Sunday, October 27, 2013

96. Wall Street, Its Past and Present Sins, and Do We Need It? Part 2

     Part 1 of this series on Wall Street (post # 95) ended with the Panic of 1857.  This post picks up the story there and continues the account over the decades that followed.

     In the months that followed the Panic, when the unemployed marched on City Hall flaunting signs that said  WE WANT WORK  and  HUNGRY, while in the gutters of the Five Points women ragpickers clawed and shoved one another over a chicken bone snatched from a hog, bystanders remarked, “Pinching times.”

     When young ladies of refined education, whose families had once enjoined them never to fall in love with less than twenty thousand a year, having lost their father to bankruptcy and stroke, and their mother to shock and chagrin, got jobs as capmakers or book binding stitchers or tinters of artificial teeth, working from sunrise to sunset for a mere three dollars a week, and were glad to have employment, journalists announced, “Pinching times.”

     Pinching times prevailed for one year, then two, as the demand for gold cigarette cases and silver toothpicks dwindled, and bank note printers published temperance tracts, and factories sat idle.  Then, almost imperceptibly, stocks poked timidly up, winches creaked on the docks, and here and there a forge blazed, a lathe whined.  Once again in the minds of railroad projectors, real-estate visionaries, and manipulators of money, as in the hard  muscles of stonecutters, quarrymen, and roofers, the Spirit of Go Ahead – at first not a blast but a whisper – moved in Gotham, till even Mr. Bennett of the Herald, having gloated over the havoc and ruin, acknowledged the passing of the “late revulsion.”

     So the Panic of 1857, which brought misery to many, was followed by a year or two of “pinching times” – a mere moment, a fleeting instant of hardship, when compared to panics both before and after.  Is it any wonder that memory of it faded quickly, as the nation was rent asunder by the Civil War, and New York City, after a bit of initial doubt and shock, was immersed in a wartime boom, supplying the government (for a hefty commission, needless to say) with the foodstuffs and weapons and tents and blankets that it needed, while speculators on Wall Street bid the price of gold up and down in the market? 

     I have already told the story of that boom, and the profits raked in by the knowing few, in an earlier post (#82), so here I will only mention how the government financed its vast war effort.  Did Wall Street rush to the rescue?  Don’t be silly.  With the survival of the Union uncertain, it sat on its duff, left the financing to others.  The “others” proved to be Jay Cooke, a Philadelphia financier whom the Treasury Department hired as a special agent to sell $500 millions in Treasury bonds directly to the people.  He organized a nationwide sales campaign that bypassed Wall Street completely (yes, it can be done), sending 2,500 subagents into every Northern and Western state, and even Southern states as they were occupied by Northern armies, to appeal to the citizens’ desire to help the war effort, while realizing a decent profit on their investment.  This canny appeal to both patriotism and greed, well publicized in newspapers, handbills, and posters, reached the most ordinary  citizens – schoolteachers and ministers and small shopkeepers – who would never have succumbed to any offering of Wall Street, but who responded generously to this appeal, more than fulfilling Cooke’s goal.  And when, in early 1865, the government was again desperate for funds, Cooke sent his agents into remote villages and hamlets and even isolated mining camps in the West, selling some $830 millions of Treasury notes to finance the nation’s final war effort and bring victory. 

See how we won the war?
     Jay Cooke was no fool; good financier that he was, he realized a huge personal profit and was even accused of corruption, though no investigation resulted.  But his work was essential in saving the Union, and by going directly to the people he brought democracy to, of all places, the world of finance.  The securities he sold were the granddaddies of the Liberty Bonds of World War I and the War Bonds of World War II, which were likewise sold directly to the people with a simultaneous appeal to patriotism and greed.  Or, instead of greed, let’s be generous and say enlightened self-interest.  That gets me off the hook, since at my high school I bought, and even peddled, the stamps that could in time add up to the price of the cheapest war bond, $18.75 (maturing in ten years for a value of $25.00), thus helping give their comeuppance to those villains Hitler and Tojo.  (How could you not, when even Superman and Batman and Robin were urging you to participate?)  And when my father, a veteran smoker, bribed me not to smoke before I was 21, offering first $100 and then $200, how did he pay me when I achieved that magical age?  In war bonds, of course.  For which I have to thank both him and Jay Cooke (though probably not Superman or Batman).  (Batman, by the way, was my childhood favorite.  Superman seemed just a bit square and prosaic, whereas Batman was sleek and sexy.  As for his relationship with young Robin, darting together over city roofs at night, well, I won't comment further.)

