CHAPTER LXVII.RECENT WALL STREET BOOMS.
The Resistless Power Behind the Market.—The Advent of Governor R. P. Flower.—How Stocks were Boomed with a Dash.—A Sudden Death Averts a Big Panic.—Mr. Morgan as a Railway Reorganizer.—How Bannigan Unloaded His Rubber.—Millions Won Only to be Lost.
Wall Street, after the election of McKinley, enjoyed a boom such as it has seldom known. Probably the most interesting feature about this boom was that it was not in any sense spectacular. In that respect it is unique. Prices of stocks went higher and the intrinsic value of most of them was greater than ever before. The market had all the qualities that normally would cause intense excitement and focus the attention of the entire country on the Stock Exchange. Yet in spite of these conditions the Street was in a normal state of mind, and it is doubtful if the general mass of the people, who get their information from the newspapers, were aware that there was even an ordinary boom in Wall Street. This unusual condition was due, I believe, to the fact that the boom we were enjoying was built on a foundation that reached clear to the bowels of the earth. There was nothing unnatural or artificial about it. Wall Street, instead of being the center, is simply one of the centers that reflects the general prosperity throughout the country. Farmers, merchants, mechanics, mill workers, and miners are all so intent on keeping pace with the progress in their own pursuits that they have no time to cast eyes our way. The same conditions that boomstocks may boom everything else in the country at an equal rate, so that we are in nowise deserving of special attention.
Another factor, too, had developed in the Street that prevented the usual excitement and hurly-burly incident to a rising market. This was the absence of a pronounced central figure. Usually a boom centers about some one man who stands boldly out in the open, and whose hand is known to be manipulating values. But then the manipulation was being carried on by a method that was as quiet as it was novel and unusual. That the market was being manipulated was apparent enough even to the most casual observer. But the source of this manipulation was probably known to only a few.
They knew that a new order of things had come, due to the most powerful influence that had ever manifested itself in Wall Street. This influence was very largely composed of the Standard Oil combination, who introduced in their Wall Street operations the same quiet, unostentatious, but resistless measures that they had always employed in the conduct of their corporate affairs. The heretofore conspicuously big operators were mere tyros beside the men who are running things for us now.
At his best, Jay Gould was always compelled to face the chance of failure. Commodore Vanderbilt, though he often had the Street in the palm of his hand, was frequently driven into a corner where he had to do battle for his life; and so it was with every great speculator, or combination of speculators, until the men who control the Standard Oil took hold. With them, manipulation has ceased to be speculation. Their resources are so vast that they need only to concentrate on any given property in order to do with it what they please; and that they have thus concentrated on a considerable number of properties outside of the stocks in which they are popularly supposed to be exclusively interested is a fact well known to everyone who has opportunities of getting beneath the surface. They are the greatest operators the world has ever seen, and the beauty of their method is the quietness andlack of ostentation with which they carry it on. There are no gallery plays, there are no scare heads in the newspapers, there is no wild scramble or excitement. With them the process is gradual, thorough, and steady, with never a waver or break. How much money this group of men have made it is impossible even to estimate. That it is a sum beside which the gain of the most daring speculator of the past was a mere bagatelle is putting the case mildly. And there is an utter absence of chance that is terrible to contemplate. This combination controls Wall Street almost absolutely. Many of the strongest financial institutions are at their service in supplying accommodations when needed. With such power and facilities it is easily conceivable that these men must make enormous sums on either side of the market. So far, fortunately, their manipulations have all been one way—upward; and in conjunction with the general prosperity this has resulted in making large sums of money for nearly everybody in the Street.
Here and there we have heard of losses, some of them fairly large, but in comparison with the general money-making these are hardly to be taken into consideration.
The last preceding boom that Wall Street had enjoyed was as different from this as it is possible to imagine. It had all the elements which this one had not. It centered about one man who stood out in the lime light clear and distinct. It kept the Stock Exchange in a constant state of ferment. It filled the newspapers with column upon column of sensational stories. It made millions for an army of retainers, on paper, and it kept the market jerking up and down for months.
