The Bonanza King

by Gregory Crouch

  On Saturday, Sharon’s father died in Mount Pleasant, Ohio.

  Sharon hardly had time to compose himself. The coming Thursday, the Chronicle published “The Stock-Jobbing Juggernaut,” a savage attack on Sharon, Ralston, Mills, and the Bank Ring. The article focused on Sharon’s mismanagement of the Ophir mine in service of nefarious stock manipulations and said Ralston held “a large interest,” but perhaps the most damaging information within had nothing to do with stock manipulations or mine management—the Chronicle reported the Bank of California had loaned money on Ophir stock collateral at five times its present value, another public airing of weakness within the bank.

  Another article in the same issue of the paper reported a rumor that Ralston had failed. “Probably there is not another citizen of California whose failure could bring so much distress upon this community as would Mr. Ralston’s.”

  That rumor proved false, but Flood and O’Brien definitely did file the Nevada Bank of San Francisco’s official articles of incorporation around that time. The Nevada Bank would open in October with a paid in capital of $5 million, equal to that supposedly possessed by the Bank of California.

  Ralston’s hope of salvation resided in the Spring Valley Water Company, the extraordinarily profitable corporation that monopolized the supply of water to San Francisco. In 1875, the company earned just over $1 million from water deliveries and distributed a whopping $640,000 in dividends. However, Spring Valley’s existing supplies couldn’t meet the growing city’s needs.

  The year before, an engineer had recommended expanding the system into the Calaveras Creek watershed northeast of San Jose,IV building a reservoir, and piping the water thirty miles to the existing system. Ralston and a partner bought the reservoir site for $100,000 and through a series of exotic financial shenanigans, gained control of the water company. (Speculation before the Water Board a few months later insinuated that Ralston’s partner had corrupted the engineer’s report.) In May, Ralston sold the reservoir site he owned to the water company he controlled for slightly more than $1 million, turning a quick and nifty profit. Ralston and his partner offered to sell the Spring Valley Water Company to the city of San Francisco for $15.5 million. If Ralston could get that price, he thought his share of the profits would cover his obligations and see him through to smooth water, but San Francisco newspapers sent up screams of protest. The Daily Alta California called the water company proposal “a farcical pretense of fair dealing.” A “white heat of opposition” led by the Call and Bulletin welded public opinion against the “brigand plans” of the schemers. The struggle played out before the board of supervisors through May, June, and July while the Call and the Bulletin assailed Billy Ralston’s business competence and speculative savvy. Worse, the newspapers questioning the solvency of the Bank of California.

  The money pinch worsened. Withdrawals by agricultural interests to finance the harvest and transport of the wheat crop drained $4 million from San Francisco circulation in the midsummer months. Not enough coin circulated in the city to keep the economy in free flow, and what of it there was tended to flow away from the Bank of California. Ralston’s proceeds from the sales of the Palace Hotel and the reservoir site disappeared over the Bank of California’s countertops. The bank’s reserves slipped below the danger point. Ralston started writing checks to the bank from his personal account and ordered his “cash tags” counted among the bank reserves.

  In mid-July, on the eve of an examining committee’s inspection dispatched by the board of directors, Ralston repeated the ploy he’d used years before, “borrowing” $2 million in gold coin and stashing the specie in the vaults overnight. Come morning, he watched the examiners tot up the expected sum, about $2.5 million, then trucked the money that wasn’t his back to its point of origin, leaving a sheaf of his cash tags in place of the gold.

  On July 30, the board of supervisors formally rejected Ralston’s proposed sale of the Spring Valley Water Company. The decision likely sealed his fate.

  • • •

  Ralston borrowed against $300,000 worth of Southern Pacific Railroad bonds deposited at the bank by Leland Stanford. He borrowed against the stock of the Water Company he controlled, even though he didn’t actually own the stock. As a last resort, Ralston sold overissued Bank of California stock and collected $1.32 million—an outright fraud.