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An 1866 theater bill for The Black Crook, 
a forerunner of both the Broadway musical
of today and burlesque.

     The wartime boom in the North continued in the postwar years in what has been called the Flash Age, when the city’s dark eros* and glitter were whipped into shimmer and froth.  It was a time of diamonds and champagne; of musical extravaganzas with the high-kicking dancers of the cancan, artificial waterfalls, and chariots of angels dropping from the sky; of Jim Fisk and Jay Gould convulsing markets as they attempted the unheard-of, the unimaginable, to corner gold; of faro dens just off Broadway with green baize tables ringed by glossy top hats, as dealers flicked out cards to grunts and murmurs and puffs on black cigars; and Tiffany & Company’s front window offering silver vases, paperweights, fans, and half-draped nymphs in bronze: the accessories and armature of Flash.

     *Dark eros: the force that drives the city, the blind energy, ambition, and desire that make New York New York.

     Above all, it was a time of railroad men, gilt-buttoned, with lavender or cream kid gloves, voicing in brokers’ front offices on Wall Street and at public meetings everywhere a vision of railroads inspired by the completion of the first transcontinental line, when the Union Pacific joined up with the Central Pacific in Utah in 1869.  A transcontinental railroad, spanning prairies and mountains and deserts – it was bold, it was dazzling, it was Go Ahead!  Of course there must be more -- the Northern Pacific, the Kansas Pacific, the Atlantic & Pacific, the Anything Pacific – jabbing twin bright bands of steel into the fabled goodlands of the West, past bison and astonished Indians into the sunny clime of California, its rugged shores frothed by the blue Pacific, beyond whose vast expanse loomed the ultimate dream spiced in mystery, the Orient.

     Yes, at times word came from the West of a town site marked by a buffalo skull and little else, of grasshopper plagues, or parched mesas whose Indians, bison, and rattlesnakes voiced no need of a railroad.  Even in the best of times cynics alleged scant profits, mounting costs, a hint of a taint of corruption.  To build five thousand miles of railroad a year, millions in bonds had been sold; tens of millions more were needed.  Rumors surfaced of meetings in board rooms and brokers’ back offices, where it was whispered the bonds weren’t selling.  Shhh!  The bond ads ran month after month.

File:Wall street 1867.jpg
Wall Street in 1867, looking east from Broad Street.  The pillared building on the left is the U.S. Subtreasury, with quantities of gold in its vaults; formerly the Customs House, it is now known 
as Federal Hall.  On the right, in the distance, is another pillared structure, the Customs House,   
formerly the Merchants' Exchange and today housing luxury apartments.

     The railroad men bought luminous pearls at Tiffany’s, dined on wine-simmered snipe at Delmonico’s, and from boxes in Fisk’s Opera House craned joyously at the leggy spasms of the cancan.  In August they went to Long Branch for a whiff of the keen salt sea.  Everyone was there – bankers and brokers, moguls and minions, the President.  The railroad men, their broadcloth plucked by the breeze, strolled and chatted along verandas hung with baskets of roses, while their wives toppled tenpins, and their sons raced trotters on the beach.  From the click of croquet, from the waft of fountains bubbling with cologne, and from shiny turnouts foisting genteel nods at President Ulysses S. Grant passing in a carriage, the railroad men knew the summer, the nation was ripe.

