Fifty years in Wall Street
Pacific stock that day. They also made the whole market run into a wild
bull speculation, stimulated by a rush of “shorts” to cover their
contracts, and a sudden influx of fresh buyers from the outside public.
Reckless buying by these made it easy for the bull leaders to run prices
up sharply, especially as it was expected or feared by many that the
example set by Union Pacific in dividend raising would, or at least
might, be followed by certain other large companies, both railway and
industrial, whether the increase was justified by actual net earnings,
or only intended for stock-jobbing purposes.
The criticisms of President Harriman and his associates to which these
sensationally large and peculiarly announced dividends gave rise, were
too trenchant to bear quotation or description. But Mr. Harriman was
said to have added ten millions to his personal fortune by the rise in
Union Pacific and Southern Pacific stock, which preceded and followed
these very generous distributions to the stockholders.
The fact that Mr. Harriman, the son of a quiet country clergyman, should
have been able to come into Wall Street and climb the ladder to wealth
and power as he has done, and with such amazing celerity, shows the
unlimited possibilities of the Street as a gold mine, for the Union
Pacific Railway system, like the other great railway systems whose
stocks and bonds have always been dealt in here, was practically born
and financed in Wall Street. His rise to a position of such prominence
and vast power is far more wonderful even than the career of Russell
Sage as a Wall Street money maker; for Russell Sage never had any power
but his money, whereas Edward Henry Harriman represents and controls
thousands of millions’ worth of other people’s property, employing tens
of thousands of persons. He is a moving spirit in dozens of banks and
other corporations, including the Wells Fargo Express Company, outside
of the Union Pacific and Southern Pacific system of railways and
steamships. The great stock market struggle between Harriman and Hill
for the control of Northern Pacific in 1901 was a battle royal on a
grand yet disastrous scale, that will always be memorable in the history
of Wall Street.
When Russell Sage died in July, 1906, within a few days of his reaching
ninety years, leaving not far from a hundred millions of money, he left
a will which reflected his sagacity as a money saver, for he left all he
had, except a few unimportant bequests, to his wife. He did so, I infer,
instead of distributing his great wealth himself, because he knew that
the State inheritance tax would only be one per cent. on what he gave
her, while it would be five per cent. on what he left to such relatives
as he had surviving, as well as to all others.
It was, to a certain extent, “the ruling passion strong in death,” for,
of course, he knew that his wife had no use or desire for so much money.
Although his bequeathing it to her was a tribute to her goodness and a
symbol of their happy married life, she would probably have preferred to
shoulder a much lighter load of wealth. Its distribution will be no
ordinary task, although it will doubtless be a labor of love with Mrs.
Sage.
Russell Sage, in his manner of life, all now agree, set a good example
of frugality and industry in an extravagant and pleasure-loving age, and
hence he is held by many to have been a public benefactor. His unusually
economical and plain habits, together with his great wealth and great
age, naturally made him conspicuous and also a target for the wits, and
in this way he became better known through caricature than
matter-of-fact description. But that was one of the penalties of
publicity. He passed from poverty to great wealth entirely of his own
creation without being spoiled by it, and remained one of the plain,
unpretentious people till the end.
He owed all he had to Wall Street, and his career illustrated, more than
any other has ever done, how fertile a field for fortune making Wall
Street may prove to a sagacious man, of untiring industry, who knows how
to cultivate it, and can see and avail himself of its splendid
opportunities. His rise from extreme poverty to immense wealth, through
his own unaided exertions, shows how one man, single-handed, may do
wonders and turn all he touches to gold, and that, too, in Wall Street.
We are living in a stirring and rapidly progressive time, and the great
and growing importance of the New York Stock Exchange was reflected by
the rise in the price of a membership in it in 1906 to not very far from
a hundred thousand dollars.
The year 1906 was one of immense activity and prosperity in trade.
Prices were high and still advancing, and profits large, particularly
those of industrial corporations. At the same time a mammoth bull
movement was running its course on the Stock Exchange, and the grain
crop turned out larger than ever before in our history, while enormous
issues of new securities were announced by both railway and industrial
corporations. These new issues severely taxed the resources of the money
market, already being too heavily drawn upon by the “big men” of the
Street to promote their wild bull campaign in stocks, and spasms of
stringency were frequent. Indeed, the year 1906 from beginning to end
witnessed a continuation of those inordinately heavy demands for money
from Wall Street and corporations, and these led to the disturbed
monetary conditions which were first felt in September, 1905. It was an
eventful year, a year of immense activity on the Stock Exchange, in
which much that was unprecedented occurred. It was a year in which the
stock market, after touching high record prices and violent ups and
downs, went gradually, in an excited speculation, from bad to worse, in
a limited sense, or from one critical stage to another, till it reached
the year’s end. Then it averaged only nine per cent. below the highest
prices. But it became, in spite of the boldest bull manipulation,
gradually weaker and more demoralized. The bull movement at length met
its Waterloo in the spring of 1907, because the plunging millionaires
who had been bidding them up found no buyers for their stocks. So they
had to liquidate heavily, like the rest. It was another rich man’s
panic.
