Rising on that Saturday morning from his sickbed—most likely from the recurrence of a bronchial condition plaguing him regularly—Harriman reached out to Schiff’s partner Louis Heinsheimer at the Kuhn, Loeb office and asked the firm to close up the forty-thousand-share shortfall in common shares. Heinsheimer agreed. Harriman returned to bed confident, as he would recall, “that, come what might, I had control of Northern Pacific, common stock and all.”
He was wrong. Spending the more than $4 million required for a forty-thousand-share purchase vastly exceeded Heinsheimer’s authority. He needed Schiff’s approval, but on Saturday mornings Schiff could be found only at his synagogue. Steeling himself to interrupt his senior partner at worship, Heinsheimer traveled uptown to Fifth Avenue and Forty-Third Street, the location of Temple Emanu-El, an elegant landmark built in Moorish style in 1868 to mark the rising prominence of the city’s German Jewish elite. Summoned from his pew, Schiff heard Heinsheimer out and brusquely countermanded Harriman’s order. Secure in his belief that owning a majority of all the capital shares, preferred and common, cemented control of the Northern Pacific, Schiff reckoned that acquiring another forty thousand common shares would be a waste of money—especially since the shares had closed the previous day at a stratospheric $115. That was far more than Schiff thought reasonable to pay, notwithstanding his client’s fretfulness. (The stock would close on Saturday at $110.) Schiff sent Heinsheimer home with the assurance that he would take the responsibility for the rejected order, and returned to the sanctuary.
To paraphrase an ancient adage, Schiff’s unwise decision was the nail by which the battle for the Northern Pacific was lost. It may have been difficult to fully execute Harriman’s order on that Saturday morning in the scant hours before the exchange closed at noon, even if Harriman were well enough to deliver the order to Schiff in person. But precious time was squandered; Harriman did not learn that his instructions had been ignored until trading was already underway on Monday, when he called Heinsheimer to ask why he had not received a trade confirmation.
By then, Northern Pacific was enveloped in a bull frenzy. For while Schiff had resisted making the last investment necessary to control the railroad, Morgan’s floor brokers had been instructed to acquire the necessary shares for victory at any price. The moment the opening gavel sounded on Monday morning, they swung into action. Trading started with a powerful bound upward and scarcely paused for the entire five-hour session. Northern Pacific opened at $114, a nearly unheard-of advance of four points from its Saturday close, and promptly rose another two and a half points.
As was their habit, the Morgan bankers had placed the task of managing their purchases in the hands of their master stock trader. Keene was known for his immaculate dress and impeccably trimmed beard, which earned him the nickname “the silver fox.” He was never seen on the floor of the New York Stock Exchange, for he was not a member, but preferred to work from his office and the Waldorf-Astoria. He called the hotel his “home . . . from Monday to Friday night,” in the words of the New York Sun, which further reported that brokers gathered there every evening “with the hope of getting an inkling of what Mr. Keene is to do next.” More to the point, his generalship was flawless: “Keene took more care in preparing a financial campaign, and was quicker and surer in its execution, than any man I know,” Baruch attested.
Keene delegated the floor trading of Northern Pacific chiefly to Eddie Norton of the Street & Norton brokerage firm. Street & Norton would end Monday’s session with total purchases of 200,000 shares of NP, a new record for purchases of a single stock by a single firm in a single day; its buying and selling accounted for more than half of Nipper’s total trading volume of 370,000 shares that day. Anyone with knowledge of Norton’s role could have discerned Morgan’s hand in the trading, for Street & Norton was widely known as Morgan’s favorite brokerage. But gaining that knowledge was not easy, for Norton carefully camouflaged his trading by interspersing large block sales of the shares within his even larger purchases. Yet at the end of the day Norton was still shy of the 150,000 shares needed by Hill.
