The Richest Woman in America (15 page)

If Hetty enjoyed her anonymity in England, another woman exulted in fame in America.
Victoria Woodhull, a spiritualist from the Midwest, and her sister Tennessee, also a clairvoyant, had wooed and won the support of Cornelius Vanderbilt. Grateful for Victoria’s advice on stocks, which she had given him while she was in a trance, the railroad king agreed to set them up with a brokerage firm on Wall Street. The women caused a stir. Wearing cropped hair, men’s jackets, ruffled bibs, and bowties, with skirts that barely skimmed their ankles, they posed for photographers and quipped with reporters.

Their knack for publicity brought waves of curious men who pressed their noses against the windows and plenty of eager women willing to gamble their money with others of their gender. In the capacious back office, set aside for females and comfortably furnished with sofas and fancy glass, the sisters served strawberries covered in chocolate and toasted their clients with champagne. On the other side of the wall, their male employees carried out the business.

With a quick fortune in their pockets, the sisters soon began publishing
Woodhull and Claflin’s Weekly
, condoning free love and calling for women’s rights. Victoria even announced she was running for president of the United States. They held the public’s attention with the first English edition of Karl Marx’s
Communist Manifesto
, and caused a huge scandal when they reported the adulterous affair of the Reverend Henry Beecher with a married woman in his congregation.

Hetty Green had little interest in the suffragist movement or in the machinations of the sisters Woodhull. She was much more concerned with the alarming reports that arrived in the autumn of 1871. Telegraph wires across the United States and cables across the new transatlantic lines clattered out news that a fire was blazing across Chicago, devouring most of the city. Flames raced through the downtown, engulfing its wooden streets, wooden houses, banks and commercial buildings, its wooden hotels and churches, its wharves and grain elevators, destroying an area four miles long and one mile wide and leaving 150,000 people homeless.

Chicago had pulsed with the rhythm of trains and the surge of
goods carried through its stations. The Midwestern hub for transportation and agriculture, it had helped fuel New York’s and the nation’s economy. Chicago’s businessmen not only came to New York and stayed in its hotels, attended its theaters, dined in its restaurants, and had their shoes shined by its bootblacks, they borrowed their money, directly or indirectly, from New York banks and bought their insurance from New York firms. Now as they forfeited their bank loans and claimed their insurance losses, their impact was felt far and wide. The stock market tumbled, a few small New York banks immediately closed their doors, and the reputable Manhattan Insurance Company announced its end.

Stunned by the news of the fire, Americans living in London gathered at the Langham Hotel to raise money for the victims. Hetty had more than a passing interest: her holdings included land around Chicago that she had inherited from her father as well as ownership in the Rock Island Railroad, the Chicago-based line that stretched across the Midwest. As fear of a financial panic roiled across the ocean, Edward went off to assess the damage in Chicago. Sailing on the SS
Scotia
, the largest ship in Cunard’s fleet, on October 19, 1871, he arrived in New York.

Despite the fire in Chicago, prosperity graced the city. Like London, New York was flush with money. The city was flooded with an endless stream of funds from Europe, ready credit from the banks for mortgages, 10 percent margin accounts on Wall Street, junk bonds and other newly devised railroad debentures, and other instruments for trading stocks, such as puts and calls—the option to sell (puts) or buy (calls) a stock at a specified price—used by the financier Russell Sage. The abundance of money had encouraged a 500 percent increase in railroad building since the end of the Civil War, gaining land grants for the builders but allowing tracks to be laid that sometimes went aimlessly from point to point. Along with the railroad boom came massive real estate speculation and a rash of consumer spending across the country.

“
Everybody seemed to be making money,” said one writer, adding, “nobody suspected he was living in a fool’s paradise.” Even Chicago was quickly climbing back on its feet, with orders in place for steel and iron to erect buildings that would make it the most modern
city in the country. In New York, where as fast as the stock market dropped, it bounced back, elegant patrons dined on oysters and champagne at Delmonico’s new restaurant, formerly the home of Moses Grinnell, and exuberant shoppers crowded A. T. Stewart’s and the new Tiffany’s at Fifteenth Street and Broadway. While Edward took part in the Christmas rush, Hetty spent Christmas and New Year’s alone with their children in England. By mid-January 1872, after their baby’s first birthday, Edward was back in London. He and Hetty were together again with Ned and Sylvie, as she was now called.

