Fifty years in Wall Street
and that the money was not taken by the bank to be locked up and kept on
hand so as to have the name of having it, but to be used to the best
possible advantage consistent with safety, to make profitable returns
through interest. Consequently, he was allowed to use the money of the
bank freely to make loans to Wall Street brokers on interest, with
approved collaterals, and he represented to the directors that he was
carrying out this course.
As the bank was located so far up town, (at Twenty-third street,) the
distance from Wall Street made it extra hazardous to send securities
back and forth, as adventurous thieves might seize the messenger on the
way. This has frequently happened in this city. It was, therefore,
desirable to have the safe deposit vault in close proximity to Wall
Street. Of the combination to the safe in this vault Mr. John C. Eno was
the sole possessor. Having things fixed in this manner it was
indispensable that the President himself should go down town every day,
so as to accommodate the brokers in the loaning of money. The directors
were by this plan convinced that the risks, through the careful methods
adopted by the President, were no greater than if the bank was located
in Wall Street. These conservative methods, so skilfully planned and
plausibly explained, increased the confidence of the directors in the
able and careful management of Mr. Eno, and nobody was so much surprised
as they, when the wool was raised from their eyes and they discovered
that these various and ostensible “safeguards” were ingeniously devised
for the sole purpose of screening their skilful inventor in the
accomplishment of his huge defalcations.
Instead of loaning the money to Wall Street brokers, as he represented
to the directors, he placed it as margin with his own brokers in various
speculative ventures, and in that manner he made away with the entire
$4,000,000 of the bank’s deposits without exciting the least suspicion
in the confiding breasts of the directors.
Such another instance of a clean sweep of the deposits of a bank by any
of its officials, is probably not on record in the whole history of this
kind of manipulation.
When the President represented to the Cashier, every evening, that he
had lent specified sums on certain securities, his word was taken, and
his checks for the amounts duly honored, without exciting a feeling of
suspicion. Thus, by degrees the books of the bank showed $4,000,000 of
call loans upon unexceptionable collaterals, when in fact the money had
all gone to the President’s private account.
Eno speculated with the greater portion of the money in stocks that were
continually declining in price, and at length the time arrived when he
was obliged to make a clean breast of the terrible condition of his
affairs to his father. As I have stated, the old gentleman, Mr. Amos R.
Eno, nobly came to the relief of his prodigal son, and saved the bank
from suspension.
As Eno senior is still worth about $25,000,000, he will never suffer the
pangs of poverty through this great loss; but it will take a long time
to enable him to survive the disgrace which the flagrant acts of his son
have brought upon an honest and highly respected name.
THE CLEARING-HOUSE AS A PREVENTER OF PANICS.
In this panic the boldest and most remarkable instance of self-sacrifice
on record was manifested by the Clearing-House banks. The panic of 1884,
in its incipient stage, was different to any that had preceded it—at
least any of the financial convulsions within my recollection—owing to
the influence exercised upon it by the prompt and liberal policy of the
banks. In every respect their action was notable, showing that those at
the head of their management had largely profited by the lessons of
former panics.
It was chiefly due to the masterly management of the banks, together
with the magnanimous conduct of Mr. Amos R. Eno and his associate
directors of the Second National Bank, that the panic was short-lived
and so narrowly circumscribed. Had it not been for the determinate and
instantaneous joint action of these parties there would have been a very
serious crash, which would have been far-reaching in its results.
The results of the timely action taken on the part of the managers of
these institutions in this crisis, proves that panics can be arrested by
proper methods, and that quick and determined action is indispensable in
the incipient stage of the emergency. If bank presidents could only be
relied upon by the business community to act promptly and in unison with
the business men, as they did in this instance, threatened panics need
have but little terror for the people, who now live constantly in dread
that these outbursts of business disaster may be sprung upon them at any
time in any decade.
In the past history of panics bank managers, as a rule, have acted
without system, without judgment and almost entirely without any well
defined plan of action. There has been an astonishing lack of vigor in
their methods and purposes, which were weak and vacillating in their
character—frequently more like the acts of children than those of
business men.
If the panic of 1873 had received the same vigorous treatment in its
origin as that of 1884, it could just as easily have been checked as the
latter, and the entire country would have been saved a large portion of
the depressing effects of that serious collapse and its attendant
disasters, which caused a state of general prostration for five or six
years succeeding the event. These years, from a business standpoint,
appear as a blank in the history of the country’s progress. Indeed, they
constitute a black mark.