What was uncertain even to those who detected a hint of Morgan’s involvement was its purpose. Rumors swept across the floor. The New York Tribune asserted that Morgan had been infuriated by the discovery that Hill and his cronies had sold Northern Pacific short during the previous week. Morgan, according to this version, had enlisted William K. Vanderbilt in a buying splurge “to catch Mr. Hill and his friends napping” and thereby “[add] the control of Northern Pacific to that of Union Pacific, which Mr. Vanderbilt secured last week.” The Tribune thus managed to allow two erroneous reports to lead it to a single utterly misguided conclusion. Cornered by reporters during the afternoon, Hill said he had “no explanation at all for the rise of Northern Pacific,” a statement that was disingenuous at best and deceitful at worst.
Some observers continued to view the action in Nipper as an artifact of the broader frenzy for stocks. “The wonderful advances in prices have been altogether too alluring to the outside public longer to resist,” reported the New York Times, citing “many signs . . . that this public was coming more and more into the market.” Among them was that sure signal to an almost exclusively male profession of a market becoming irrational: “Brokers reported that the craze had spread mightily to women, and that many orders had been received from women, rich and in only moderate circumstances alike—women, some of them, who would be the last in the world to be suspected of such a thing. . . . The speculative fever is on; where and when it will end nobody can know.”
The remarkable rise in Northern Pacific remained the center of attention all day. With the stock being bought in blocks of hundreds, even thousands, of shares, its price rose to $117, then $120, topped out at $133 and closed at $127.50. It looked like the crest of an elemental torrent of buying. But it was only the beginning.
When the market opened on the morning of Tuesday, May 7, Eddie Norton resumed buying. He had been instructed to buy up to a price of $125, but the market was running ahead of him—by the time the price reached $120 he had yet to fill half his order. There he paused, perhaps hoping that the apparent slowdown in trading would provoke the bulls to take profits by selling down. But that had not happened. The reason was that the shorts were beginning to panic.
“There was virtually no Northern Pacific stock that anyone wanted to sell,” Baruch recalled. Under exchange rules, all stock bought or sold in New York had to be delivered the following day; if a short seller could not buy shares or borrow them to make good on his trades, any investor to whom he had sold phantom stock had the right to buy on the market at any price, and demand compensation from him. Given the scarcity of Northern Pacific shares, the shorts faced catastrophe.
The result was a melee. Any trader suspected to have access to Northern Pacific shares risked being virtually assaulted on the floor. Baruch witnessed one unwitting broker being pressed flat against a railing by a baying crowd. “Let me go, will you?” he cried. “I haven’t a share of the damned stock—do you think I carry it in my clothes?”
A young broker for Kuhn, Loeb named Al Stern strode through the crowd, blithely offering to lend out a block of Harriman’s stock. As Baruch recollected:
The first response was a deafening shout. There was an infinitesimal pause and then the desperate brokers rushed at Stern. . . . Strong brokers thrust aside the weak ones. Hands were waving and trembling in the air. Almost doubled over on a chair, his face close to a pad, Stern began to note his transactions. He would mumble to one man, “All right, you get in,” and then complain to another, “For heaven’s sake, don’t stick your finger in my eye.” . . . Soon Stern had loaned the last of his stock. His face white, and his clothes disheveled, he managed to break away.
No one could yet be sure what was driving the maelstrom. “The Control of N.P.: Wall Street Still Guessing Who Has It,” blared the Tribune’s headline on Wednesday morning. The Sun, more confident in its guesswork, if not especiall
y accurate, declared Hill the loser in his “stock duel” with Harriman. Closer to the truth, the Sun also reported that “the tremendous buying demand of the rival Harriman and Hill interests [had] absorbed the entire floating supply” of Northern Pacific. In the aftermarket, where loans of needed stock were negotiated broker-to-broker, the “money rate” hit 7 percent, meaning that for every 100-share lot a broker borrowed, he had to pay interest of $700—per day. The ferocious bidding for borrowable shares suggested that “every Stock Exchange house must be short of Northern Pacific,” the Sun reported. Estimates of stupendous losses circulated—the eminent trader Louis Wormser was said to be short sixty thousand shares, for a potential loss of $6 million. A member of his firm was seen entering the office of Kuhn, Loeb late that afternoon, possibly to plead for mercy.