Edward had hardly unlocked his trunks when his attention was turned again. Over the past few years, the Wall Street speculator Jay Gould and his cohorts had cornered the market on gold, captured control of the Erie Railroad, enriched themselves with its assets, and flooded the market with illegal stock. The Erie Ring, as they were called, had managed to bribe corrupt politicians and remain in control, but by March 1872 public outrage had swept away Boss Tweed and the ring was broken.

When the scurrilous Gould and his band of thieves were forced off the Erie board, European investors, who owned the majority of the railroad’s stock, turned to a small group of bankers to represent their interests. They appointed
Henry Bischoffsheim and E. H. Green to a committee of five, “all being persons of unquestionable influence and position in the best City circles,” said the London
Times
, noting it was the sole topic of conversation on the stock exchange. That summer, adding to his prestige, Edward was made a director of both the Erie Railroad and the Great Western of Canada Railway.

To ensure the company’s “proper direction,” the new group, along with Junius Morgan, bought 100,000 shares of Erie, promising to hold them until a new board was elected. Although they tried to rescue the Erie and put it back on track, another railroad scandal soon rocked the American public. At the beginning of 1873 the newspapers reported that the builders of the Union Pacific had created a company called the Crédit Mobilier that had siphoned off all the railroad’s profits and paid them to members of Congress in exchange for more government funds.

Americans were appalled at the sleaziness of their leaders: from the federal government to local cities and states, corruption greased
the pockets of almost everyone in power. In London, bankers faced other problems. Central European banks and London financial institutions had made money readily available for speculation in railroads and real estate. Developers in Paris, Berlin, and Vienna were furiously erecting elaborate public buildings and private homes in the beaux arts style, even using the promise of future houses as collateral on new mortgages.

The rampant rush to buy more land at low interest rates sent property prices soaring. Yet even as the costs rose, real estate opportunists continued to borrow until they reached a point where buyers could not afford the land. The speculators were unable to pay back the interest on their loans. When the worthless mortgages caused a few European banks to collapse in the spring of 1873, the British institutions, wary of more shaky mortgages held by the rest of the banks, raised their lending rates. The bubble burst on the Continent.

Moody’s
magazine observed a few years later: “The world as a whole was money mad.… All the great European cities seem to have had booms at this time. Vienna and Berlin were the most frenzied. The prices of sites went to purely fictitious figures, and the phenomenon was prevalent of the speculator who bought property, mostly on credit which he did not expect to use, with the expectation of forestalling the deferred payments by a sale at an advance.” The editors continued, “At the same time, Europe was pouring the oil of its money on the flames of American speculation. Railways spanned the continent and gridironed the states.

“Suddenly something snapped, and the machinery stopped. A Vienna banking house broke under the weight of too heavy a load of Missouri, Kansas & Texas securities, followed by another carrying too much Canada Southern. The financial organism winced like a leviathan with a harpoon in his vitals.” As the spasms spread from stock exchanges to banks, and from banks to investors, from Istanbul to Stockholm and from Edinburgh to Alexandria, the world crouched in pain. The wounds had come from speculation, but, said
Moody’s
, “No war ever made more misery.”

British investors had been funding American railroads at a furious rate.
Europeans held 80 percent of the American bonds, but with their heavy losses and money now scarce, they could no longer support the
debentures. Other recent events were sending the markets spiraling downward. The Chicago fire, followed one month later by a major fire in Boston that destroyed sixty-five acres of downtown property at a loss of $100 million, had burned the insurance companies and banks and caused them to hold back on new loans.

