Mr. Seney’s wonderful financial abilities were a comparatively recent outgrowth of his mental evolution, at an age when very few men exhibit signs of new developments.
Up to a date shortly prior to the panic, he was generally regarded as slow and phlegmatic, without manifesting any special parts that indicated superior brilliancy as a financier. He first distinguished himself in Wall Street during the speculative furore of 1879, and came to the front then with sudden and surprising activity. He carved out an original course for himself in speculation—so original, in fact, as to stamp the enterprises with which he became identified with his name. The Seney properties became almost as familiar to the financial world as the Goulds, the Vanderbilts and the Villards.
Mr. Seney’s chief securities (so-called through the courtesy of speculative parlance) were Ohio Central, Rochester and Pittsburgh, East Tennessee, Virginia & Georgia, and the celebrated “Nickel Plate” Road. These were known as the Seney Syndicate properties, and the system of handling them was entirely novel in the history of Wall Street, causing the financial veterans of Wall Street to stand and stare at the boldness and rapidity of the Seney movements.
Instead of starting with moderate issues in amount, as has usually been the custom of most men handling railroad and telegraph properties, and doing the watering process by degrees, Mr. Seney boldly began the watering at the very inception of the enterprise, pouring it in lavishly and without stint. There was nothing mean or niggardly about his method of free dilution, the sight of which threw some of the old operators into a fit of consternation. The stocks were strongly puffed, and as they were so thoroughly diluted their owners could afford to let them get a start at a very low figure. The future prospects of the properties were set forth in the most glowing colors, the public took the bait, and the stocks became at once conspicuous among the leading active fancies of the market.
The cause of the vigorous life and amazing activity so suddenly imparted to the stocks of the Seney Syndicate can only be revealed by a careful perusal of Mr. Seney’s checkbook, which, if still in existence, will show commissions paid for the execution of the orders to buy and the orders executed to sell, both by the same pen and in the same handwriting.
These transactions, in the language of the “Street,” are called washed sales. In this way Mr. Seney was understood to have made a very large amount of money, and from being almost one of the poorest men in Brooklyn, he soon became marked as the richest. While he continued to thrive it was a singular fact that the majority of his financial friends seemed to fall into a decline.
When the affairs of the Seney enterprise were wound up, it was discovered that these people had little left except the certificates which bore the high-sounding term of the Seney Syndicate Property.
One peculiarity about Mr. Seney in his social relations was, that while he appeared almost bereft of sympathy for used-up friends whom his schemes had ruined, he drew largely on his immense gains for philanthropic purposes, and in the aggregate must have distributed over $2,000,000 in a very magnanimous manner.
It would seem that Mr. Seney at one time aspired to be a great philanthropist, and had it not been for the unfortunate exposé which was the result of the panic, he might one day have stood in as high and lordly a position as the renowned Peabody, with even a greater reputation as a financier. It is sad to picture the contrast presented by the _denouement_ with what might have been, in a career which began with so much promise, dating from the time that Mr. Seney was installed as President of the Metropolitan Bank, whose standing and credit were the highest in the State.
Mr. Seney’s speculative career affords an example of the way in which this kind of speculation reflects on the stability of our best banking institutions. The lesson is one that should be carefully taken to heart by the financiers of this country.
It is due, however, to Mr. Seney to state that he alone was not responsible for the misfortunes of the Metropolitan Bank, although he was the ruling spirit; for it could hardly be possible that the directors of that institution could have been ignorant of its affairs in connection with the Seney speculations. The Metropolitan Bank cannot be compared with the Marine Bank, which met a similar misfortune, for it was no family affair, and Mr. Seney had none of his relatives connected with it, as Mr. Fish had with the Marine Bank.
It appears that it was chiefly owing to the fact that Mr. Seney had so little personal interest in the Metropolitan Bank that he was so anxious to gut the concern, knowing that the loss would fall upon others.
The most important point for speculators and investors, however, connected with the enterprises of these men is, that the terrible shrinkage of Stock Exchange values at the time, amounting to over $1,000,000,000, was in a large measure brought about by a foregone conclusion on the part of the sagacious bear cliques that disaster would sooner or later overtake the institutions over which Mr. Seney and Mr. Fish presided.
