Black Friday (1869)

From Wikipedia, the free encyclopedia
Jump to: navigation, search
Photograph of the black board in the New York Gold Room, September 24, 1869, showing the collapse of the price of gold. Handwritten caption by James A. Garfield indicates it was used as evidence before the Committee of Banking & Currency during hearings in 1870.

Black Friday, September 24, 1869, was caused by the efforts of two speculators, Jay Gould and his partner James Fisk, to corner the gold market on the New York Gold Exchange. After Abel Corbin, a small time speculator, married Virginia Grant, the younger sister of President Ulysses S. Grant, Gould and Fisk approached Corbin, taking advantage of the relationship and persuaded Corbin to introduce them to Grant with the idea that befriending the President would give them privy information about up and coming government gold sales -- information with which they manipulated the market, resulting in the scandals that followed and which undermined the credibility of Grant's presidency and the national economy.

History[edit]

A one dollar "Greenback", issued in 1862

To finance the Civil War and Reconstruction, the federal government had assumed a large national, which escalated from $64 million dollars in 1860 to $2.8 billion at the end of the Andrew Johnson administration, when Grant was elected president. [1]The problem was further compounded when unredeemable paper money, known as "greenbacks", which were not backed by gold but were required to be accepted for the payment of federal debt, had only served to push gold currency out of circulation, causing the price to of gold rise sharply. It was generally believed that the U.S. Government would ultimately redeem the "greenbacks" with gold.[1] One of the first things Grant did as President in 1869 was to sign legislation, The Public Credit Act, that would pay U.S. bonds back in "gold or its equivalent" and would redeem greenbacks from the economy as soon as possible. Grant believed that putting "sound money" back into circulation was the best approach to restoring the economy. Grant put in charge of the U.S. Treasury the talented George S. Boutwell whose primary task was to reduce the national debt. To accomplish this Boutwell, in April, ordered his assistant treasurer to sell gold from the U.S. Treasury and buy up wartime bonds. He also initiated reforms in the Treasury Department by improving methods of tax collecting and attacking the problem of counterfeiting. By the end of May the national debt had been reduced by $12 million dollars. Boutwell's treasury policy of reducing the national debt kept the money supply level and the gold price artificially low. [1] The purpose of Grant's fiscal policy was to reduce the amount of greenbacks in the economy and be replaced by gold.[1]

Cornering the gold market[edit]

Cartoon, entitled "The 'Boy of the Period' Stirring up the Animals', shows Fisk poking bulls and bears and a man running toward them with a bag in his hand
A cartoon showing Jim Fisk stirring up the gold market in New York. Grant is shown running holding a bag of gold.

In 1869, a group of speculators, headed by James Fisk and Jay Gould, sought to corner the gold market through a plot to induce President Grant to stop Boutwell from releasing weekly gold from the Treasury Department in order to raise the gold price.[2] Fisk was a gregarious showman who controlled the Erie Railroad, while Gould had made his fortune as a cotton smuggler during the Civil War[3] The first step in the plan was to recruit Daniel Butterfield, the assistant treasurer, whom through Boutwell gave orders to sell Treasury Department gold.[4] Gould bribed Butterfield with a $10,000 check, more then Butterfield's annual salary of $8,000. [4] Butterfield agreed to tip the men off when the government intended to sell gold.[5] Gould and Fisk then recruited Grant's brother-in-law, a financier named Abel Corbin who had married Grant's younger sister "Jennie".[6] Corbin was considered a smooth talker and had made money speculating in real estate, and more importantly to Fisk and Gould, he had direct access to Grant. [6]They used Corbin relationship to get close to Grant in social situations, where they would argue against government sale of gold, and Corbin would support their arguments.[5] Gould also attempted to bribe Grant's personal secretary Horace Porter by giving him a $500,000 gold account in his name, but Porter, a former military aid to Grant,[7] was loyal to the President and declined the offer.[5] Not accustomed to having such offers turned down, Gould went ahead and made the purchase and opened a brokerage account in Porter's name regardless. When Porter was informed of Gould's unauthorized transaction he refused the offer in writing. In similar Fashion Corbin approached Grant's wife Julia and attempted to entice her into accepting half interest in $250,000 in bonds, but she turned that offer down.[8] Gould secured owning interest in the federally audited New York's Tenth National Bank, a Wall Street broker's bank that was used as a facility to contract business. [5][8] In addition to meeting at Corbin's mansion home, Fisk and Gould also talked with Grant on their Erie Canal railroad car and in Fisk's box seats at New York's Fifth Avenue Theatre.[5] Gould planted an idea in Grant that if gold prices increased it would help farmers in the West sell their crops.[9] Grant's appearances with Gould and Fisk sent a message to Wall Street that Grant supported raising the gold price. [9]

A twenty dollar Liberty Head - Double Eagle gold piece, issued in 1869, commonly used in banking transactions.