From a slow and irregular decline stocks good, bad, and indifferent
passed into the rapids of a bear market, with the bears, emboldened by
success, recklessly aggressive, and on March 14th prices broke from ten
to twenty-five per cent. under their fierce attacks, and relentless
hammering, supplemented by an avalanche of long stock forced for sale
under stop orders that had been reached, or through weakened and
exhausted margins, or by holders unwilling to take any further loss.
Yet enormous as was this paniclike fall in prices on that disastrous
day, many stocks went still lower in the breaks that followed the sharp
rally that succeeded it. So March, 1907, ended as it began, in gloom and
depression, which was followed by comparative dullness but little
recovery in April and May. In June, however, it became evident that
liquidation had exhausted itself, and all unfavorable factors had been
discounted by the decline. Hence, although the market was almost
entirely professional, with the outside public as apathetic as ever, it
began to develop an upward tendency, notwithstanding the sharp rise in
grain and cotton due to the extensive damage done by an unusually cold
spring, and the fact that we shipped $15,000,000 in gold to France in
June.
This vast and thorough liquidation had been mainly by the bull pools and
richest speculative capitalists in Wall Street, and involved tremendous
losses. These leaders of the bull movement had been caught overloaded
with stocks, carried over from the previous boom that they had
recklessly engineered. They were forced to sell because the banks were
either calling in their loans, which they were unable to replace, or
calling from time to time for more margin to offset the decline in
prices. Thus their cash resources were being constantly impaired.
Meanwhile, money loaned at abnormally high rates, and five times in the
spring, autumn, and winter of 1906 the New York banks showed a deficit
in their reserve. Money, therefore, was very hard to borrow, because
these giants of speculation had overtaxed the banks’ resources by
borrowing too much. Coincidently the outside public held aloof from the
stock market, owing to the great activity of trade and the wild
speculation in land, mines, building, and other new enterprises all over
the country.
This speculation from Maine to California absorbed an immense amount of
money, of which Wall Street saw nothing, and it left the large
speculative holders of stocks without any market for them, except among
the professional traders. No wonder they staggered, and finally, in the
spring of 1907, succumbed under the heavy loads they were carrying,
which they had mistakenly bid up to excessively high prices in a vain
attempt to bring in the public as buyers. Wall Street was then the only
blue spot on the map of the United States.
To relieve the pressure for money there, and so help to bull stocks, the
large interests in Wall Street, excepting J. P. Morgan & Co., imported
from Europe $40,000,000 of gold in the spring of 1906 and $45,000,000 in
the autumn.
This last great importation caused the Bank of England to raise its
minimum rate of discount from three to four, then to five, and then
again to six per cent., the highest since the Boer War. The rate, it was
intimated, would have been advanced to seven per cent. had we taken any
more of the yellow metal. The purchase of so much gold in England was
made possible only through the Secretary of the Treasury, Mr. Leslie M.
Shaw, practically advancing the means for importing it by lending gold
to the banks, secured by collaterals, the loaned gold to be returned
when the imported gold arrived.
The spring gold importations followed the great San Francisco earthquake
and fire, on April 18th, involving an estimated loss of $250,000,000.
Most of this, however, fell upon British, German, and other foreign
fire-insurance companies, which relieved this country financially to a
corresponding extent, although New York shipped more than $50,000,000 of
gold to San Francisco to fortify the banks in that city.
After the stock market had been sold to a standstill and its weak
timbers eliminated, by May, 1907, it was only natural, in view of its
previous drastic liquidation and heavy decline, that with good crop
weather following the backward spring, stocks should advance. The keel
of a future bull market of large dimensions had been laid by the
disastrous liquidation that had occurred, and we subsequently witnessed
its development on a rapidly ascending scale. It is a law of nature that
action follows reaction.
This reminds us that Wall Street easily passes from one extreme to
another, and that very often the dawn is nearest when the night is
darkest, in finance as well as nature. Moreover, Wall Street is always
with us, just as the poor are, and the stock market is a serial story
that never ends.
In July, the improvement in the stock market, and especially the
Harriman stocks, was very decided, with the indications favoring a wider
and more active speculation, for as yet it was almost entirely
professional. In this movement the Standard Oil and Harriman party were
the bull leaders, with Union Pacific the leading stock. Notwithstanding
their vigorous efforts, however, the outside public remained entirely
apathetic, and there was growing anxiety as to the future of the money
market. This was increased by our having, unexpectedly, to ship gold to
Europe, nearly all of it to the Bank of France, as well as by depressed