     Back in the city, top-hatted, well brushed, richly sideburned, they strode by day on Wall Street, and evenings mixed with the money men thronging the ornate lobbies of the white-marbled Fifth Avenue Hotel.  This country can do anything, said their glowing red tips of cigars.  The eyes of the world are upon you, said their slick boots.  Destiny, said their rubied fingers.  Year after year in a grabbing, sprawling nation, the people ate the dream, the dream ate the people.

     Diamonds and pearls, railroads jabbing through wilderness, champagne, shimmering dreams: sound familiar?  It should, especially for viewers of post #95.  It was 1857 and its aftermath all over again, only worse.  Stocks, having gone up up up, began going down down down.  To grasp the Panic of 1873, triggered by the failure of Jay Cooke’s Northern Pacific, one need only scan the headlines of the time:


followed by

            ALMOST  OUT  OF  THE  WOODS

followed by


followed by


followed by

            BLACK  VELVETS  FOR  A  SONG

The depression that followed lasted six years.

File:Panic of 1873 bank run.jpg
Run on the Fourth National Bank, 1873.

     Side note on railroads:  Even the much vaunted Union Pacific got into trouble.  After the first year or two, when passengers flocked from both sides of the Atlantic for the novel adventure of crossing the continent by rail, business fell off, since the line traversed an unpeopled wilderness that wouldn’t supply a reliable passenger and freight business for years.  But my favorite example of an unnecessary railroad is the Adirondack Company, which in 1864 began building a railroad north from Saratoga Springs into the Adirondack Mountains, whose presumed ores and minerals it hoped to tap.  Just where it was going wasn’t quite clear, but maybe Canada, so as to bind that nation commercially to the United States.  By 1865 it had one engine and six freight cars operating on twenty-five miles of track, nothing more being possible in the face of fearsome winters, rugged terrain, soaring expenses, and massive debt.  It was now obvious that the company was a huge overblown fantasy, a debt-ridden venture building a railroad from nowhere to nowhere.  But in those days dreams died hard.  New financial wizards were called in, the most pressing debts were paid, and construction resumed.  By 1871 the railroad had advanced sixty miles to the crude little village of North Creek, the last town of any consequence in the Upper Hudson Valley.  There, for lack of funds, construction stopped.  The fabled riches of the Adirondacks remained inviolate, and in 1873 the company collapsed again, this time for good, in the panic.  R.I.P. Adirondack.

     No need to chronicle all the ups and downs of Wall Street and the economy throughout the rest of the century.  Let’s fast-forward to the Panic of 1907, when an attempt to corner a stock on the New York Stock Exchange led to the failure of a brokerage house and a bank, causing depositors to make a run on other banks, which in turn caused the panic to spread. 

     At this point, with chaos impending, enter J.P. Morgan, the most prestigious banker of the day, a massive chunk of a man with piercing eyes, a nose rendered purple by a skin condition (he hated being photographed, menaced photographers with his cane if they tried), a fierce mustache, a thundering voice, and so overwhelming a presence that one man said a visit from Morgan left him feeling “as if a gale had blown through the house.”  Top-hatted, frock-coated, and ponderous, he was Wall Street incarnate, fitting perfectly our stereotypical image of the fat-cat banker, the tycoon.  As for power, he had plenty of it, controlling 70 percent of the steel industry, one fifth of all the corporations on the New York Stock Exchange, the three biggest U.S. insurance companies, and several banks.  If he liked big deals, he also liked big boats (he was an avid yachtsman) and, it is said, big women.

     Hearing of the panic while attending a church convention in Virginia, this phenomenon rushed back to New York by train to redeem the situation.  Immediately he began conferring with the other major bankers of the day, who joined with him in putting up huge sums to keep threatened banks solvent and stop the spread of panic.  Crisis after crisis followed, as one major institution after another hovered on the brink of failure, only to be rescued by Morgan and his cohorts.  To get his way, Morgan blustered and, if necessary, locked his fellow bankers in a room in his library until a deal had been reached.  You didn’t say no to J.P.  Values on the stock exchange fell by fifty percent, but an even greater panic was averted.

