While everyone on the floor seemed to be short Northern Pacific and anxious to buy, investors desperate to raise cash were dumping every other stock they owned—“Not slowly, as on the day previous, but with fearful, heart-breaking rapidity,” the Times reported. The price gap between sales widened from a point or two to ten points, then twenty. “It was more than a complete demoralization,” the Times reported; “it was a general destruction of values, a mad, ungovernable selling movement.” US Steel came down twenty-two points on the day, representing a decline of $100 million in its market value. The Delaware & Hudson lost fifty-nine points, more than one-third of its value. Bernard Baruch’s prediction was coming true.
Floor brokers were agitated by the sheer physical disorder of the trading floor, not to say the collapse of decorum, with traders mauling each other to get an order in. “The thing was so sudden that conservative men lost their heads,” one broker complained to the press, “and language was heard from reputable church-going members of society that would not bear repetition under ordinary circumstances in a barroom of even the second class.”
Anecdotes of calamity and ruin were exchanged on every street corner. “Ruin, pitiless, desperate ruin,” declared the New York Times. “Throughout the entire country men, women, and children alike had been tempted into the whirl of speculation by the promises of fortunes to be made over night.” From brokerage offices came bathetic accounts of clients reduced to tears upon learning of their losses. “An elderly woman drove to the Exchange in a cab just before noon and was helped into the building by a colored servant,” reported the Tribune. She inquired of a doorkeeper the price of US Steel preferred, which had topped out on Monday at over $101. “Eighty-three,” came the reply.
“‘God help me!’ exclaimed the woman. ‘I am ruined!’ She was helped back to her cab, sobbing violently.”
In Troy, New York, the body of Samuel Bolton Jr., a prominent brewer, was recovered from a vat of hot beer, with his hat, coat, watch, and wallet found nearby. Police concluded that he had committed suicide, having “lost heavily in stocks lately.” More gratifying news was associated with the prominent broker Arthur A. Housman, who was rumored to have dropped dead at his exchange post at midday; instead, he materialized on the trading floor during the afternoon session, offering to lend buyers $1 million at a market rate of 6 percent, as if to proclaim his health via generous financing terms.
Even some of the canniest investors were caught unawares by the velocity of the trading. The panic marked one of the few stock market crashes from which the legendary stock trader Jesse Livermore failed to make a profit. But he was only twenty-three at the time, and had not yet learned to mistrust stock tickers in a fast market. As would be recounted by the author Edwin Lefèvre in Reminiscences of a Stock Operator, a thinly fictionalized biography of Livermore based in part on interviews with the trader, he had bought one thousand shares of Northern Pacific early in its bull run that spring and unloaded it on Saturday, May 4, at $110, for a thirty-point profit that brought his brokerage balance up to $50,000. For Livermore, who would experience many cycles of spectacular gains and complete losses in a career of nearly five decades but was then still a fairly small plunger, this was a high-water mark. On Thursday morning, reckoning that the Northern Pacific panic was peaking and a market break was imminent, he placed an order to short US Steel at $100 and the Atchison, Topeka & Santa Fe at $80, expecting to cover the first at $80 and the second at $65, for gains of twenty and fifteen points respectively. His instincts were dead-on and his brokers expert, but they could not outrun the collapsing market. His order to sell US Steel short got filled at $80 and the order for Atchison at $65. Instead of capturing a profit, he had sold at the prices he expected to buy, and was now exposed to huge losses if the market recovered.
“The tape double-crossed me,” laments Larry Livingston, Lefèvre’s stand-in for Livermore. His error was to trust the ticker, not realizing that the pace of trading had delayed its quotes by thirty to forty minutes, so that the prices he had sought were long past before his orders could be filled. When his order slips returned with the disastrously low prices, he decided to cover his shorts immediately—but just as the short orders were delayed, so were his buy orders. He lost $25,000 on Steel and $25,000 on Atchison, and ended the day busted.