NP rose by as much as twenty points on Tuesday, reaching $149.75 before closing at $143.50, up sixteen points on the day and more than thirty-three points higher than it had closed on that distant Saturday, four days earlier. May 8 promised only more madness.
On that Wednesday morning, indications emerged that the public was becoming perturbed by the goings-on of the plutocrats on the stock exchange. Observing that the machinations of Street & Norton would have required some $25 million in capital, the Sun editorialized, “At first the public were unable to account for transactions so enormous on any other theory than that vast and serious schemes of consolidation were the cause of them.” But no: In its view the truth was more frivolous. “Wall Street believes now that these astounding changes instead of signifying a revolutionary remaking of the railroad map, are simply speculation. They do not mean investment . . . but stock ‘manipulation.’” The speculators “are venturing into schemes of market twisting as staggering in their boldness as the United States Steel Corporation was among industrial enterprises . . . , with a blind and prosperous public plunging after. . . . It is a good thing for ordinary men to let alone.”
Sure enough, as Wednesday wore on, the market began to crack. With Northern Pacific still rising—it would peak at $180 that day, an incredible seventy-point gain in three trading sessions—the shorts’ desperation reached a fever pitch. Neither the Harriman nor Morgan camps were buying that day, for both had become confident that they held the necessary majority. Wednesday’s action was all from the speculators. In fact, the holdings claimed by the Harriman and Morgan camps taken together exceeded the Northern Pacific shares actually in existence by one hundred thousand, possibly two hundred thousand, shares. Whatever the true figure, there were no Nipper shares to be found in the market.
Northern Pacific had been “cornered,” in market parlance. But it was a corner unlike any other the market had seen. Corners deliberately staged to squeeze shorts for the benefit of speculators were a common occurrence; in this case, however, Morgan and Harriman were not trying to squeeze shorts in Northern Pacific—they were genuinely bidding for control of the railroad. It was the frenzied buying and selling by onlookers that created this corner. The Northern Pacific corner would be the largest ever known up to that point, but it was entirely accidental.
That was not to say that its effects were illusory. “Panic Reigns,” the New York Times declared, judging the lunacy to be even greater than what had followed the death of Roswell P. Flower two years before, previously the preeminent example of the stock market in full stampede. “Brokers acted like insane men,” the Times reported from the Produce Exchange. “Big men lightly threw little men aside, and the little men, fairly crying with indignation, jumped anew into the fray, using hands, arms, elbows, feet—anything to gain their point . . . It was something incomprehensible, almost demoniac—this struggle, this Babel of voices, these wild-eyed, excited brokers, selling and buying, buying and selling.” In the brokerage offices blocks away, the tickers “ticked out fortunes, easily made, being more easily lost.”
Unnerved by the storm, Schiff and his partners tried to quell the speculation in Northern Pacific. Asked by reporters that afternoon if it was true that the “Harriman syndicate” now had control of the railroad, Schiff replied levelly, “We think that we have.” An unnamed spokesman for Morgan was somewhat more reserved, but also signaled that his side’s buying was at an end. “Mr. Schiff, himself, told me to-day that they controlled the Northern Pacific,” he said. “Mr. Schiff is a truthful man and I suppose I must believe him.”
* * *
AFTER THE MARKET’S 3 p.m. close on Wednesday, May 8, the insanity moved uptown to the Waldorf. The vast hotel’s bars and hallways were dense with tobacco smoke and redolent of stale whiskey. Brokers huddled in clumps to negotiate borrowings of Northern Pacific stock at prices that threatened ruin—money rates reached 85 percent, meaning that a borrower would have to pay $8,500 for the loan of one hundred shares for only a few hours. To onlookers, it seemed that a well-deserved comeuppance was at hand. “For several months,” crowed the Sun, “the brokers and the professional room traders and even their clerks have turned up at the Waldorf-Astoria for dinner . . . All were in evening clothes and all lolled and waggled their heads, and proclaimed, ‘The world is mine.’ Last night very few of the brokers and none of the professional room traders and no clerks appeared in evening clothes.”
The rumor mill continued to grind at top speed, with spectacular losses by major players still the prime grist. Bet-a-Million Gates was said to be in a $6 million hole on his short position in Northern Pacific. Mobbed by newspaper reporters at the Waldorf, he denied the calumny.
