Today, just in time to make money in the new year, we give you the opening chapter of THE GOLD RING -- the classic story of speculators Jay Gould and Jim Fisk and their daring plot to corner the US gold market, culminating in the disaster of Black Friday, 1989. We hope you enjoy it.
THE GOLD RING:
Jim Fisk, Jay Gould, and Black Friday, 1869
Part I: The Ring
Chapter I: WAR
On MONDAY MORNING, March 2, 1868, The New York Times carried a dispatch from Galveston, Texas, on the western frontier. A desper- ado named D. McKinney had shot a man named Clay Sharcy in nearby Navasota. McKinney had been drinking that morning and had drawn his pistol on saloonkeepers who refused to serve him free liquor. The sheriff arrested McKinney and set out, along with deputies on horseback, to deliver the prisoner to nearby Anderson to stand trial.
THE GOLD RING:
Jim Fisk, Jay Gould, and Black Friday, 1869
Part I: The Ring
Chapter I: WAR
On MONDAY MORNING, March 2, 1868, The New York Times carried a dispatch from Galveston, Texas, on the western frontier. A desper- ado named D. McKinney had shot a man named Clay Sharcy in nearby Navasota. McKinney had been drinking that morning and had drawn his pistol on saloonkeepers who refused to serve him free liquor. The sheriff arrested McKinney and set out, along with deputies on horseback, to deliver the prisoner to nearby Anderson to stand trial.
But the people of Navasota took unkindly to outlaws in their town. That night along the road, the posse carrying McKinney was stopped by sixty armed men, “disguised and blackened.” The vigilantes disarmed the sheriff and deputies and then took McKinney and tied him securely, and hung him by the neck to a tree limb. The rope broke, so they hung the outlaw again to a sturdier branch that was more than ten feet from the ground. This time the rope held. The armed men dispersed, leaving McKinney’s body dangling in the wind.
No further arrests were reported in the case.
On that same morning in New York City, Cornelius Vanderbilt, the seventy-four-year-old “Commodore” and master of the New York Central Railroad, sent shudders through Wall Street by declaring war on his chief competitor, the Erie Railway Company. After months of legal sniping and maneuvering, Vanderbilt now threatened to gobble up Erie just as he had al- ready gobbled up the New York Central, the Hudson, and the Harlem River railroads in stock “corners” that had made heads spin. Backed by a personal fortune estimated at $30 to $60 million, Vanderbilt ordered his brokers on the Stock Exchange to buy Erie shares by the fistful. At the same time, his lawyers obtained decrees from friendly New York judges that prohibited Erie from is- suing any additional stock or convertible bonds.
Then as now, stock-takeover wars gave smart operators an opportunity to get rich. Vanderbilt’s reputation for ruthless competition over the course of sixty years fueled their anticipation. His name had long been a household word. Vanderbilt—tall, physically tough, and handsome—had made his orig- inal fortune in steamships, running passengers first from Staten Island up the Hudson River and later to Europe. In 1856 the Commodore almost single- handedly organized the overthrow of the government of Nicaragua to preserve his exclusive right of transit across the isthmus to the Pacific. Years earlier, he had committed his own wife to an asylum until she agreed to live in a new mansion on Manhattan Island.
Long before government securities regulations, antitrust laws, the Fed- eral Reserve, or any effective controls in the United States, big-money stock operations were bare-knuckle affairs. Wall Street after the Civil War was an untamed frontier, like Texas and the Wild West.
Organized finance in New York dated back at least to 1792, when brokers had gathered under a buttonwood tree to trade real estate and old U.S. Con- tinental money. But the Stock Exchange remained small potatoes. Then the Civil War and the rise of the railroads launched a speculative fever in America. In December 1865 the Exchange moved from a small room on “Change Alley”—off Broad Street, near Wall—to a grand, hundred-foot tall marble palace on Wall Street.
The men who now gambled their fortunes on the Exchange moved with swagger and bravado. “[S]tockbrokers are a jolly, good-hearted, free-and-easy class of men,” wrote observer Kinehan Cornwallis, “who spend their money fast when they are making it fast, and sometimes even when they are not doing so.”
But Vanderbilt’s assault on the Erie Railway surpassed anything yet seen.
Vanderbilt was the biggest shark in this sea; the smaller carnivores smacked their lips at the coming feeding frenzy.
