Thursday, October 24, 2013

95. Wall Street, Its Past and Present Sins, and Do We Need It? Part 1




     Wall Street is many things: a street, a financial community far exceeding that place, and a symbol of high finance.  Depending on your viewpoint, it can be described as a bastion of capitalism, a maze of complexities, a sink of corruption, or a nest of greed.  These posts will examine all these aspects.  This first one will have a look at Wall Street's origins and then get the feel of a boom and a bust.

     Before there was a street, there was a wall.  The wall, a twelve-foot-high stockade, marked the northern limit of the old Dutch settlement of New Amsterdam, with one gate in it for the street that became Broadway.  The wall was a defense against the native peoples whom the Dutch had come to trade with and on occasion to cheat and kill.  New Amsterdam became New York with the arrival of the English in 1664, and in 1685 surveyors laid out Wall Street along the lines of the original wall.  Even in these early days merchants and traders were meeting there in the open to buy and sell stocks and bonds, and in 1711 the Common Council made Wall Street the city’s first official market for the buying and selling of slaves. 


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A map of New Amsterdam in 1660, showing the wall.

     By the late eighteenth century, traders were gathering under a buttonwood tree at the foot of Wall Street to buy and sell securities.  In 1792 twenty-four of them got together to sign the Buttonwood Agreement, whereby the signatories agreed to charge each other a standard commission rate; others would be charged a higher rate.  This was the origin of the New York Stock Exchange, which to this day is a private entity with its own rules and regulations.  From the very first, it was a monopoly.

     Doing business outdoors had its inconveniences, since snow and rain might dampen the spirit of traders, so in 1794 the Tontine Coffee House, a four-story brick building, was built at the northwest corner of Wall and Water Streets to function as a merchants’ exchange for brokers, merchants, insurers, and others.  In those days before the telephone and telegraph, a merchant went “on ’change” daily to see others on business, and to make himself available to those who might wish to see him.  At the Tontine, while some drank coffee, others traded securities, auctioned goods, read or discussed the latest news, and argued politics vehemently.  It was also used for banquets and balls, and on occasion witnessed slave trading and gambling, and fistfights sparked by political differences.  One of the busiest sites in the city.



File:WLA nyhistorical Francis Guy Tontine Coffee House.jpg
The Tontine Coffee House (on the left, with a flag) in 1797.  The smaller structure with dormer 
windows across the street is the Merchants' Coffee House, where brokers met before.  At the 
end of Wall Street the masts of anchored ships are visible.
the_adverse_possessors

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The fire of 1835, showing the original Merchants' Exchange in flames.
     But in time the trading of stocks required more space, so in 1817 traders formally organized the New York Stock & Exchange Board and rented rooms at 40 Wall Street.  The opening of the Erie Canal in 1825 brought boom times to New York, a major port already and now the only one on the East Coast with access by inland waterways to the Great Lakes and the goods of the Midwest.  Wall Street was still partly residential, but residents were soon fleeing its noise and bustle for calmer vistas farther uptown.  A disastrous fire in 1835, and another in 1845, devastated the business district, but by the very next day workers were clearing away the smoking debris and hot rubble to build anew.

     Midcentury Wall Street was still a simple and rather narrow cobblestoned street frequented by dogs and grunting pigs in the early morning, when it had a small-town air.  Beginning at the west on Broadway, where the Gothic grace of Trinity Church loomed piously, it ran east for less than half a mile to South Street and the anchored sailing vessels of the East River docks. 

     To Wall Street, now the financial capital of the nation, money flowed from small country banks where interest rates were low, to big city banks where interest rates were high.  It flowed from grain exporters, and importers of woolens and wine, into the coffers of insurance companies.  It flowed from raspy-voiced auctioneers and canny investors in real estate, from husbands of heiresses, successful hatters, cotton speculators, and shipowners made mysteriously rich by the traffic between Africa and Cuba, into the scented palms of brokers and the big-knuckled hands of bankers.  In good times the money sloshed around; in bad times, like the years following the Panic of 1837, it shrank to a trickle.  But once a panic ended – and they always, in time, did end – the money spigot spat, dribbled, then gushed and sloshed again.  All through the century boom followed bust followed boom, each bust wiping out the fortunes of many, and each boom hatching a new crop of the affluent.

     Money also shone on Wall Street.  It shone in newly minted specie and in fobs and studs of gold, emblems of the wearers’ success.  It shone in the blue granite dome of the Merchants’ Exchange, with its portico of massive Grecian pillars, and in the classic fronts of banks, their wide steps mounting to tall doors flanked by fluted columns.