By then, the panic had ended. Shortly after 2 P.M., Morgan & Co. and Kuhn, Loeb jointly announced that they would not demand delivery from the shorts that day. Around the same time, a consortium of fifteen banks led by Morgan & Co. assembled a financing pool of $20 million at a reasonable interest rate, thus putting a brake on the frenzied run-up in rates that brokers had been charging each other for overnight loans.
The most important initiative was an agreement by Morgan & Co. and Kuhn, Loeb to take delivery of all shorted stock at $150 per share. This was a recognition that more was at stake in the stock market than the possibility of making a killing from the destruction of dozens of brokerages and the ruin of thousands of investors. The two contesting banks issued bulletins expressing confidence that a settlement would hold “at what will generally be considered a fair market price.” There would be plenty of time for finger-pointing later. Morgan & Co., for its part, made sure to communicate that “this difficulty is not of our making, and we wish to do all in our power to see it remedied.” Hill, whose need for a firm majority of shares in the Northern Pacific had helped trigger the week’s events, did his best to distance himself from the consequences. “I am a plain farmer from Hazelbright, Minnesota,” he told reporters disingenuously. “I’m not causing any panics or helping to cause them. A farmer fights shy of panics like he does of measles.”
What about the conferences held that afternoon and night to craft a settlement for the shorts? he was asked.
“I don’t know what there is to confer about. It looks to me like as if this whole situation would straighten itself out when some folks get some sense. I expect before long that people will stop selling that which they haven’t got and can’t get, and then we’ll get down to a satisfactory business basis.”
Those who were not directly touched by the carnage, whether rich or not so rich, could view it with relative dispassion. Disembarking Thursday morning from the Hamburg America Line’s steamship Deutschland at the Hoboken piers, William K. Vanderbilt and sugar tycoon Henry O. Havemeyer were besieged by reporters baying for their views on the panic raging just across the harbor. “I am not in the habit of talking for publication,” Vanderbilt said, “but I am willing to say that I regard the condition of things in Wall Street as silly.” To Havemeyer, it sounded as if “there had been a pretty lively shindig in Wall Street.”
For humorist Finley Peter Dunne, speaking through his alter ego Mr. Dooley, the crash was an occasion for bittersweet ridicule. “Well, sir, I see th’ Titans iv Finance has clutched each other be th’ throat an’ engaged in a death struggle,” Mr. Dooley observed, in his deep brogue, to his friend Mr. Hennessey in Harper’s Weekly on June 1.
’Twas a fine spree while it lasted, Hinnissey. Niver befure in th’ history iv th’ wurruld has so manny barbers an’ waiters been on th’ verge iv a private yacht. . . . But it’s all past now. Th’ waiter has returned to his mutton an’ th’ barber to his plowshare. Th’ chorus girl has raysumed th’ position f’r which nature intinded her, an’ th’ usual yachtin’ will be done on th’ cable cars at eight A.M. and six P.M., as befure. The jag is over. . . . But crazy come, crazy go.
For all the talk of barbers and waiters staking their little all on the exchange, the majority of Americans watched the goings-on in the stock market from afar. Yet for many small investors, the damage from the Panic of 1901 would be lasting. Nest eggs representing the savings of a lifetime vanished in a flash. These were ordinary people who had been suckered into investing on Wall Street by the transformation of the securities markets into a cultural monument and the elevation of its grandees into celebrities.
The popular press had begun to cover the tycoons’
daily lives, their mansion-building and sojourns at international watering spots, in sedulous detail to slake the growing appetite of their growing middle-class readership for glimpses of the rich and famous. On the surface this popular interest reflected the ambitions of the masses to share this lifestyle, but at its core it amounted to a happy delusion, like the adulation later generations would harbor for film stars, that anyone could move into this rarefied world, if only luck smiled upon them.
By the time of the 1901 panic, reporting on Wall Street had spread from the financial news sheets to the pages of general-interest newspapers. The peculiarities of stock market buying and selling were normalized for the average reader in columns entitled “Wall Street Talk” and “Financial Affairs” in the New York Times; and Harper’s Weekly assured its readers of the safety of securities trading in its regular feature “The World of Finance.” These publications were soon retailing pearls of received wisdom from Wall Street bankers—that competition was ruinous, stock market speculation was virtuous, and the markets were an instrument for spreading wealth to the ordinary workingman and -woman.