Starting on September 1, Gould and Fisk put there plan in motion by purchasing $1.5 million in gold in the name of Corbin and Butterfield.[9] The two conspirators would make $15,000 ($263,000 in 2016) for every dollar rise in gold.[9] By September 6, the price of gold had risen by $4.50 to $137 an ounce. [9] On September 12, Grant warned Boutwell that a "desperate struggle" was taking place between the "bulls and bears" of the gold market. [9] Corbin told Gould he was concerned whether Grant would stop selling gold from the Treasury, whereby Gould told Corbin to write a letter to Grant encouraging him not to sell gold. [9] Corbin wrote Grant the letter, now lost, encouraging Grant not to sell gold, and was sent by messenger, Billy Chapin, to Washington, Pennsylvania, where Grant was vacationing. [10] Interruping Grant's crochet game, Chapin gave him Corbin's letter, whereupon Grant read the letter and told Chapin "No answer" when asked for a reply. [10] When Chapin had left, Porter told Grant about Gould setting up a $500,000 gold account in New York. [10] Upon hearing this Grant finally figured out what Gould and Fisk were up to and he arranged a meeting with Boutwell. [11] On September 20, 1869, Gould and Fisk started hoarding gold, driving the price higher. By September 22, gold closed at $141 an ounce at which time Fisk and Gould owned between $50 and $60 million in gold between the two of them, about three times the public supply available in New York. The increase in gold prices on this day alone had netted a profit of $1.75 million for the two conspirators. On September 23, Grant and Boutwell met and the two decided to break the gold ring by selling gold from the treasury if the gold price continued to rise. [11] The same day, Gould and Fisk began quietly selling their gold while their agents put up a public front and continued buying at a lesser rate with Fisk leading the spurious buying activity.[12] When gold had surpassed $155 an ounce on September 24, Boutwell released $4 million in gold, and within minutes, Gould's and Fisk's gold corner was broken.[11][a] Investors scrambled to sell their holdings, and many of them, including Corbin, were ruined. Fisk and Gould escaped significant financial harm. The two weeks of trading had halted commerce across the country. The price of wheat, corn and other produce had also declined sharply, while the New York Tribune reported that goods ready for export could not be shipped.[12][13][b]

Investigation and aftermath[edit]

The subsequent Congressional investigation was chaired by James A. Garfield. Grant's decision to counter the escalating price of gold did not completely dispel rumors that he and his administration had profited from the affair.[14] The investigation was alleged on the one hand to have been limited because Virginia Corbin and First Lady Julia Grant were not permitted to testify. Garfield's biographer, Alan Peskin, however, maintains the investigation was quite thorough. Butterfield resigned from the U.S. Treasury. Henry Adams, who believed that President Ulysses S. Grant had tolerated, encouraged, and perhaps even participated in corruption and swindles, attacked Grant in an 1870 article entitled The New York Gold Conspiracy.[15] Grant's suspected involvement also led his presidency to be called the Era of Good Stealings.

Although Grant was not directly involved in the scandal, his personal association with Gould and Fisk gave clout to their attempt to manipulate the gold market. Though Grant had made it public, his well intended order to release gold in response to gold's rising price was itself a manipulation of the market. Grant had personally declined to listen to Gould's ambitious plan to corner the gold market, since the scheme was not announced publicly, but he[who?] could not be trusted. Gould had promoted the plan to Grant as a means to help farmers sell a bountiful 1869 wheat crop to Europe.[16][clarification needed]

Photo gallery of persons involved[edit]

Media depictions[edit]

A highly fictionalized account of Fisk's life, culminating in a dramatic presentation of the gold corner, was shown in the 1937 film The Toast of New York.

See also[edit]

Notes[edit]

  1. ^ The premium on a gold Double Eagle which represented 0.9675 troy ounces (30.09 g) of gold bullion at $20 was was now 30 percent higher than when Grant took office only months before. But when the government gold hit the market, the premium plummeted within minutes.
  2. ^ The stock market joined in on the plunge, dropping a full 20 percentage points and bankrupting or inflicting severe damage on some of Wall Street's most venerable firms. Thousands of speculators were left financially ruined, and at least one committed suicide. Foreign trade ground to a halt. Farmers may have felt the squeeze most of all, with many seeing the value of their wheat and corn harvests dip by 50 percent.

References[edit]

  1. ^ a b c d White 2016, p. 478.
  2. ^ White 2016, p. 479.
  3. ^ White 2016, pp. 479-480.
  4. ^ a b White 2016, pp. 480.
  5. ^ a b c d e White 2016, p. 481.
  6. ^ a b White 2016, p. 479, 481.
  7. ^ Brands 2012, p. 442.
  8. ^ a b Smith 2001, p. 484.
  9. ^ a b c d e f g White 2016, p. 482.
  10. ^ a b c White 2016, p. 483.
  11. ^ a b c White 2016, p. 484.
  12. ^ a b Smith 2001, p. 487.
  13. ^ The "Black Friday" Gold Scandal, 145 Years Ago
  14. ^ Brands 2012, p. 445.
  15. ^ The New York Gold Conspiracy
  16. ^ Jean Edward Smith, Grant, pp. 481-490, Simon & Schuster, 2001.

Bibliography[edit]

External links[edit]