Opposing the Commodore was an old rival, Daniel Drew, the Erie Rail- way Company’s seventy-one-year-old chairman and treasurer. A notorious stock manipulator, Drew veiled his shrewdness behind a country-bumpkin Bible-quoting front. Years before, when he was a cattle drover, Drew had fed his cows salt and let them drink gallons of water before weighing them for sale—the original “watered stock.” A trustee of the Methodist Episcopal Church and semiliterate, like Vanderbilt, Drew became Erie’s treasurer in 1853 and thereafter bilked the line mercilessly. As treasurer, Drew knew company secrets and could control or foresee every jiggle or waggle in Erie stock prices. Unhindered by today’s legal bars on insider trading, he made money every time.
“I got to be a millionaire before I hardly know’d it, hardly,” “Uncle Dan’l” said. He had no intention of letting Vanderbilt walk away with his cash cow now.
When it was first built twenty years earlier, designers had considered the Erie Railway a technological marvel. Stretching from Jersey City westward across New Jersey, Pennsylvania, and Southern New York to Buffalo, it was the first rail link to the Great Lakes. There it connected to points west. But by the late 1860s, although still one of the United States’ corporate goliaths, the Erie had deteriorated from years of neglect. Engineers jokingly called the aging rails and roadbed “two thin streaks of rust.” Drew’s corrupt management of the company had earned Erie a reputation as “the scarlet woman of Wall Street.”
Vanderbilt saw the Erie Railway as competition. By the early 1860s the Commodore had changed his business vision. He had sold his steamship em- pire and cast his lot with the United States’ newest transportation medium, railroads. Starting from scratch, Vanderbilt had built an empire of steel rails that would ultimately increase his fortune from $10 million to an unheard of $100 million during his last fifteen years of life. By 1867 the Commodore had dazzled the financial world by capturing and consolidating three moribund lines into the New York Central system, which now stretched from New York, north to Albany, then across to Buffalo, where it connected, like the Erie Railway, to points west.
With Erie in his pocket, Vanderbilt could control all rail traffic between New York and the western frontier. No federal bans against regional monop- olies would be imposed for decades. So the Commodore, the self-proclaimed “friend of the iron road,” began buying up Erie shares and soon he controlled several seats on the board of directors.
Confident and vain, Vanderbilt forced the issue in November 1867. He proposed a merger under which Erie and his own New York Central would set joint freight rates and pool their profits. To Vanderbilt’s surprise, the Erie board rejected the plan. Daniel Drew had corralled enough allies to outvote Vanderbilt’s directors. In February 1868 the board added injury to insult by agreeing with the Michigan Southern Railroad, the primary link from Buffalo to Chicago, to build a special narrow-gauge line from Chicago that would connect with Erie in the east, diverting traffic away from the New York Central.
The Commodore steamed. The Erie Railway Company had deceived him.
Throwing a tantrum, Vanderbilt announced that he would simply buy Erie and set policy as he pleased: no bother with tender offers, waiting periods, disclosures to the Securities and Exchange Commission, or other legal mumbo jumbo.
It seemed the fight would be over before it began. Who could resist an on- slaught of Vanderbilt money and clout? Keen observers, however, knew that Vanderbilt and Drew had been banging heads for forty years in business wars over steamboats and railroads. And this time, Uncle Dan’l seemed oddly serene. Old Cornele could bluster all day long, but Brother Drew had two aces up his sleeve. In anticipation of the fight, Drew had elevated onto the Erie board two obscure young protégés cut from his own mold of fiscal connivance. They were quick, arrogant, and unscrupulous; to Drew’s mind, the smartest young men on Wall Street.
So it happened that Jay Gould, thirty-one years old, and James Fisk, Jr., thirty-two, entered the annals of Americana.
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| Jay Gould |
Psychoanalysts would have marveled at Jay’s upbringing. Born in 1836 to dirt-poor dairy farmers in rural Roxbury, New York, his mother had died when he was five years old. His father, John Burr Gould, outwardly ridiculed the boy, telling him he was “not worth much” around the farm. When Jay complained about going to school, his father locked him in the cellar for days until Jay’s five sisters raised a ruckus. A frail youngster, Jay had learned to survive by bending rules. He sometimes cheated at wrestling with his boyhood friend John Burroughs.