  Ralston fed the money into the maw of the Bank of California. Nothing stanched the outflow of gold. In mid-August, Ralston began sacrificing his personal assets. Sharon and Mills “relieved” Ralston of “his most valuable Virginia & Truckee Railroad property at fifty cents on the dollar of its cash valuation.” People with ownership ties to the bank began transferring property to other names.

  On August 20, James Flood sent a trusted runner with a sealed note to Ralston.

  Ralston read it and flushed deep red. “Son, do you know what is in this note?” he asked the runner.

  “No, sir,” came the reply.

  “Well, you go back and tell Flood that I’ll send him back to selling rum over the Auction Lunch counter!”—the bar he’d once tended that still sold drinks a few blocks away.

  Flood heard Ralston’s message and told his runner, “You go right back and tell Ralston that Mr. Flood says that in a short time he will be able to sell rum over the counter of the Bank of California.”

  Delivery of that message turned Ralston pale. He was in Flood’s office within fifteen minutes. Flood’s original note had notified Ralston that the Firm intended to withdraw a substantial quantity of coin. Ralston left Flood’s office with Flood’s assurance that he would leave the money in place for another week.

  Ralston and Sharon offered to sell two Washoe quartz mills to the Firm, knowing that lack of milling capacity forced Mackay and Fair to suppress Con. Virginia and California ore production. The “final dicker” took place between Sharon, Ralston, and Mackay at the Bank of California building in San Francisco.

  Ralston and Sharon offered the mills for $300,000.

  “What’s the use of paying $300,000 for property worth only $100,000?” Mackay asked.

  Sharon turned to Ralston and said, “You see? [These Irishmen] will never be satisfied unless they get possession of everything.”

  With that, Mackay got up and returned to Virginia City, refusing to waste more words on the subject.

  Ralston begged aid from Sharon and D. O. Mills on August 22. Sharon claimed he’d exhausted his available resources buying Ralston’s half of the Palace Hotel. Mills supposedly produced $750,000, although the report doesn’t square with Mills’s reputation for only loaning on gilded security. On August 23, Ralston had an associate ask the Oriental Bank of London for an extension of additional credit. The Oriental Bank didn’t even bother to reply. The next day, Ralston sold sixteen thousand acres of fine agricultural land in Kern County to Colonel Fry, his de facto father-in-law.

  Something “nearly akin to panic” swept the stock market on August 25, particularly among “those stocks most relied upon to raise money under pressure.” Such wild turbulence hadn’t roiled the market since the debacles of January and February. The declines uncovered many margins, and given the tight money market, the banks, brokers, and other operators couldn’t produce “more mud” to re-cover them, precipitating forced sales and further declines. The Daily Alta California credited the millions of dollars of coin struck from Big Bonanza bullion and entered into circulation as the only force carrying the state’s economy forward against “the existing pressure.” The San Francisco Chronicle did exactly the opposite, describing a complex, far-reaching manipulation by Flood and O’Brien that had sucked coin from circulation. Cutting away the ridiculous complexities of the Chronicle’s conspiracy theory revealed the nugget of truth within the story: Stocks “belonging to the bank ring came forth as if under the stimulus of a pressing necessity.”

  Ralston’s doomsday of accountability drew nigh. The Bank of California’s board of directors met at William Sharon’s house that nigh
t. The bank’s cashier informed them that there was only $500,000 in coin in the bank’s vaults—and $1.5 million worth of Ralston’s “cash tags.” Those held the exact value of pieces of paper written against an overdrawn account. Tracing the bank’s recent transactions revealed that Ralston had sent more than $2 million worth of bullion belonging to other people from the Assaying and Refining Company, which he controlled, to the mint, added the struck coin to the Bank of California’s vaults, and debited the transactions against his empty private account. The coin had long since vanished over the countertops of the bank. (Some $1.4 million of the missing bullion belonged to the Firm.) Hasty calculations by the bank secretary and board members estimated that Ralston’s personal debt to the Bank of California ranged between $4 million and $4.5 million.

