it was acquiring funds, announced on September 18, 1873, that it could no longer afford to pay bondholders its 8½ percent dividend. The railroad folded in default. The highly reputable banking house of Jay Cooke & Company, which earlier had raised hundreds of millions of dollars in bond sales to finance the Civil War, had loaned money to the Northern Pacific. Now the railroad was unable to pay its debts to Jay Cooke, and the prominent firm was forced to close.
The news hit the Stock Exchange like a hurricane: some brokers let out screams of alarm while others stood frozen in fear. And then, as suddenly as they had stopped, men started running to notify their Wall Street houses of the failure. “The brokers surged out of the Exchange, stumbling pell mell over one another in general confusion and reached their offices in race horse time,” reported the Times.
Brokers had no time to deliberate: the bears were selling, few were buying, and prices were declining rapidly. On Wall Street that morning crowds stood buzzing in the frantic unrest. Two other major banks, including the highly prestigious Fisk and Hatch, with investments in the Central Pacific Railroad and the Chesapeake and Ohio Railroad, sank in the sea of default. No one could find the lifejackets to save the drowning banks.
Two days later, with panic growing on Wall Street, the storm turned into a tidal wave. Twenty brokerage firms shuttered their doors. Hordes of people rushed to withdraw their funds from the banks. At noon, when it was clear that no one was willing to buy at almost any price, the Stock Exchange closed its doors and kept them closed for ten days. A feverish mob filled Broad Street. When the eminent banking house of Henry Clews and Company closed, a shroud of gloom hung over the street. On the first day of the panic Western Union stock dropped ten points in ten minutes. Within two weeks the stock of the Rock Island Railroad had plunged from 108 to 86 and Union Pacific dropped from a high of 39 to a low of 14.
“Sunday, September 21, 1873 will be memorable in our history,” declared a diarist. With the nation on the verge of financial ruin, men who usually crammed into church for Sunday prayers instead jammed the Fifth Avenue Hotel to plead for help from the president. Ulysses Grant had come there to meet with New York’s leading businessmen. The bankers, including Cornelius Vanderbilt and Henry Clews, who met with Grant and his Treasury secretary, William Richardson, begged them to ease the money supply. Instead, the U.S. government bought up $13 million in bonds. It was only a temporary plug.
The bankers agreed to form a clearinghouse committee and pool their cash. But the storm that washed through New York was racing across the country as fast as cholera. More farmers could not get the cash they needed to ship their wheat and corn. More railroads continued to fail and more factories were forced to close. Thousands of people lost their jobs.
The panic took its toll on almost everyone. It terrorized men who looked as though they had aged ten years in one day. Brokers, vigorous the day before, were walking with their backs bent from the blows of the market. Bankers, so confident yesterday, were leaning on canes, unsteady on their feet today. “Energetic businessmen toddle around as if they had just risen from a bed of sickness,” said George T. Strong. “Paralysis, apoplexy and worse were all created by the panic in the street.”
The New York Times, covering a congressional hearing a few years later, reported that in every case financial crises followed a period of rampant and extravagant speculation. “The panic of 1873 was preceded by an era of gigantic railroad and real estate speculations which were the principal causes of the panic.… [T]he speculation in land was enormous all over the country. Prices in real estate were multiplied beyond all precedent.… The obligations incurred in building the railroads and in this rail estate speculation were too enormous to be sustained and when the time came to settle up, people suddenly found themselves unable to resolve their obligations and became insolvent.”
Across the panorama of history, the same potent forces that have driven men to war and devastation have also driven them to financial destruction.
The markets may change, the methods may be revamped, but as long as human beings are propelled by greed and ego, they are doomed to repeat the mistakes of the past.
It had been a good seven years in London for the Greens. But stock prices were falling across the board, banks were failing, and the lucrative market for money in London had dried up. Many speculators were losing fortunes and Edward was no exception. The future in Europe looked grim. It was time for Mr. and Mrs. Green to go home.
