"A fellow can't have a little innocent fun without everybody raising a halloo and going wild" - Jim Fisk
It is difficult to conceive of how financial markets operated in an era of no regulation. The picture drawn in this book is one of stunningly corrupt institutions dominated by wholesale fraud; in fact, perhaps either the term "markets" or "operated' is the wrong word to describe these money exchange forums. The two of note in this book are the New York Stock Exchange and the Gold Exchange.
The narrative revolves around seven people. Jay Gould and his sometime business partner Jim Fisk engaged in market manipulation while using the treasury of the Erie Railroad as their personal cash source. Cornelius Vanderbilt, with his New York Central railroad, was a constant competitor of Gould and Fisk. William Marcy "Boss" Tweed supported Gould and Fisk with lawyers and pliable judges whose injunctions could be used to limit liability or to award custodianship of disputed assets. Abel Corbin became a partner with Fisk and Gould because he offered a valuable connection - he was the President's brother-in-law. President Ulysses Grant had been in office only a few months as he and his Treasury Secretary, George Boutwell, worked to move the country back to hard currency after the issuance of Greenbacks during the Civil War.
The author establishes the characters of several of these persons by describing the "Erie Wars" in which Gould and Fisk struggled with Vanderbilt over control of the Erie railroad and on securing a right-of-way to link with Midwestern railheads. Although both sides were willing to use gangs of toughs on the rail lines and bribery in Albany to get the rights they sought, a novel scene on the stock exchange is more effective. Once Vanderbilt decided to simply buy a controlling interest in the Erie, Gould and Fisk set up a printing press and simply kept printing stock shares to sell him. (No regulations regarding registering shares or provisions against watering stock existed.) When the Erie Wars became too notorious, Gould and Fisk simply holed up in New Jersey while both sides used the courts to get the outcome they wanted.
The central story, however, involves an attempt to corner the gold market. Gould and Fisk might be able to lock up all the free gold immediately available in New York, but they could not hold out long if the Treasury decided the action on the Gold Exchange was affecting commerce. Their answer was to recruit Corbin to introduce them to the President and to convince him that higher gold prices would help farmers as they were selling the crops. This would convince Grant to stop Boutwell from his monthly repurchases of outstanding Treasury debt with gold that would enter the market. As Gould and Fisk began their bull run (lending out to the bears gold as they bought it), the Treasury stayed out of the way, although this may have been because Grant was on extended vacation. Grant, however, became suspicious when the schemers tried too hard to keep him in by sending a letter from his brother-in-law to him by special messenger at his vacation spot. He had his wife write back to her sister, Corbin's wife, warning them to stay out of any market schemes. (How Gould used this response is even more revealing of character.)
Immediately upon his return to Washington, Grant authorized the sale of gold for bonds. This broke the ring in the infamous September 24, 1869, "Black Friday" collapse of prices. The issue then was to untangle accounts from the furious trading and to reach net settlement. At this point, Gould and Fisk decided to repudiate all their trades or to use Boss Tweed's judges to help them do so. The settlement process itself became corrupt with brokerages favoring their own accounts and not settling with outside parties. Money was lost, some houses were ruined, and many reputations went with them. Reforms would still wait 60 years in the future before markets could actually be counted on to act as markets.
This amusing history of unbelievable corruption and its audacity is highly recommended.
No comments:
Post a Comment