Roswell P. Flower, ex-Governor of the State of New York, was the leader of the boom, and a more picturesque figure had never been seen in Wall Street, which is saying a great deal. Mr. Flower was an individual of a very plain exterior. He often used language that was noticeable more for its force, directness, and emphasis than it was for polish. He was rarely seen without a huge quid of tobacco that almost filledthe left side of his mouth. Spittoons were an essential part of the furnishings of his office. His clothing hung on his person not unlike meal sacks. His hat was rarely brushed, and for days at a time, apparently, he forgot to shave. Altogether he was the last person, in appearance, who would be expected to lead in a district that is famous for its well-groomed men. His education was certainly not collegiate. All these factors the ordinary man would have judged to be handicaps, yet they were Mr. Flower’s strongest aids. The lack of artificial polish gave people confidence in his statements. His limited education enabled him to think clearly along certain lines without being hampered by mental digressions, which would probably have come with a higher mental culture.
As the administrator and manager of the estate of his brother-in-law, Henry Keep, he came into the Street about twenty-five years ago. He controlled a large amount of funds, which by conservative direction he increased very substantially. He scarcely ever figured in the speculative field to any great extent until after he had completed his term as Governor of New York State. When he returned to the Street from Albany he naturally came with a considerable prestige. Ex-Governors of the Empire State are not very plentiful in and about the Stock Exchange. He also brought with him a large political following. In both of the great parties in New York State there are many men of standing and influence who like to take a flyer in Wall Street. Almost to a man they associated themselves with Mr. Flower, who, during his term at the capital, had made hosts of friends with Republicans and Democrats alike. He also had close associations with most of the big capitalists.
After he had settled down to business, on leaving politics behind, Mr. Flower picked out several stocks as his specialties. Under his manipulation all these properties went up and soon began to show a big advance, unusual strength, and great activity. The bears made frequent assaults on his position and now and then pushed him toward the wall, but healways fought his way to the front again, and came out master in every encounter. When he had himself pretty well intrenched in the specialties he was handling, he suddenly plunged into Brooklyn Rapid Transit, and for months he kept things stirred up in a way that even Wall Street has seldom seen. He picked up the stock commencing at 6 and in an incredibly short time ran it up to over 138. Almost every politician in the State made a fortune on paper. Mr. Flower was immensely popular with the Wall Street news reporters, who helped his boom along through the glowing accounts they wrote from day to day.
Under the impetus of the swirl in Rapid Transit, practically every property in the Street went flying upward, until the end did not seem to be in sight. The bears were beaten to a standstill every time they showed their heads. The only result of their attacks was that Flower stocks would jump up a notch higher. The ex-Governor preached Americanism and confidence, until everybody believed that if a stock were only grounded, and the property located in America, you could buy it at any price and still be on the safe side.
That a terrible panic did not grow out of this boom was due only to one fact: Mr. Flower’s sudden death. Had he lived thirty days longer the bubble must have been pricked, and the result would have been disastrous. Mr. Flower went to the country for a day’s rest, ate freely of ham and radishes, and washed his frugal meal down with a copious supply of ice water. He died, a few hours afterwards, of an attack of acute indigestion. His death alone saved the Street.
The Rockefellers, the Vanderbilts, and his other wealthy friends rushed into the market with millions and sustained values. They were in a position to attribute the threatened reaction to his death, and pointed out the absurdity of letting such an incident affect the value of stocks. They discounted the break that must have come, in the natural course of events, under the forcing process that was going on. Reasoning such as this, spread broadcast through the papers, stoppedthe break. Where the bottom would have fallen out entirely there was virtually but a moderate break all along the line. The small speculators, operating on moderate margins, were of course wiped out almost to a man; but most of the big fellows were saved. It is probably the only instance on record where the death of a big operator saved a general smash. Those hurt were numerous politicians and small-fry operators who, instead of getting away with snug fortunes in the shape of profits, lost everything.