When Burroughs complained, Jay had said, “But I’m on top, ain’t I?” One night when Jay was eight years old, a gang of fifteen gun-toting men dressed as Indians broke into the family farmhouse and dragged his father from bed. The men, part of a terrorist wave during the so-called “Rent Wars” in upstate New York, threatened to tar and feather John Burr Gould unless he joined their anti-landlord movement. He refused. His little son, watching from behind a door, admired how his father stood his ground. “Conscious of right, he shrank from no sense of fear,” Jay wrote.
Jay went on to invent a mousetrap; he wrote and self-published a 450- page History of Delaware County and ran the ill-fated tannery with Leupp. Then he came to New York in 1858 to make his fortune. There he joined two other brokers in 1862 to form Smith, Gould, Martin &Company and started buying railroad stocks. Like other young men of destiny—J. P. Morgan, John D. Rockefeller, and Andrew Carnegie, among others—Jay avoided military service by purchasing a $300 replacement under the eminently unfair Civil War conscription acts.
By 1867 he had accumulated a stake in the Erie Railway big enough to be courted by the embattled company treasurer.
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| Jim Fisk, dressed as "Admiral" of his Narragansett Steamship Company. |
During the war, Jim distinguished himself in the cloak-and-dagger cotton smuggling trade. He bought cheap contraband cotton from Confederate ware- houses, sneaked it past Union lines, and shipped it north for Jordan Marsh to weave into uniforms for Lincoln’s army.
Jim’s mother died when he was an infant, but his father and stepmother doted on him. When a schoolteacher whipped Jim for pulling a prank, his father was so indignant that he kept the boy home for months.
Jim told a story about a woman who came to him one day when he was peddling with his father. She complained that Fisk Senior had cheated her on a handkerchief. The handkerchief had cost nine pence—a few pennies in the then-local New England currency.
Jim thought a moment, then stuck up for Dad. “No! The old man would- n’t have told a lie for nine pence,” said he, “though he would have told eight of them for a dollar!”
Jim Fisk migrated to New York in 1864 and proceeded to lose all his money in the stock market. Before he left town broke, he gave fair warning of his return. “Wall Street has ruined me, and Wall Street shall pay for it,” Jim said. He refueled his bank account in Boston and returned to New York the next year. He soon charmed his way into the good graces of Daniel Drew by doing favors for the Erie treasurer and acting as the old man’s agent on secret stock trades. By the time he needed to plant an ally on the Erie board, Uncle Dan’l had been much impressed by young Jim Fisk’s peculiar talents and his loyalty to him.
Jay probably considered Jim Fisk a loud-mouthed buffoon when they first met on the Erie board in late 1867. Fisk likely shared the general view of Gould as a sinister manipulator. On the surface, they differed as night from day. But underneath, powerful forces bonded them. Both had experienced grinding rural poverty in the uncaring society of the mid-1800s; both had clawed their way up to affluence by their wits. Fisk and Gould shared a self- confidence that bordered on arrogance, a disdain for public opinion, and mountains of ambition.
Prudent young men would have avoided a blood battle with the likes of Cornelius Vanderbilt. But Gould and Fisk had watched Uncle Dan’l Drew enrich himself from Erie. Now, given the chance of a lifetime, the two pro- tégés wanted their own turn at the trough.
First, Drew’s lawyers found a friendly judge who issued decrees to nullify Vanderbilt’s decrees. Vanderbilt’s judges responded by decreeing the new de- crees null and void. As the legal eagles sparred with injunctions and counter injunctions, Fisk and Gould discovered a more potent weapon in the base- ment of Erie’s Wall Street offices—a printing press.
Wasting no time and ignoring Vanderbilt’s court decrees, Gould, Fisk, and Drew got secret approval from their friendly board majority to issue $10 million in bonds convertible into shares of Erie stock, supposedly to purchase new steel rails and equipment for the Erie line. Saturday night and Sunday, March 8 and 9, the printing press cranked out page after page of fresh Erie stock certificates. On Sunday they issued 50,000 shares and parceled them out in two 25,000-share blocks to Fisk’s and Gould’s personal brokerages: Fisk and Belden, and Smith, Gould, Martin & Company.
Jim Fisk explained the strategy: “If this damned printing press doesn’t break down, we’ll give the old hog [Vanderbilt] all he wants of Erie.”
As the Stock Exchange prepared to open on Monday morning, March 10, the Erie directors lay in ambush. In these stressful moments, Jay Gould steadied himself by tearing corners of newspaper pages into confetti.