This should afford a wholesome lesson, through the medium of practical experience, to speculators and investors for all future time. For this very reason the facts are worthy of being put on permanent record as a reminder and a guide, particularly to Wall Street men, who are too often prone to forget the past and thus leave themselves liable to be caught in a similar net again.
The transactions of the four prominent speculators who played the most conspicuous part in the events which resulted in the panic of May, 1884, should be preserved for reference, as a guide when similar cases arise, for in spite of the deep disgrace, shame and misery that have followed in the wake of their enterprises, these men will have hosts of imitators for many years to come. Ward, Fish, Seney and Eno, with probably the one exception, Fish, are, by many, considered smart men, who simply had the misfortune to become involved, but who had a fair chance of coming out of all their troubles, great millionaires and publicly honored for their ability and success.
It must be admitted that there are some examples in the financial world whose careers will fully support this theory and belief but they are the exceptions which only prove the rule in speculation, as in other lines of business, that “honesty is the best policy.” These men, who have been apparently so successful through dishonest methods, are never free from dread of being tripped up at any period of their inflated prosperity. They are always subject to be called upon by the application of the stern methods of honest financiering to give an account of their stewardship, and to have the transactions of a lifetime eventually gauged by the standard of public honesty. It is the winding up that tells the tale, and exposes the duplicity of the ablest financiers, who vainly imagine that dishonest methods will always prevail.
JOHN C. ENO.
Of the four famous “financiers” mentioned who were most prominent in the Summer panic of 1884, the speculative history of John C. Eno was in some respects the most remarkable and most interesting.
Eno was a young man, not more than twenty-six years of age, and a representative of that class of ardent and youthful speculators who plunge into the market with all the recklessness incident to young and sanguine imaginations, with many roseate schemes of wealth and greatness, for which inexperienced youth is proverbial. Eno was a victim of that rashness, impulsiveness and desire for extravagance, by which the possessors of these attributes frequently get themselves and many of their associates embroiled in numerous difficulties and embarrassments.
Another point of interest in the curious career of Eno was his position as President of the Second National Bank of New York, up to the time of the panic. Seldom does it fall to the lot of a youth of his tender years to have conferred upon him a position of such responsibility and dignity. The manner in which he made use of this position of trust, for appropriating money which did not belong to him, was notable for its peculiar ingenuity.
Most of the money lent by the bank was upon collateral securities, which, for convenience, as well as for safety, were kept, not at the bank, which was situated under the Fifth Avenue Hotel, but in a vault down town.
The capital stock of the bank was $100,000, and it had $4,000,000 of deposits, all of which was appropriated to speculative use by this smart young man, who decamped to Canada in company with a Roman Catholic priest.
Eno happened to have a rich father, who had made his money by thrift and economy during a long and prosperous life. To his credit, it must be said, that he came promptly to the rescue of this wayward and erring son, and paid the bank, of which he was director, three and one-half millions of dollars, on condition that the other half million should be contributed by the other directors, all of whom were very rich men. The directors willingly accepted the proposition, and thus the entire deficiency was made good by this generous arrangement, so that none of the depositors suffered the loss of a dollar.
The methods which Mr. John C. Eno, the President, resorted to for the purpose of capturing the institution root and branch, were ingenious and unique in their character, inasmuch as they had a tendency to inspire the fullest confidence in his vigilance and honesty regarding the affairs of the bank, instead of exciting any suspicion.
He discouraged the custom of keeping the securities of the bank in its own vaults, on the pretense that they were not sufficiently secure, and suggested that a safe should be rented in one of the down town safe deposit companies. This was done at his request. He argued, further, that the funds on hand being mostly family deposits, the depositors were not of a class that often required to be accommodated with discounts, 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.
[Illustration:
_G. I. Seney_ ]
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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.
The public protest against the “Specie Circular” was so strong and universal, that a bill went through both houses of Congress partially repealing it. “Old Hickory” did not yield to Congress, however, and though he did not veto the bill, he delayed signing it until after Congress adjourned, thus preventing it from becoming a law.