  Soon after the Bank of California opened on Thursday, August 26, 1875, people noticed “something like a run” in progress. Depositors, both large and small, withdrew from the bank through the morning hours. At the opening of the Stock & Exchange Board at 11:00 a.m., brokers representing William Sharon issued unlimited sell orders. Prices collapsed, amid “feverish excitement.”

  Behind closed doors, Sharon and Mills offered the Bank of California to Flood and O’Brien for $5 million, with a guarantee of $2.5 million of the bank’s liabilities if the Bonanza Firm would assume responsibility for debts above that figure and hold the directors and stockholders harmless. The Irishmen examined the account books and refused the offer.

  Around 1:00 p.m., people began to materialize around the California Street offices of the Bank of California on the rumor that the London and San Francisco Bank was refusing to cash checks drawn against the Bank of California. By one-thirty, a huge crowd pressed against the bank counters of the “beleaguered institution,” pushing, shoving, reaching over the heads of those in front, jostling, yelling, desperate to get their hands on their money and avoid calamity. “Anxious men” handed in checks and retreated, “eagerly clutching the proffered gold.” They exited the bank with relieved, exultant smiles that did nothing to quell the tension in those still separated from their coin.

  To an inquisitive reporter, Ralston dismissed the run as due to “stringency in the money market caused by the recent heavy withdrawal of coin from circulation.” The panic worsened after two o’clock.

  Even then, the bank almost survived. Ralston ordered the exterior doors shut at 2:35 p.m., twenty-five minutes before normal closing time, but continued to pay people already inside. A messenger from another bank pushed forward the fateful piece of paper nine minutes later. A teller passed it to Ralston.

  Ralston looked at a check for $5,485 and announced, “We will not cash any more checks today.”

  News that the greatest financial institution on the Pacific Coast had suspended hit the public “like a thunderclap.” The Bank of California’s directors went into conclave at three o’clock. They emerged at half-past five. The assembled reporters asked Darius Ogden Mills if the bank had suspended payments or failed.

  The bank’s affairs were in “a greatly involved condition,” Mills explained. “I fear that it has failed.”

  The Alta’s reporter present noted William Ralston “striving to repress any agitation of manner, and not with perfect success.” Ralston invited the reporters into his office and said that there was “no question whatsoever as to the ability of the Bank to meet all its obligations and leave considerable of a surplus beside.”

  A reporter asked if the bank would resume business in the morning.

  “No, sir,” Ralston replied. “We will not resume.”

  “How soon do you propose to resume business?” came another question.

  Ralston hesitated. “We don’t expect to resume,” he said.

  “Not at all?” asked an incredulous journalist.

  “No, sir,” Ralston said. The Bank of California’s branches in Virginia City and Gold Hill and their agency in New York had all been telegraphed instructions to close.

  Ralston asked the bank secretary to read a brief statement. The bank had “been compelled to suspend business.” The board of trustees were examining the situation “critically.” They promised a report at “the earliest possible moment.” They declined to make any further comment.

  Ralston moved toward the door. The journalists followed him with a press of questions.

  “What caused the suspension?”

  “Scarcity of coin,” said Ralston. Four million dollars had gone to the interior to move the wheat crop. None was expected to return from that source before winter.

  “Is the report correct that Flood and O’Brien offered to relieve this Bank?”

  “We have received no such word at this office.”

  Someone asked if Flood and O’Brien withdrew $1,800,000 yesterday, as had been published elsewhere.

  Ralston called that rumor “nonsense” and “balderdash” and said, “There is no truth in it. So far as our relations with those gentlemen are concerned, they are of a character perfectly pleasant and agreeable, nothing unpleasant in any way, shape or form; nor has there been any such words as were reported. None whatsoever.

  “You see we are here with a metallic currency,” Ralston continued, “and this is one disadvantage—when you get to the bottom of the tub you can’t lift yourself up.”