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Could you have said no to this man?  One did so at one's peril.
     Only old J.P. had the resources and prestige to pull off this desperate act of redemption.  At first he was hailed as a hero, but then his role was scrutinized by Congress, and doubts were raised about the wisdom (or lack of it) in having one man wield such power.  As a result, in 1913 Congress created the Federal Reserve System to regulate banks and maintain the stability of the financial system. 

     Earlier that same year Morgan died, marking the end of an era; on Wall Street flags were flown at half-mast.  He was smart to check out when he did, since in that same year the Sixteenth Amendment was passed, permitting Congress to enact a progressive income tax.  Some see the end of the Gilded Age as 1914, with the beginning of World War I, or 1900, with the coming of a new century.  Personally, I suggest 1913, marking the enactment of the income tax.  How Wall Street must have groaned!  A tax on, of all things, one's income!  Worse still, the more you earned, the more you paid. From now on, amassing millions wouldn’t be as much fun.  But it wasn’t just those pesky Democrats who did it; the Republicans went along with it, too.  (Back then Republicans did all kinds of progressive things, such as busting trusts and creating the National Park System.  Ah, those were the days!)

     J.P.’s name is preserved today in the Morgan Library and Museum on Madison Avenue at 36th Street, which holds his collection of books, manuscripts, prints, and ancient artifacts, and in my very own beloved bank, J.P. Morgan Chase, whose local branch still generously dispenses quantities of candy even while that noble institution is under fierce siege by the meddling U.S. government, which just can’t leave well enough alone.  (More of this in the next post.)

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The Morgan Library today.
Beyond My Ken

     A personal note:  Old J.P. was cozy with the Episcopal Church, and it was cozy with him.  It was a friend of his, Bishop William Lawrence of Massachusetts, who in 1901 expressed one of my favorite pronouncements of all time regarding religion:  “It is only to the man of morality that wealth comes….  Material prosperity is helping to make the national character sweeter, more joyous, more unselfish, more Christlike.”  Now who could argue with that?  So long live wealth!

      Another personal note:  The Panic of 1907 affected my family.  My maternal grandfather, a judge in Indiana, suffered losses to such an extent that he sent his spunky elder daughter, my mother, then 18, out to teach school in a one-room rural schoolhouse.  This she did for two years, boarding with a nearby farm family and keeping barely ahead of the brighter older boys in math.  It was a challenge, but she met it successfully; when she went on to college, she was more mature, more self-confident, more committed.  I can’t credit old J.P. for this, only the panic that he stemmed.

     One final personal note:  You’ll notice how easily I slip into calling Morgan “J.P.” or “old J.P.”  Just as, in other posts, I have called Taylor Mead “Taylor,” and Allen Ginsberg “Allen.”  But I would never refer to Julian Beck or Judith Malina of the Living Theatre as “Julian” or “Judith,” or to Brooke Astor as “Brooke” (posts #93 and #94).  What gives here?  It’s personal but hard to explain.  I guess I look on Morgan as a crusty old granddad whom, in spite of his faults, you can’t help liking.  And Taylor Mead and Allen Ginsberg are contemporaries of mine whom I first heard of before they were widely known.  But between myself and Beck and Malina I keep a certain distance; I respect them but don’t want to get too close.  As for Brooke Astor, who cherished hugs from a janitor, she puts one off a little with her furs and jewelry, even though I’d have loved to dance with her.  That’s as much of an explanation as I can muster at this time.

     I’ll end this post here, in the first decade of the twentieth century.  The next post will bring us up to the present, and the question of whether or not we need, and should put up with, Wall Street.  My opinion is of no more or less importance than anyone’s, but some interesting issues can be raised.

     Coming soon:  The last, and climactic, post on Wall Street, glancing at the fabled Crash of 1929 and its recent imitation in 2008, plus the current woes of J.P. Morgan Chase, the old boy's namesake and my dear bank of today.  Plus a brief appearance by Abbie Hoffman at the Stock Exchange and a note on covetous New Jersey, always trying to steal a slice of New York's thunder.  After that: My Suicides.

     ©  2013  Clifford Browder

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