“Do I look like it?” he barked. “No, I have not lost a cent. But even if I had it would not interest the public; it would only concern my heirs.”
“But the public believes that you sold 60,000 shares of Northern Pacific short.”
“If anyone can prove that I have sold 6,000 shares short I will give him 60,000 shares as a present.”
(“Nevertheless,” commented the Sun, “Mr. Gates was not as frisky and not in as genial a mood as usual.”)
Exasperation with the turbulent market was plainly spreading. James Hill watched bemusedly what he later referred to as “a good-sized panic in New York.” Unlike Schiff, Harriman, and Morgan, he was not a habitué of Wall Street and found the goings-on unseemly and thoroughly inexplicable. He reached back to his experience on the western frontier for his judgment. “All I can do is liken it to a ghost dance,” he told reporters.
The Indians begin their dance and don’t know why they are doing it. They whirl about until they are almost crazy. It is so when these Wall Street people get the speculative fever. Perhaps they imagine they have a motive in that they see two sets of powerful interests which may be said to be clashing. Then these outsiders, without rhyme or reason, rush in on one side or the other. They could not tell you why they make their choice, but in they go, and the result is such as has been seen here for the past few days.
The other rumors consuming the Waldorf crowd concerned the possibility of a settlement allowing the short sellers to escape with their shirts, which would require an agreement between the Harriman and Morgan camps. Both sides were inclined to find a solution—desperate, in fact—for it served no one’s interest to have a major panic roiling Wall Street and ruining brokers and shareholders.
Stories circulated that representatives of both sides had been seen entering the Morgan offices at six thirty that evening; others heard that Keene had been seen at the Waldorf in conference with his principals at 10 P.M., with a deal bruited about to allow the shorts to cover their positions at anywhere from $150 to $250 per share.
But by the end of the night no settlement had been announced. As dawn broke on Thursday, May 9, Wall Street steeled itself for a final paroxysm.
19
Exhaustion
LONG BEFORE THE 10 a.m. market open, traders had been arriving at the Produce Exchange drenched from a morning downpour, shaking out and furling their sodden umbrellas, only to confront the deeper gloom indoors. For a brief period before the open on May 9, the traders took heart from a r
umor that Morgan and Harriman had settled their struggle over control of the Northern Pacific. But the battle of titans no longer had much to do with events on the floor, for a full-scale convulsion was brewing.
The gavel came down, and an expectant calm fell momentarily on the exchange. A few stocks were up, a few were down. Erie preferred advanced a point; the Baltimore & Ohio retreated a point. Northern Pacific opened up ten points to $170 on the very first sale, vaulted higher to $210, and fell back to $170—all in the first few minutes. Then the storm erupted, violently. Northern Pacific leaped ahead to $320, $400, $650, and $700. At that point the exchange formally declared a “corner” in Nipper; all subsequent sales would have to be in cash. Only one hour had passed. Within the next fifteen minutes, three hundred shares were sold at $1,000 each. It was the high point for Northern Pacific, “an incident putting every railroad stock quotation record of the world to rout,” the Times reported.
In Albany, Sam Hessberg, a resourceful branch manager for the brokerage house J. S. Bache & Co., found a way to make his clients a quick buck. Hessberg reckoned that his customers had deposited five hundred NP shares in his branch’s vault, most of them purchased a year earlier for as little as $20. The shares would lay fallow while money rates for lending them out reached to the stratosphere—unless they could be transferred to New York. The problem was that the certificates were secured behind time locks set to open at 9 A.M.
Within an hour after the locks had sprung Hessberg could be found speeding south with the shares toward Wall Street on a special train made up by the New York Central, his aim to reach New York by 2:15 P.M., the exchange’s deadline for share deliveries. The train beat its scheduled arrival time of 1:45 by seven minutes. At Grand Central Station a messenger boy was waiting. He collected the shares and came sprinting into the Bache office at two o’clock, with fifteen minutes to spare, enabling Hessberg’s clients to reap their bounty.
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