The State banks sought to tide over the troubles arising from the Jacksonian method of financiering by loans of public money to certain financial concerns and individuals, but this plan only made matters worse. There was a sudden expansion of paper money, which encouraged a wild spirit of speculation and excessive importations, and imparted an unnatural stimulus to business and commercial affairs. This state of over-trading and reckless speculation was suddenly checked by bank contractions, and in the spring of 1837 there were failures amounting to $100,000,000 in New York city alone.
The shock was communicated to the entire country, and a state of general paralysis in business circles ensued.
In the meantime the Bank of the United States continued in operation, and did not even suspend in 1836, when its charter expired, but obtained another charter from the State of Pennsylvania, which was entitled “An Act to repeal the State taxes on real and personal property, and to continue and extend the improvement of the State by railroads and canals, and to charter a State bank to be called a United States bank.”
This United States bank did not expire until 1839, though it suspended specie payment with the State banks in 1837, when by this method they escaped a general collapse, and dragged through an agonising existence for two years longer. The circulating notes and deposits of the Bank of the United States were paid in full, but the $28,000,000 of capital were a total loss to the stockholders, who never obtained a dividend. Such were the good old times of financiering when General Jackson and his successor, Martin Van Buren, sat in the Executive chair.
The entire capital stock of the bank was $35,000,000, of which $7,000,000 were to be subscribed by the Government.
The real cause at the bottom of the failure of this bank was its error of mixing up its legitimate business of banking with politics and speculation, showing that keeping those matters as distinct as possible is one of the great secrets of success in each of them.
The panic of 1837 was further aggravated by the action of the Bank of England which, in one day, threw out all the paper connected with the United States. The banks on this side refused to discount paper, and as a retaliatory measure in self-defense the business men and speculators withdrew their deposits from the banks. This had a tendency to cripple business still more, and cause utter prostration. In their selfish frenzy bankers and merchants completed the ruin of each other, hastening the catastrophe from their inability to take a broad, cool and generous view of the situation.
There was a general suspension of the New York banks on May 10, 1837, and the banks throughout the country followed in their wake within a week afterwards, producing a financial convulsion unparalleled in the history of the Republic. The country was brought to the verge of bankruptcy from the effects of which a long time was required for recovery.
After two years’ struggle to regain the credit and stability lost through false methods of financiering, the banks suffered a relapse, and underwent a severe process of weeding out the weakest, nearly one-third of which happened to be of this description. Out of 850 banks, 343 closed their doors permanently.
The Sub-Treasury at New York was established the following year, 1840, by an act of Congress which provided that the officers of the Government should keep the public funds in their own custody, that coin alone should be received in payment to the United States, and bank notes were to be no longer received and paid out at the Treasury.
While this short chapter deals with matters which go back beyond my personal recollections of twenty-eight years in Wall Street, still as the panic of 1837 was the first of the great upheavals of its kind, that had a marked effect on Wall Street affairs, it properly falls within the scope of this book to chronicle the chief incidents of that great business convulsion.
For this reason, therefore, I find room for it, in some measure commensurate with its importance, and the space which can be afforded to it, as a matter of financial history, the facts of which were still fresh in the recollection of several speculators, bankers and business men, with whom I had the honor of being acquainted shortly after my advent in Wall Street immediately succeeding the panic of 1857.
Of those who gave me lively descriptions of their vivid recollections of that panic, but few now survive.
I think, therefore, it is well for me to do my part in helping to preserve the leading features of this important episode in the early history of Wall Street, as there will soon be none of those, who took an active part in the exciting events of that period, left to tell the tale.
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CHAPTER XX.
THE TRUE STORY OF BLACK FRIDAY TOLD FOR THE FIRST TIME.
THE GREAT BLACK FRIDAY SCHEME ORIGINATES IN PATRIOTIC MOTIVES.—ADVISING BOUTWELL AND GRANT TO SELL GOLD.—THE PART JIM FISK PLAYED IN THE SPECULATIVE DRAMA.-“GONE WHERE THE WOODBINE TWINETH.”—A GENERAL STATE OF CHAOS IN WALL STREET.—HOW THE ISRAELITE FAINTED.-“WHAT ISH THE PRISH NOW?”—GOULD THE HEAD CENTRE OF THE PLOT TO “CORNER” GOLD.—HOW HE MANAGED TO DRAW AMPLE MEANS FROM ERIE.—GOULD AND FISK ATTEMPT TO MANIPULATE PRESIDENT GRANT AND COMPROMISE HIM AND HIS FAMILY IN THE PLOT.—SCENES AND INCIDENTS OF THE GREAT SPECULATIVE DRAMA.