An interesting incident of the Flower boom was the way it was involuntarily helped along by young Joe Leiter. Leiter himself, although he had gone to the wall some time previously, had indirectly brought about certain conditions that served Mr. Flower’s purpose admirably. These conditions were the general release of hundreds of millions of dollars on mortgages on farm lands. When Leiter began to corner wheat it was ruling down in the neighborhood of sixty cents a bushel. He lifted it to considerably over a dollar before he went broke. This enabled thousands of farmers to realize on their crops at the dollar figure and above, which brought prosperity almost overnight to the wheat-growing belt. With the money realized from their wheat they paid off their mortgages to the extent of two or three hundred million dollars. These mortgages were generally held in the East. This released that much Eastern capital, causing a vast volume of money to seek investment. The men controlling this money were overjoyed when Mr. Flower made an opening for them through the Wall Street boom, and hence it was comparatively easy, for a time, to push up values.
Mr. J. Pierpont Morgan, now a noted character in the Street, was trained as a clerk in the one-time famous banking house of Duncan, Sherman & Co. Later he made a connection with Anthony J. Drexel, probably the wealthiest banker of his time in America. Out of this connection grew the house of Drexel, Morgan & Co., with Mr. Morgan as the managing partner in New York. When Mr. Drexel died, Mr. Morgan absorbed the entire business, and a few years later,when his father died, he became the head of the London house of J. S. Morgan & Co. as well.
This put him in a very prominent position. He soon thereafter demonstrated his influence by reorganizing the bankrupt Richmond and West Point Terminal Railway and Warehouse Company, changing its name to the Southern Railway Company. A number of small roads were added to it, many of which were in financial straits and practically all of which had been badly managed. He combined them into one system under one head. Mr. Morgan next turned his attention to the reorganization of the Reading and the Erie roads, which were in a bad way. He soon produced order out of chaos there, and that resulted in a boom in railroad stocks all along the line. He had several sharp tussles, however, with some of the big stockholders, who tried to stand out against him because they thought his plans too drastic.
The people who followed Mr. Morgan’s lead in these transactions generally made money.
A different sort of deal was engineered a few years before by Mr. S. V. White, popularly known as Deacon White, because of his position as a deacon in Plymouth Church. Mr. White is one of the oldest operators in the Street, and one of its most striking figures. He has made half a dozen great fortunes in speculation and lost them, but he is as undaunted as ever, and in spite of the fact that he is now over seventy years old he is still active daily in the market.
Probably one of the most unique stock deals ever carried out in the Street resulted from the transaction of Joseph Bannigan when President of the Rubber Trust. The history of this deal, which for a time resulted in a great boom in industrials, has never been told, and is known to but very few persons, most of whom, by the way, were its victims.
Bannigan was an uneducated Irishman. He began life in a New England rubber factory and conscientiously worked his way up from a wage of $1.50 a day to die worth $5,000,000. He was shrewd and bright and knew the value of money. He saved to such good purpose that when theRubber Trust was formed he was at the head of one of the biggest factories in the country, located in Providence. His knowledge of the trade was so thorough that, despite the fact that he almost invariably used small “i’s” in writing a letter, he was made president of the trust, his holdings amounting to about 40,000 shares. When matters had been moving along for some time, Bannigan made up his mind that the other men in the trust, the big fellows, were not treating him right, and that the best thing he could do was to get out. So he packed his stock certificates in a gripsack, left Providence on the night boat, landed in New York bright and early, had his breakfast, and then made a bee line for a stockbroker’s office. He had assured himself in advance that this stockbroker was to be relied upon, and so he told him frankly what he intended to do.
“I want to sell out, bag and baggage,” he said. “I want to get rid of every one of my 40,000 shares. Here they are; put them on the market and sell them.” The stockbroker told him that that would never do. If he wanted to realize full value for his holdings he would have to go about it in a different way, for if he should throw his 40,000 shares into the market it would knock the bottom out of prices, and he would get little or nothing for his stock. Mr. Bannigan saw the point and asked what he ought to do.
“Buy,” said the broker.
“But I don’t want to buy; I have got more now than I want.”
“That is all right; buy anyway; that will make a market for the stock, and you can unload when the time comes.”
“How much must I buy?”
“Oh, about $250,000 worth.”