Chapter 9
Return to America
Hetty and Edward Green, their children in tow, sailed on the Russia in early October 1873. The same Cunard ship that swept them off to London on their honeymoon was now steaming them back to New York. The city had burgeoned in the boom years. Ten-story buildings stood tall on the horizon, and Central Park stretched north as far as Eightieth Street. Expensive brownstone houses replaced the shanties that had sheltered impoverished German and Irish immigrants along Fifth Avenue up to the park, and apartment houses, much bigger than the omnipresent boardinghouses where many people lived, appeared for the first time. Real estate prices were still climbing, and when the directors of Trinity Church considered moving uptown, the lots they looked at near Central Park cost almost $400,000.
Scribner’s had opened the largest bookstore in the world, the spires of St. Patrick’s majestically touched the sky, and Temple Emanuel, its walls inlaid with mosaics in the Egyptian style, offered services for German Reform Jews. The Metropolitan Museum of Art opened on Fourteenth Street with an array of treasures, including a show of ancient Cypriot pots and an exhibition of Dutch and Flemish paintings scooped up in Europe by its millionaire trustees. The new Museum of Natural History beckoned visitors with its fossils, flora, and fauna.
The exuberant spending that had once more infected New Yorkers was no different from the unfettered expansion fed by industrial entrepreneurs, railroad promoters, and real estate speculators in the Midwest and the West. But by the autumn of 1873, when Hetty and Edward arrived, the financial panic had pricked the bubble of hope and flattened the country into despair.
New York jittered as stocks bounced up and down and gold prices continued to drop. More firms in the city declared bankruptcy, and businesses and farms around the country continued to go into default. A&W Sprague of Rhode Island, one of the most important textile manufacturers in the country, declared bankruptcy, Utica Mills announced it was running on two-thirds time, and Wamsutta Mills in New Bedford decreed a four-day workweek. Companies across the land were chopping their costs by laying off workers, cutting back on their hours, or reducing their wages.
On Wall Street men in frock coats, floppy ties, and silk hats, stunned by their losses, moved in a daze. Only a few months before, they had walked briskly, the bands of their stovepipes bulging with commercial paper; now they held on to their tall hats and worried over their jobs. Even lawyers suddenly found themselves unemployed. Shortly after Hetty arrived, she donned her dark dress and cloak, crammed her bag with stocks and bonds, and rode downtown to see her banker. Her appearance might have astonished J. P. Morgan, who refused to allow women into his offices, but she was not the first woman to arrive on the street. Fur-cloaked wives of famous businessmen, frumpy spinster teachers, and décolleté madams of bordellos were sometimes seen climbing down from their carriages or stepping off the horse-drawn omnibus, eager to throw the dice in the Wall Street game of roulette. But none had the keen eye, the shrewd head, or the courage of Mrs. Edward Green.
Head down, eyes peeled on her reticule, Hetty made her way along the route of America’s riches: past the Custom House, past the respected Brown Brothers’ offices, past the granite building of August Belmont, who represented the Rothschilds in the United States, past the shuttered doors of Jay Cooke and the darkened entrance of Fisk and Hatch. At 59 Wall Street she entered the offices of John J. Cisco, the conservative banker and friend of her father’s who served on the board of Trinity Church alongside George Templeton Strong. She had known Cisco for twenty years, first as her father’s banker, and then, after Edward Robinson’s death, as banker for both her husband and herself.
Cisco led her past the glass divider that separated the public from his private office and welcomed her as she handed him her pile of certificates to stash in the vaults and her wad of cash to deposit. But Hetty had more on her mind. Cisco made his services available for her business on Wall Street, and at this time when stocks were being abandoned, Hetty wanted to trade. “I believe in getting in at the bottom and out at the top,” she often said. “I like to buy railroad stock or mortgage bonds. When I see a good thing going cheap because nobody wants it, I buy a lot of it and tuck it away.” For Hetty, the decline in the market offered an opportunity for the future.
“It takes a clear, cool head, a large amount of brains, and unfaltering nerve to thread one’s way through the intricacies of the business of finance,” said a journalist at the time. Hetty was a fearless pit bull charging into a sloth of frantic bears. True, she had a pile of cash when others were scouring for pennies, but she also had a deft mind and the colossal courage to push against the crowd.