The investment world’s would-be populists, like Henry Clews, had been working hard to counter the public’s wariness about stock market risks by preaching the gospel of prosperity for all. They cursed the naysayers who pointed to the markets’ recurrent crashes as warnings to the wise. Instead, Clews would write, the boom-and-bust cycle was an indicator of the underlying vigor of the American experiment, which was destined for a triumph all should share. “Risks and panics are inseparable from our vast pioneering enterprise,” Clews had asserted in 1888. (The same sentiment would emerge after notable crashes of later decades, such as the dot-com craze of the 1990s and the housing bubble of the 2010s.) The public needed only to trust to the astuteness of its business leaders. “All depends on the calmness and wisdom of the banks. . . . They have largely succeeded in combining self-protection with the protection of their customers; and the antecedents they have established will go far toward breaking the force of any future panic.”
Clews was writing a mere four years after one major panic (in 1884) and five years before the next. Three more would occur in the first two decades of the next century, followed by the great crash of 1929, which would put to shame every assurance of the market makers’ wisdom and integrity. But while the panic raged in 1901 the conviction still reigned on Wall Street that the market would be put right by its masters, represented chiefly by Pierpont Morgan. Asked at midweek what had provoked the break, the speculator Jefferson Monroe Levy ascribed it to Morgan’s absence in France. “It looks as if the little boys had commenced while the big boy was away,” Levy opined. “If Mr. Morgan had been here this never would have happened.”
The Panic of 1901 shattered the conviction that the market’s leaders were committed to keeping it orderly for the benefit of all Americans, not just those who worked on a few blocks of Lower Manhattan and their partners. Opportunistic financial promoters instantly began to exploit the 1901 crisis by steering customers away from stocks. The morning after the May 9 crash, readers turning to the financial pages of the big New York newspapers were confronted with a quarter-page advertisement placed by the Equitable Life Assurance Society, headlined “A Policy of Life Assurance Never Declines in Value.” The ad promised that “it is always worth its face value at maturity. It may be worth more. It can never be worth less . . . And there are many good companies, but The Equitable is the Strongest in the World.” (Emphasis in the original.) The Equitable and other such promoters knew their market: Lying just under the surface of the public’s fascination with empire builders such as Morgan and Harriman was the suspicion that the stock market was still haunted by scoundrels and mountebanks, best to be given a wide berth by the prudent man and woman.
Away from Wall Street, moreover, faith in the nation’s business leadership was already distinctly on the wane. The image of the robber barons had developed over decades, starting with Commodore Vanderbilt’s charging monopoly fares on his steamships and trains; then through the steel magnate Henry Clay Frick’s violent (and lethal) 1892 assault on strikers at the Homestead Steel Works in Pennsylvania; and Pullman’s refusal to reduce his workers’ rents while slashing their wages, thereby fomenting a monumental strike in 1894.
But the piece of evidence that has lasted longest and most vividly as marking Wall Street bankers as amoral, heartless profiteers is Pierpont Morgan’s statement to a reporter for the New York World who bearded him in London and asked if “some statement were not due the public” as an explanation of a panic that has “ruined thousands of people and disturbed a whole nation.” Morgan’s ineradicable reply: “I owe the public nothing.”
Morgan’s most recent biographer, Jean Strouse, has ably argued that the quote itself may be apocryphal, and its common interpretation as signifying Morgan’s utter disregard for the public interest exaggerated. As Strouse documents, the episode was popularized by the financial writer Matthew Josephson in his 1934 book The Robber Barons. Josephson got it from Lewis Corey’s critical 1930 biography, The House of Morgan, and Corey from the New York World edition of May 12, 1901. In the World’s version, however, the quote appears in a shirttail datelined London attached to a story datelined Paris, where the reporter ostensibly caught Morgan relaxing on a park bench in the Bois de Boulogne and received a surly brush-off.