In 1884 the bears indulged in much adverse criticism in regard to the
action of the Clearing-House in taking Mr. Seney’s pictures as
collateral. At the time, this method of financiering was without
precedent; but the result has fully justified the policy of the
Clearing-House Association and its management. Such an exceptionally
fine collection of paintings in a country like this, now filled with
connoisseurs who have sufficient wealth to gratify their tastes,
stimulates the demand for these luxurious articles of value and
transforms them into the best collateral to be found in the market. When
the Seney pictures were offered for sale at auction they attracted
greater competition in the purchase, at good prices, than could have
been obtained for almost any class of railroad securities connected with
Wall Street for months afterwards. While Mr. Seney seems to have been as
much of a virtuoso as the late Mrs. Morgan, he did not permit his love
of the beautiful to rise to such a pitch of exaltation as would cause
him to pay the extravagant prices which almost ruined that eccentric
woman. He never forgot that the picture had a “market” value, and never
permitted his enthusiasm for the fine arts to make him a victim of sharp
and unconscionable dealers. In fact he appeared to have been more
wide-awake in picture buying than banking, and demonstrated that the
former, rather than the latter, was his forte. If the bank presidents
had not acted in the praiseworthy manner referred to, the financial
revulsion of that panic would have been very serious. Several millions
of deposits in the Metropolitan and Second National were promptly drawn
out, and forthwith entered into circulation. This saved the community
from the evil influence of a large number of panic makers in the persons
of the depositors of these banks. Instead, therefore, of helping to stir
up the excitement—as they would have done by pursuing the selfish policy
formerly resorted to in similar circumstances—every person with funds in
these two institutions, assisted very effectively to allay suspicion and
create confidence, instead of distrust.
It was the disturbing element of panic makers, who generally constitute
one of the most potent factors of disruption to be dealt with in seasons
of business trouble, that caused the greater part of the trouble at the
time of Jay Cooke’s failure. The holders of the Northern Pacific bonds
then, finding that the security was no longer equal to that of
Government bonds (as they had been taught to believe), but was
apparently worthless, became panic-stricken at their losses, and were
all transformed into panic-makers, infusing the spirit of distrust into
every person with whom they came into contact, until, like a fatal
virus, it inoculated the whole country, spreading business disaster far
and wide.
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CHAPTER XIX.
OLD TIME PANICS.
THE PANIC OF 1837.—HOW IT WAS BROUGHT ABOUT.—THE STATE BANKS.—HOW THEY
EXPANDED THEIR LOANS UNDER GOVERNMENT PATRONAGE.—SPECULATION WAS
STIMULATED AND VALUES BECAME INFLATED.—PRESIDENT JACKSON’S “SPECIE
CIRCULAR” PRECIPITATES THE PANIC.—BANK CONTRACTIONS AND CONSEQUENT
FAILURES.—MIXING UP BUSINESS AND POLITICS.—A GENERAL COLLAPSE, WITH
INTENSE SUFFERING.
The first panic of any great importance was that of 1837. This panic had
its origin in a misunderstanding between the United States Bank, with
headquarters located at Philadelphia, and President Jackson, whose
election the officials of the bank had opposed.
The bank had been chartered in 1816, and went into operation in 1817.
Its charter had twenty years to run. The bank had been kept in operation
with varying success until 1830, when it was considered to be on a very
stable footing, so that the Finance Committee of the United States
Senate were enabled to testify to its efficiency as follows: “We are
satisfied that the country is in the enjoyment of a uniform national
currency, not only sound and uniform in itself, but perfectly adapted to
the purposes of the Government and the community, and more sound and
uniform than that possessed by any other nation.”
This was the second United States Bank; the first had been chartered in
1791.
The bank applied to Congress, in 1832, for a renewal of its charter,
which would expire in 1836. A bill was passed by Congress to re-charter
the bank. The bill was vetoed by the President for the reason above
stated. In the following year the Treasurer announced, by order of the
President, that the public funds, amounting to $10,000,000, would be
drawn from the custody of the bank because it was an unsafe depository.
The transfer of the Government funds to the State banks created great
agitation in political and financial circles. The State banks, under
this favorable turn of Government patronage, quickly assumed a thriving
condition and began to expand their loans and circulation. This
stimulated speculation in all parts of the country, but especially land
speculation. Large purchases of land were made from the Government, and
payment was made in notes of State banks.
With the rapid sales of its lands the Government was soon able to pay
off the public debt, and had still a surplus of $50,000,000 in the
Treasury. This apparent prosperity continued for the next year or two,
money was plenty and speculation was greatly stimulated and values
became inflated.
The crisis came in 1837, and was hastened by the “Specie Circular,”
which was the last official act of President Jackson, and which pricked
the bubble of inflation. This circular, which was issued from the
Treasury in July, 1836, required all collectors of the public revenue to
receive nothing but gold and silver in payment. The purpose of the
circular was to check the speculation in public lands, but it caused too
sudden a contraction in values, and created widespread disturbance in
business circles generally.