In the year 1869 this country was blessed with abundant crops, far in excess of our needs, and it was apparent that great good would result from any method that could be devised to stimulate exports of a part, at least, of the surplus.
Letters poured into Washington by the thousand from leading bankers, merchants and business men, urging that the Treasury Department abstain from selling gold, as had been the practice for some time, so that the premium might, as it otherwise would not, advance to a figure that would send our products out of the country, as the cheapest exportable material in place of coin, which, at its then artificially depressed price, was the cheapest of our products, and at the same time the only one undesirable to part with. So the Government decided to suspend gold sales indefinitely.
Jay Gould and others, being satisfied that this was to be the policy of the Administration, commenced at once buying large amounts of gold, actuated, doubtless, by the purest of patriotic motives, namely, to stimulate cotton and cereal exports. They succeeded in accumulating a considerable amount of gold at prices ranging from 135 to 140, covering a period of three months’ steady buying.
This was the honest foundation on which the great Black Friday speculative deal was erected.
The eruption on Black Friday was really caused by the erratic conduct of James Fisk, Jr., who actively joined the movement on Thursday, the day before, and became wild with enthusiasm on the subject of high gold. He began on Friday, early in the morning, to buy large blocks through his own brokers, William Belden and Albert Speyer, running the price up very rapidly.
The original syndicate consisted of Jay Gould, Arthur Kimber, representing Stern Brothers, of London, and W. S. Woodward, of Rock Island corner notoriety. The two latter, however, sold out their interest to Gould, who directed the deal to the end, with the assistance of several able and wicked partners. Their office was located in Broad street, on the present site of the Drexel Building.
When the excitement arising from the above causes was at its height, I sent a telegram to Secretary Boutwell, and one to President Grant, representing the exact condition of affairs in Wall Street, and urging the sale of gold without delay. I also prevailed upon General Butterfield, the New York Sub Treasurer, and Moses H. Grinnell, the Collector of the Port, to send similar telegrams, which they did, and timely action was taken at once by an order coming to sell $5,000,000. The moral effect of this Government action was to strike terror to the holders of gold, and a general rush was made to sell out, thereby driving down the premium from 160, in less than two hours, to 132. The down grade produced an excitement quite equal to the early furore in the up movement. Albert Speyer had from Fisk a verbal _carte blanche_ order to buy, in million lots, all the gold he could get at 160; while he was thus buying millions upon millions at this figure, on the opposite side, and in other sections of the room, sales were freely made in moderate amounts at 140, 145, 147 and 150, almost simultaneously; and even when 135 was reached, which was soon thereafter, Speyer still kept on bidding 160 for a million at a time, making one of the wildest and most ludicrous spectacles ever witnessed among men not idiots. Fisk afterwards repudiated the contracts made on his account by Speyer & Belden, simply denying having given the orders, and as they were not in writing, they could not well be proven, hence both brokers failed, throwing immense losses upon an innumerable number of others. Quite a noted firm sold Speyer some of his million lots, which they bought back at 140, being satisfied with the profit of 20 per cent.; when they had finished buying, the price instantly broke to 132, and the announcement of Speyer’s failure, which was made before the close of the day, caused them also to fail, as well as half the members of the Gold Room. Owing to the serious complications prevailing and the disaster being so widespread, it was found impossible to continue the clearances through the Gold Bank, and the Governing Committee of the Gold Room were at once convened, and passed a resolution to suspend all dealings in gold for one week, in order to enable the members to adjust their difficulties and differences between themselves privately. The Gold Bank also suspended business in the meantime. While Albert Speyer was vigorously buying and continuing to bid 160 for one million after another, the clique were as actively engaged in selling all the market would take at ten points less, and also busy making private settlements with the shorts.