It is no secret that Morgan deeply detested impromptu encounters with newspersons; one of the most famous images of the plutocrat shows him raising a cane in fury at a photographer on a street in 1910 (possibly out of sensitivity about his grotesquely inflamed nose, the product of a skin condition and an irresistible target for cartoonists). Corey reports him threatening one inquisitive reporter with “murder.” Even if inauthentic, the quote does at least hint at the vantage point from which Morgan viewed the world. He saw himself as an agent of the public interest. But he defined that interest paternalistically, as the preservation of a functioning economy and a functioning fiscal environment for government. Public curiosity, sentiment, opinion—those were features of the rabble. To Morgan, they were beneath notice, and in any case obstructions to what Herbert Satterlee called “Morgan leadership,” which of course was always exercised for the public good.
Morgan saw economic progress as the proverbial tide lifting all boats. “A few men in this country are charged with the terrible offense of being very rich,” he told the New York Times in 1903. “The fact is that the wealth of this country is less ‘bunched’ than at any time in its history . . . Wealth is more equally distributed among the people than ever before.”
* * *
Fiercely defensive about his economic influence and sensitive about images showing his bulbous nose, J. Pierpont Morgan threatened a news photographer with bodily harm in this famous 1910 shot on a New York sidewalk.
* * *
This early version of the “trickle down” theory, however, was demonstrably untrue. “The recent growth of the great class who seem destined to remain lifelong wage-workers in the employ of mammoth concerns, would tend toward less uniform distribution,” commented Willford Isbell King, a pioneering statistician and economist. King was writing in 1922, but upon reviewing the previous three decades, he identified “the greatest force . . . making for income concentration [to be] the successful organization of monster corporations.” The chief agent of this phenomenon was, of course, J. Pierpont Morgan, creator of US Steel and consolidator of the railroads.
Still, as the smoke dissipated from a weeklong panic, Wall Street’s leaders felt justified in concluding that they and the nation as a whole had come unscathed through the fiery furnace. Russell Sage, a former partner of Jay Gould, told the New York Times, “There’s been no wreck, and the feeling is quieting down . . . There is at the close of the market a general feeling of confidence and that the worst of the crisis has passed and that the fine condition of National affairs will be a big factor in adjusting the situation.”
And why not? Th
e national government was in the hands of the pro-business Republican president William McKinley, who had defeated that radical populist William Jennings Bryan twice, in 1896 and 1900.
Yet discontent only grew at the spectacle of railroad tycoons wrestling with each other for business primacy to the disadvantage of countless innocent men and women. Panics such as the one in 1901 and its predecessors had sown seeds that were beginning to yield bitter fruit. The harvest would not be long in coming.
20
The Trustbuster
WALL STREET’S COMPLACENCY about the state of the national economy ended with gunfire at 4:07 P.M. on September 6, 1901, when an anarchist named Leon Czolgosz shot President William McKinley twice point-blank at the Pan-American Exposition in Buffalo, New York.
When the news of McKinley’s wounding reached New York, Pierpont Morgan was preparing to leave his office for the day. He was scanning a ledger with his hat on and cane in hand when a newspaper man burst in.
“Well?” Morgan snapped.
“An attempt has been made on the life of the President,” came the reply.
Despite the suddenness of the news, Morgan seemed to grasp its implications immediately. He sat down heavily at his desk, “gazing steadily at the carpeted floor.” Another reporter arrived waving a printed “extra,” which drew Morgan’s attention for uncomfortably long minutes. Very slowly he uttered the words, “This is sad, sad, very sad news. . . . There is nothing I can say at this time.” Then he shuffled silently out the door.
McKinley’s followers were aware that national policy might be suddenly upended. The Republican establishment, exasperated with what they saw as Theodore Roosevelt’s antibusiness regulatory bent as governor of New York, had thought to neutralize him by placing him in the notoriously powerless position of vice president. That left McKinley free to implement the pro–Wall Street policies that so contented Morgan and his ilk. Now an assassin’s bullet threatened to give Roosevelt almost unlimited scope to turn his inclinations into action. The threat became real on September 14, eight days after the attack, when McKinley succumbed to his wound and Roosevelt was sworn in at a friend’s mansion on Buffalo’s fashionable Delaware Avenue.
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