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The new Merchants' Exchange in 1852.  It was built after the loss of the old one in the 1835 fire.   With four floors and a second colonnade added in 1907-1910, it still stands today, housing
condo apartments.

     Money sang on Wall Street.  It sang in the tinkle of coins over counters, and in the crackle of crisp new bank notes, and the rustle of limp worn old ones.  It sang in the clatter on cobblestones of high-wheeled gigs, as gentlemen bankers drove to their banks behind a fast-paced trotter.  It sang too in the chime of fine crystal in their Greek Revival or brownstone residences, in the clank of pewter mugs in taverns where their sons got drunk, and in jingly harnesses when their wives, sporting brooches in their bosoms, parasols, and a rainbow of ribbons, sallied forth to meetings of the Association for the Relief of Aged Indigent Females. 

     But mostly, on Wall Street money talked.  It hummed in the Exchange’s rotunda, where at midday a thousand voices sold flour, bought steamboats, set money rates, and quoted prices for potash and iron.  It jabbered at the Custom House, a marble parthenon whose confines better suited the rites of Athena than Mammon, as ships’ masters presented their manifests to cramped and squinting clerks.  Money shrieked in the gibberish of brokers trading stocks on the floor of the Stock Exchange, or outside in the curbstone market where newcomers and has-beens excluded from the indoor exchange – the green and rotten apples of the Street – bid hoarsely in the open air, their hats bobbing like a dance of chimneypots.  It murmured in the thoughts of gray-faced clerks on stools whose scratching quills ciphered figures into calfskin ledgers in basement countinghouses, each one dreaming of a partnership, and chattered in the musings of boys shoveling coal out of bins in dark hallways to be dumped into cast-iron stoves, each one dreaming of a clerkship.  And it whispered in back offices behind closed doors, where cliques formed and schemed.


The New York Stock Exchange in the 1850s.  Stocks were traded one at a time.

     From South Street on the east, where ships’ prows lunged at third-floor windows, to Broadway on the west, where each afternoon the spire of Trinity cast a Christian shadow down the Street, always, loud or soft, harsh or sweet, it spoke.

     It spoke even louder and sweeter when, in 1848, gold was discovered in California.  Gold!  The very thought of it raced the blood and sent hordes of young Argonauts armed with picks, axes, shovels, and a surfeit of hope westward via vessels bound for Panama or San Francisco, and brought other ships eastward bearing gold dust and nuggets – stuff that you could actually touch.  Small wonder that a new boom began.  Yes, there had been some kind of panic back in 1837 – did anyone remember it? -- but these were wild new times, fierce and giddy; something like that couldn’t happen again, not soon.

     By 1857, just twenty years after that unfortunate incident, bankers were weighing the gold dust that arrived by ship from California in the amount of fifty millions a year, and were founding a new bank a month to issue notes of the best rag paper, engraved with svelte lettering and bosomy nymphs hugging a portrait of Washington throned atop mountains of gold.  Railroad men were jabbing track through wilderness, and sending silk-hatted agents with diamond stickpins and silver tongues to Paris and London and Vienna to tout their stocks and bonds.  Speculators were snatching profits out of town lots, guano, gold mines, and fancy poultry; evenings they received with their wives in parlors lit by crystal chandeliers, and dined in black walnut dining rooms on French delicacies whose names they mangled.  From Europe travelers returned with thousand-dollar cashmere shawls, blue satin dresses trimmed with pink lace, carved antique mantelpieces, bonbon boxes, a bronze Puss-in-Boots.  These moneyed legions were the pith and marrow of the nation, had much, wanted more: more ships, banks, land, more Gothic villas and European tours, more railroads and schemes of railroads, plush, chintz, gilt – and most of it on credit.

     “Immoral,” said Mr. Greeley of the Tribune, who was staunchly moral, a foe of ignorance and vice.  “Imprudent,” said Mr. Bennett of the Herald, a mocker of all things secular and sacred, who poked at the edifice of trust, picked, pried.  “Rotten,” he announced, but he had said this many times.

     All through August – even as fashionables left town for Saratoga or Newport or the Catskills -- banks made loans, bonded messengers with bags of specie scurried hither and yon, and brokers traded stocks indoors and out, and even in hotel rooms in the evening, swarming like ants in jam.  Suddenly, headlines shrieked:

OHIO LIFE AND TRUST COMPANY FAILS

     At this collapse of a respected firm, brokers gasped.  Ohio Life had invested generously in Western land and railroads; its failure reached far – who was safe?  Immediately stocks, having gone up up up, began going down down down.  Banks yanked in their loans.  Merchants and money men hurried back from Saratoga or Newport or the Catskills.  Behind closed doors of board rooms and countinghouses, there arose a whispered flurry of due notices, threats, contracts, pleas.  Two presidents of railroads resigned “for personal reasons.”  “Calm!” urged the Tribune and the Times.  “Rotten,” repeated Mr. Bennett.