  Ralston ducked into a side room and shut the door. He left the bank shortly after 9:30 p.m. That night, he told an old friend that his “great hope and desire” was to pay every dollar due to his depositors and pay a large dividend to the bank’s stockholders, even if it took all of his property to do it. Ralston said that although he didn’t expect to be able to leave much to his children, he did “want to leave them a good name.”

  On Friday, the bank directors met again at 1:00 p.m. A more detailed perusal of the books than they’d managed at Sharon’s house thirty-six hours earlier revealed $14 million in liabilities against between $7 million and $8 million in assets. Subsequent reports showed Ralston’s personal responsibilities at nearly $9.6 million, of which only $4.2 million was adequately secured. Of his $5.4 million in unsecured debt, he owed $4.7 million to the Bank of California. Without that money, the bank was insolvent. According to inquest and court testimony that would follow, the directors claimed that not until this meeting had they “fully understood . . . the true condition of the Bank.” Behind a solid front, they would maintain, “The extent of serious abuses that had been practiced in the institution had been concealed from them up to and for some hours after the suspension.” That may have had something to do with the fact that California law then held corporate directors and stockholders personally liable for a company’s debt. All would suffer a gigantic assessment to pay off the balance. The directors’ fury at Ralston’s indiscretions—to use no harsher phrase—can only be imagined.

  Ralston had been excluded from the meeting. He was in his office elsewhere in the bank. The directors appointed Darius Ogden Mills “a committee of one” to go to Ralston and request his resignation.

  After Mills returned to the directors meeting with the desired document, William Sharon went to see Ralston. The Daily Alta California first reported that in that meeting, Ralston transferred all his real and personal property to the bank to help make good on its debts, an action “generally commented on in a tone of great respect for Mr. Ralston.” Not for some time did the public understand that Ralston hadn’t transferred his property to the bank. His railroad and manufacturing interests, his Belmont estate, his houses in San Francisco, and his other real estate holdings, all of it, everything he owned, down to and including his horses and carriages, had gone to William Sharon.

  At the close of their meeting, Sharon asked Ralston to leave the building. Ralston walked outside, homeless and penniless, abandoned by the institution he had nurtured from infancy, unemployed and perhaps unemployable in the business he knew best, reduced to poverty by his own act, shorn of friends, and probably deeply ashamed. Ralston walked off in the direction of North Beach. A few mi
nutes before three o’clock, three boys wandering the North Beach shoreline recognized Ralston coming down the bluff. Dressed in a neat black suit, the forlorn banker walked out an old, decaying wharf and sat down on the outermost surviving stringers. He took several letters from his pocket, tore them to shreds, and scattered the pieces in the bay. After a few moments of contemplation, Ralston heaved himself up, and passing one of the boys, asked him if he thought it was too cold for a swim. The boy said that he did not. Ralston walked west to the cove that arced out to Black Point. The boy and his friends followed, watching Ralston withdraw a few more letters from the breast pocket of his coat, shred them, and toss the scraps in the water. Ralston then did the same with the pages of two leather-bound books.

  Swimming in Black Point Cove was a popular San Francisco pastime. Typically, Ralston did it two or three times a week, most recently the previous Monday. Bright-painted cabanas belonging to the Neptune Bath House lined the shore. Ralston paid the proprietor a half-dollar for towels and spoke cheerfully to one of the small children playing nearby.

  After changing into his swimming costume, Ralston walked to the end of a wharf and dove in headfirst. The proprietor watched him “striking out bravely” toward the old steamship Bullion anchored off the Selby Lead and Silver Smelting Works. Ralston alternately dipped under the surface and swam on his back until he was some four to six hundred yards from shore. Fifteen or twenty minutes later, the bath house proprietor and his son-in-law, two men relaxing in one of the cabanas, the watchman and the assayer at the smelting works, and the Bullion’s engineer all noticed something wrong with Ralston in the water.