The scarcity of funds triggered disaster: merchants defaulted because they could not find money to run their businesses; farmers went bankrupt because they could not borrow to plant their crops; railroads lost income because of the smaller shipments of food. The railroads were already suffering from the Erie Ring outrage with its worthless stock and corrupt activities in Washington; the Union Pacific scandal, which, like the Erie, uncovered stolen profits and bribed politicians; and a general loss of confidence in railroad management.

For weeks the stock market had been quiet in New York. When the New York Warehouse and Securities Co., which had backed the Missouri, Kansas & Texas Railroad, closed its doors on September 8, Wall Street men drew in their breath and sighed, hoping this was an isolated case.

Then the mood changed precipitously. Ten days later the Northern Pacific Railroad, which had been running at a loss and spending money to lay track faster than it was acquiring funds, announced on September 18, 1873, that it could no longer afford to pay bondholders its 8½ percent dividend. The railroad folded in default. The highly reputable banking house of Jay Cooke & Company, which earlier had raised hundreds of millions of dollars in bond sales to finance the Civil War, had loaned money to the Northern Pacific. Now the railroad was unable to pay its debts to Jay Cooke, and the prominent firm was forced to close.

The news hit the Stock Exchange like a hurricane: some brokers let out screams of alarm while others stood frozen in fear. And then, as suddenly as they had stopped, men started running to notify their Wall Street houses of the failure. “The brokers surged out of the Exchange, stumbling pell mell over one another in general confusion and reached their offices in race horse time,” reported the
Times
.

Brokers had no time to deliberate: the bears were selling, few were buying, and prices were declining rapidly. On Wall Street that morning crowds stood buzzing in the frantic unrest. Two other major
banks, including the highly prestigious Fisk and Hatch, with investments in the Central Pacific Railroad and the Chesapeake and Ohio Railroad, sank in the sea of default. No one could find the lifejackets to save the drowning banks.

Two days later, with panic growing on Wall Street, the storm turned into a tidal wave. Twenty brokerage firms shuttered their doors. Hordes of people rushed to withdraw their funds from the banks. At noon, when it was clear that no one was willing to buy at almost any price, the Stock Exchange closed its doors and kept them closed for ten days. A feverish mob filled Broad Street. When the eminent banking house of Henry Clews and Company closed, a shroud of gloom hung over the street. On the first day of the panic Western Union stock dropped ten points in ten minutes. Within two weeks the stock of the Rock Island Railroad had plunged from 108 to 86 and Union Pacific dropped from a high of 39 to a low of 14.

“Sunday, September 21, 1873 will be memorable in our history,” declared a diarist. With the nation on the verge of financial ruin, men who usually crammed into church for Sunday prayers instead jammed the Fifth Avenue Hotel to plead for help from the president. Ulysses Grant had come there to meet with New York’s leading businessmen. The bankers, including Cornelius Vanderbilt and Henry Clews, who met with Grant and his Treasury secretary, William Richardson, begged them to ease the money supply. Instead, the U.S. government bought up $13 million in bonds. It was only a temporary plug.

The bankers agreed to form a clearinghouse committee and pool their cash. But the storm that washed through New York was racing across the country as fast as cholera. More farmers could not get the cash they needed to ship their wheat and corn. More railroads continued to fail and more factories were forced to close. Thousands of people lost their jobs.

The panic took its toll on almost everyone. It terrorized men who looked as though they had aged ten years in one day. Brokers, vigorous the day before, were walking with their backs bent from the blows of the market. Bankers, so confident yesterday, were leaning on canes, unsteady on their feet today. “Energetic businessmen toddle around as if they had just risen from a bed of sickness,” said George T. Strong.
“Paralysis, apoplexy and worse were all created by the panic in the street.”

The
New York Times
, covering a congressional hearing a few years later, reported that in every case financial crises followed a period of rampant and extravagant speculation. “
The panic of 1873 was preceded by an era of gigantic railroad and real estate speculations which were the principal causes of the panic.… [T]he speculation in land was enormous all over the country. Prices in real estate were multiplied beyond all precedent.… The obligations incurred in building the railroads and in this rail estate speculation were too enormous to be sustained and when the time came to settle up, people suddenly found themselves unable to resolve their obligations and became insolvent.”