It was far easier to lose money than it was to make it. Even Commodore Vanderbilt had been badly hurt on September 18, 1873, the day of the crash. Most of his railroad stocks had plummeted and some of the firms he did business with were forced to close. Vanderbilt bought his stocks for cash and was able to wait out the market. But his followers, who risked their money on 10 percent margin, were racing to cover their losses. When a friend complained, he replied, “If you had bought a hundred shares instead of a thousand, you could have held on. Never be in too great a hurry to get rich.” Like Hetty, he bought his railroads for the long haul.
It was said that word of Hetty’s arrival sent brokers scurrying to watch. She may have been out of the country for seven years, but the extent of her wealth was well known. When news seeped out that Cisco’s traders on the floor of the Stock Exchange were waving their hands to buy, it sent a rush of hope through Wall Street. The positive mood continued, and by December spirits were higher even though incomes stayed low. George T. Strong wailed about his bills but still partook in the Christmas rush, joining the shoppers jammed into Tiffany’s and complaining about the fleet of carriages in front of A. T. Stewart’s, tying up traffic on Broadway. Others bought at Lord & Taylor’s, where the Times reported the store had taken advantage of low costs during the crisis and was able to offer its customers a tempting array of goods at reasonable prices. Ladies’ sealskin jackets, gentlemen’s furnishings, and a sprawling display of children’s toys, including “automatic” Negro plantation dancers, music boxes, and monkeys playing the harp, made for compelling shopping.
As prices declined and imports decreased, new opportunities opened up for innovative entrepreneurs. With lower wages to pay and lower prices for raw materials, American industry prospered. Yet, in a paradox that presaged future recessions, unemployment increased and businesses continued to decline. More than five thousand companies closed their doors in 1873 and more than six thousand in 1874; within one year, three million people lost their jobs, and the recession continued for ten more years.
While government officials and Congress argued over whether to allow deflation or encourage inflation, farmers and even small businessmen resorted to methods of barter. In 1874, a conservative Congress passed a bill to devalue the dollar by printing more money. The following year, after the economy failed to improve, Congress legislated to strengthen the system by backing U.S. dollars with gold. Those like Hetty, who had held on to their discounted greenbacks bought after the Civil War, were now flush with wealth.
Dogged in their pursuit of fortune and determined to flaunt their wealth in goods, the rich kept buying. But as much as they bought, it did not satisfy their craving for more. Although they had achieved social status at home, their grand tours and travels to Europe gave them a taste for titles, and they longed for aristocratic approval abroad. But money had its limits: the uppe
r crust of New York was no match for the nobility of the Continent. To set themselves apart from the masses of newly rich Americans, a small group of New York men, led by an ambitious Southerner, Ward McAllister, organized themselves into an exclusive club called the Patriarchs. An invitation to one of their evenings, which included such patricians as John Jacob Astor III, William Astor, William C. Schermerhorn, and Arthur Leary, tapped the recipient into the circle of New York knights; marrying off one’s daughter to a titled European earned him a crown.
The Wall Street speculator and racetrack owner Leonard Jerome won new standing when his daughter married the cash-poor Duke of Marlborough. The wedding of Randolph Churchill and Jennie Jerome was the perfect melding of money and title. The noble and landed Churchill was too poor to maintain his family homes, while Jerome had the funds to help him out. When less than nine months after they married, Jennie bore him a son, Winston, nasty gossipers shrank back; they dared not deface the name of the aristocratic Churchill’s new wife. Rich New Yorkers were soon seeking titled men for their daughters to wed, and the writer Henry James had fertile soil in which to plant his stories.
While Jennie Jerome basked in the spotlight, most of the nation slogged through the recession and tens of thousands of men sought work out west. Hetty adjusted to life back in America, but in 1874 she suffered the loss of her cousin Henry Grinnell. In the scorching heat of the summer, his brothers Moses and Joseph and their families, business associates, a group of Friends, and officials of the American Geographical Society gathered for the quiet funeral that revealed his Quaker roots. The ceremony at Episcopal Trinity Church in New York displayed no flowers and offered no music, but attendees praised its dignified style.
The Richest Woman in America Page 11