     In September, stocks kept on going down down down.  Pinched for cash, brokers and merchants failed, dragging down those they owed money to.  Foundry fires sputtered, went out; small railroads cracked, then big ones.  Screamed the Herald:

                                        FINANCIAL REVULSION
                                        CRISIS IN BOSTON
                                        SUSPENSION IN PHILADELPHIA
                                        PRESSURE
                                        FAILURES
                                        PANIC
                                     
A teetery nation looked to the New York banks, those citadels of trust.  “We will not suspend,” said the banks.  “Rotten,” insisted Mr. Bennett.

     In October a murmur arose on the street, in offices: rumors, warnings, doubts.  One small bank suspended, then another.  On the morning of the 13th  all over the city barbers and florists and tobacconists scooped up the cash in the till, bagged it, and leaped aboard a Wall Street-bound omnibus.  Among the passengers, all toting sacks of suspect paper money, the murmur swelled to a buzz.

            “The Marine Bank has suspended!” said one.
            “No, it’s the American Exchange Bank!”
            “Both!  And the Irving and the Ocean, too.”
            “Bank notes will be worthless!”
            “Only gold is safe!”
            “Get your money out while you can!”

     When they all jumped out at Wall Street, in the churning throngs the buzz crescendoed to a din.  The Merchants’ Exchange Bank had suspended … the Mechanics’ Bank … the Bank of New York … ! 

     “I got mine!” yelled a grinning depositor, brandishing a bag of chinking coins.  “Press in, boys, press in!”

     With their sacks of rag paper in hand, they wedged and bumped their way through the crowds up the steep steps of banks, determined to learn what truth of gold or hard fact of silver lay stashed behind those tall doors flanked by Grecian columns.  Against their incoming crunch and their fists, curses, and yells, the thick doors of banks slammed shut.  


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The run on the Seamen's Savings Bank, 1857.

     Bank after bank had closed.  Up and down the Street merchants and money men surged, rubbing frenzied elbows with grocers and stationers and casket makers lugging bags of paper money or brandishing checks they couldn’t cash, all mouthing sad and sour jokes about lost deposits, collapsed stocks, and fortunes gone to blue blazes.

     Would his brewery survive? a brewer wondered.  He doubted it.  What would he tell his wife, another child soon due?

     “What will I do?” a pharmacist asked, his bank suspended, his meager savings lost.

     “Burst!” exclaimed a shipbuilder, top hat askew, tugged and squeezed by the crowd.  With bills for lumber, canvas, and rope falling due, plus the wages of his men at the shipyard, he was desperate for cash.  Through no fault of his own, his dream and deed of decades – the shaping of that tight, sleek wonder, a ship – was at risk.  Had he bet on America and lost?  He laughed, wept.  “Burst!” he exclaimed.  “We have burst!”

     Trinity’s chimes stroked three.

     The Great Western Blizzard had swept away fortunes galore.  For weeks and months to come, brokers languished, pickpockets idled.  Jobbers’ showrooms were full of goods, empty of customers.  “In God’s name, what does it mean?” the distraught wife demanded of her husband, who stared, stunned, as their damask ottomans, whatnots, rugs, and pianoforte were carted off to auction. Clipper ships dozed in the harbor, bank note engravers had a lean season, revivalists revived.  Urged the Journal of Commerce:

                                    Steal away from Wall Street
                                    And every worldly care,
                                    Spend an hour at midday
                                    In humble, hopeful prayer.

 In the twinkling of an eye, boom had turned to bust.


     Source note:  Much of this post is adapted from my unpublished historical novel Metropolis, a long and sprawling work that follows numerous characters, both historical and fictional, through several decades of the nineteenth century.  Its inspiration came from background research for my two published biographies.  The account of the Panic of 1857 is based on newspaper accounts of the time.

     Another note on hair:  In my last post I confessed that, having seen women with pink, orange, and blue hair here in the West Village, I had yet to see purple and orange.  A friend in Atlanta assures me that there’s plenty of both down there, and a friend teaching at Smith College in Massachusetts says the same. 

     Coming soon:  Two more posts on Wall Street, the last one looking at today's financial mess.  Then, My Suicides.

    

     ©  2013  Clifford Browder