Trading in railroad stocks on the New York Stock Exchange took place in the Long Room, a large, high-ceilinged chamber with tall windows that looked out onto New Street; it was unfurnished except for an elevated dais at the Wall Street end, and it had an upper gallery for spectators. It also had a separate gallery for telegraph operators, who flashed the latest prices almost instantaneously to brokers’ offices miles away. At ten o’clock every morning (including Saturdays), the chairman, standing on the dais, banged his gavel and called the first stock to trade for ten minutes, then the next, and so on down the list.
When he reached Erie that morning, Vanderbilt’s agents grabbed the stock as fast as it was offered. The roomful of brokers raised a clamor. After the allotted ten minutes, the speculators rushed outside into the street to con- tinue the frenzy, leaving the deserted Exchange floor behind, oblivious to the winter cold. Mobs formed around the Drew and Vanderbilt brokers on the sidewalk as the price ran from $78 to almost $83 per share.
Shortly after noon, the tide turned. Brokers allied with Gould and Fisk suddenly offered Erie stock in blocks of a hundred or five hundred shares. The mob sensed danger. An apparently unlimited supply of Erie stock was flooding the street. In a “violent panic,” the price dropped from $83 to $71. Vanderbilt brokers learned that one brokerage was delivering crisp, new certificates signed only the day before. The “bull clique” was “demoralized,” wrote a Herald reporter.
Vanderbilt’s agents ran to the Commodore’s office with news of the watered stock and asked what to do. “Do?” Cornele roared. “Buy all the stock the sons-of-bitches offer to sell! They think they can pick my pocket, do they? Well, by God, I’ll show ‘em that there’s such a thing as law in this State!”
Vanderbilt kept buying, but theatrics aside, his raid was dead. After spending $8 to $10 million on Erie stock, he was still no closer to controlling the company, and the value of his newly acquired shares was falling fast.
Fisk, Gould, and Drew were elated. Flushed with victory, they met the next morning in their West and Duane Street offices. Stock Exchange messengers carried in bags of money—the proceeds from Vanderbilt’s purchases of funny stock. Like a medieval warlock and his two sorcerer’s assistants, the three men amused themselves by sorting the money and tying it into bundles.
But Vanderbilt found no humor in the situation. Not only was the Erie raid a public embarrassment, it had become expensive. Even his own deep pockets felt the pinch.
Vanderbilt wielded power beyond the sheer weight of money, though, particularly through his relationship with William Magear Tweed, the reign- ing boss of New York’s Tammany Hall, who in 1868 controlled the New York judicial system.
Vanderbilt turned to George Barnard, a justice of the New York Supreme Court. Barnard had been handpicked, nominated, and sustained by Tweed and was widely known as a “slave of the [Tammany] ring.” Barnard was very helpful.
New York State had only one level of courts at that time. New York Supreme Court judges held trials and issued orders with no appeal short of the United States Supreme Court. After a hastily called hearing, Judge Barnard found that Drew, Fisk, and Gould had violated the earlier injunctions by issuing the Erie convertible bonds. He declared them in contempt. Even as the trio then celebrated their victory over Vanderbilt’s stock raid, news arrived in their suite that New York police were en route to arrest them.
Erie’s top directors had to choose between spending time in the Ludlow Street Jail, New York’s pen for civil cases, or getting out of town.
By nightfall, Drew and a dozen other Erie officials had packed their money, stocks, bonds, and records—including the $8 million in cash fleeced from Vanderbilt—and were heading across the Hudson River. They would set up Erie-in-exile at Taylor’s Hotel in Jersey City, New Jersey—beyond the reach of New York justice.
Fisk and Gould only narrowly escaped the law. They left Drew, and before leaving New York, they stopped at Delmonico’s restaurant at Broadway and Chambers Street to further celebrate their victory with steak and cham- pagne. A messenger interrupted their meal with news that the police were heading over to their table at that instant. Leaving dinner half finished, Fisk and Gould raced outside into a waiting carriage that took them down to the foot of Canal Street. There they hired a small lifeboat with two deckhands to attempt to cross the river.
The fog that night was so dense that they almost collided with a steam powered ferryboat. After rowing in circles for hours in the cold, they landed in Jersey thoroughly drenched.
Two other Erie directors who dawdled in New York were arrested by Barnard’s police and spent the night behind bars.
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