“But I have not got $250,000 in cash to go and buy rubber stock.”
“Well, you can borrow it; a man in your position, Mr. Bannigan, will have no difficulty in borrowing $250,000.”
Much against his will the old man was finally persuaded to do as he was told. About two weeks later the broker wroteto him that he must buy some more—this time $200,000 worth. Mr. Bannigan used rather strong language, but finally yielded as before. He borrowed $200,000 and turned it over. With this additional capital to work on, the broker continued to manipulate the market. The insiders soon discovered that some strong party was buying, but they did not know who, Bannigan having carefully kept himself in the background. His broker operated skillfully in the stock, one day buying, the next selling, to keep the stock active. The broker after a while began to borrow large amounts of the stock. This convinced the insiders that there was a big short interest somewhere, and they got together in order to squeeze the shorts. The inside holders who controlled most of the stock combined to squeeze “the shorts” out. In furtherance of this plan they put the price up to 61, and at about that figure Bannigan’s stock was all unloaded. Bannigan now found himself full of money, while the other fellows were filled up with his stock. They never awakened to the fact that the president had sold out on them until his shares were delivered against their purchases, as they thought, of “short” stock. Rubber broke and did not stop tumbling until it had gone from 61 to 16.
This deal had all the elements of a comedy-drama, and the playwright who can do it justice will find material there which will make him an everlasting fortune and reputation.
It is not often, however, that newcomers in the Street fare as well as this in the end. For a time they will go on merrily enough, and send things booming, but in the end most of them get the worst of it. At the risk of repeating myself, I will say here:
Mr. A. B. Stockwell is a good illustration of the truth of this. At one time he was worth many millions of dollars. His start in life was as a purser on a Lake Erie steamboat; his father, it is said, kept a livery stable in Cleveland. On one of his trips Stockwell was in a position to show considerable attention to Elias Howe, the inventor of the eye at the top end of the sewing-machine needle. Mr. Howe was accompanied by his daughter. Stockwell made himself agreeable toMiss Howe also, and with such good effect that he managed to win her affections, and soon thereafter married her.
When Mr. Howe died, Mrs. Stockwell came into possession of her father’s millions. With this nest egg Stockwell started in Wall Street, and before anyone realized what had happened he was the most talked-of man in the district. He put all his wife’s millions in Pacific Mail stock, secured entire control of the company and elected himself its president. He came into the Street as plain Stockwell. Then, as the news of his liberality and good-fellowship spread, he became Mr. Stockwell. After he got hold of the Pacific Mail he was Commodore Stockwell by common consent. Everybody bowed and scraped to him, and no man was so high and mighty that he was not proud to shake his hand.
Stockwell took hold of Pacific Mail at about 40 and sent it up to 107. It was at this period that he was worth on paper over $15,000,000. But he found, unfortunately, when it was too late to retreat, that though Pacific Mail was up to 107 it was not worth that figure when the unloading commenced.
He was landed high and dry with it all, and the Street told him he was welcome to it. He tried to sell, and found that there was no market. Then came violent demands on him to pay up his numerous call loans, and in order to respond he had to sell regardless of price, and thus a whirlpool was created which finally sent the stock down to the price at which he had begun his original purchases. In this one upset he lost all his paper profits and his wife’s millions besides. That was the most famous boom in the history of Pacific Mail, notwithstanding Leonard Jerome’s previous brilliant ups and downs in that property.
Leonard Jerome and his brother Addison had a good time with Pacific Mail for a while. They ran it up to high figures several times, but finally met with the same experience that Stockwell did. The two Jeromes, from being among the wealthiest and most dazzling operators in the Street, were in the end practically wiped out. Leonard Jerome, who was thefather of Lady Randolph Churchill, had nothing left to bequeath his daughter except an equity in the house now occupied by the Manhattan Club on Madison Avenue, which yields an income of about $15,000 a year, of which Lady Churchill gets $10,000.
These are a few of the booms that have stirred up things in Wall Street at one time or another, as did the Keene, the Gould, and the Vanderbilt booms, and the rest I have mentioned.