Category — Frenzied Financiers
At her death, the Witch of Wall Street was worth more than J. P. Morgan, and nearly all of it was in cash. Yet Hetty Green had worn the same dress for thirty years and lived in squalor. The Witch’s son Ned was another matter, a six-foot, four-inch, 300-pound eccentric who tossed away $3 million a year on cars, coins, stamps, female “wards,” pornography, yachts, and Texas politics.
Henrietta Howland Robinson was born in New Bedford, Massachusetts on November 21, 1835. She inherited about $1 million outright from her father in 1865 and a life interest in $5 million. She was tall, full-figured, and handsome, with “a bosom full and high,” large, bright blue, intelligent eyes, regular features, and a fine, delicate, peach-blossom complexion that she retained into old age. Edward H. Green, a wealthy Vermonter, fell in love with her as she walked into the dining room in Boston’s Parker House.
With a pre-nuptial agreement under which each remained independent of the other in financial matters, they married in 1867. After eight years in London, the couple returned to America to live in Bellows Falls, Vermont. Here Hetty began to show an obsessive parsimony, spending half the night looking for a two-cent stamp she had mislaid, wearing wildly outdated clothes that were never mended or replaced, and not washing to save money on soap. (In later years, Mrs. Green’s economy led guests in hotel dining-rooms to ask for Hetty to be seated as far away from them as possible.) She became notorious and a favorite target for reporters with a satirical eye.
Mr. Green found Mrs. Green embarrassing. Relocating the family to New York, he took a bachelor apartment in an expensive men’s residential hotel, while Hetty, though wealthier than ever, lived with her children in cheap flats in Brooklyn and Hoboken, frequently moving to evade state taxes. They rarely paid more than twenty-two dollars a month for rent or five dollars a week for food.
In 1886, her son Ned was knocked down and dragged by a cart at Ninth Avenue and 23rd Street, severely injuring his right leg. She refused to pay doctors’ fees, instead making the rounds of free medical clinics in Manhattan and Brooklyn. She was recognized and turned away because she refused to pay although she could afford to. Eventually she had to take Ned to a doctor who, by then, could do nothing but advise amputation. It was that or death by gangrene, but Hetty would not—perhaps could not—pay for a doctor. Finally, her husband paid for the procedure, and the youth’s leg was cut off about seven inches above the knee.
Yet the boy remained loyal to his mother, who had begun to recognize his flair for business. Within months, Ned had become Hetty’s agent, first in Chicago and then Texas. During his stay in the Windy City, his lodge brothers, realizing the lad was an innocent at twenty-two, arranged an appointment for him at a house of mirth, ensuring first that the madam understood the guest of honor was a shy one-legged virgin.
The voluptuous redhead who entertained him, Mabel Harlow, was a thorough professional, skillful, tolerant, and kindly, who had learned her trade in Dallas and Houston before hitting the big time. Ned fell immediately in love but Mabel, uninterested in commitment, left town on the next train.
One of Hetty’s lesser enterprises, the Texas Midland Railroad, was fifty-one miles of unprofitable rusty rail connecting no place with nowhere. She sent Ned to make it viable. He stumped into the American National Bank of Terrell, Texas, bearing a cashier’s check for $500,000. This was then twice the bank’s capital. The bankers wired Hetty for confirmation. She replied that Ned had a mole on his forehead and a cork leg. He showed both to the bankers. They took the check. Then they made him a vice president.
Of those days, he later said, “I felt wonderful. I was fancy free.” Looking down at his cork leg, he added, “You might also say I was footloose.” Shortly after Ned’s arrival in Texas, the Governor made him an honorary colonel. Ned ordered gold-braided uniforms from Brooks Brothers for the next inaugural ball and used the title for the rest of his life.
He also became interested in Republican politics, befriending an unlikely but powerful state boss, William Madison “Gooseneck Bill” McDonald, a gangly black man with a bobbing Adam’s apple.
After working his way through Roger Williams College, Gooseneck Bill had returned to the Lone Star State as a teacher. This was no way to get rich, so he also sold insurance for fraternal orders and went into politics. Texas Democrats then banned blacks from membership. So McDonald joined the Republicans. While the GOP was then an electoral dead-end in a former Confederate state, the Texas Republicans sent delegates to their party’s national convention, where Presidential candidates wanted their votes.
McDonald was soon able to buy and sell jobs, do deals, get contracts, and begin making money. But no Negro could become State Republican chairman. He needed a white man to front for him, like the large, affable railroad president from Terrell. McDonald planted the seed of ambition: State Chairman, Governor, maybe…. In September, 1896, following McDonald’s advice (“Never bribe a man with a check. Always use cash.”), Ned overwhelmed the State convention in a tidal wave of babes, booze, and gold, winning the first of four terms as State party chairman.
In his private life, Colonel Green behaved as if he had just invented sex and couldn’t wait to spread the idea around. When the Texas Midland bought an opera house as its office building, Edward used its top floor as his apartment, where he received an ever-changing array of women, including occasional professional talent from Dallas. He and his friends enjoyed snapping photographs of each other flagrante delicto, perhaps foreshadowing his robust taste for pornography.
One day Ned and Mabel met by accident in the lobby of the town’s hotel. (She was in Terrell on business.) She said, “Hiya, Eddie,” and they fell into each other’s arms. This time, Mabel stuck around to become the Colonel’s “housekeeper.” As she was easily bored and her only friends were whores, Mabel occasionally bolted town after a few drinks to return to her trade. Gooseneck Bill repeatedly tracked her down, had her arrested, and ensured her return to Terrell on the next train.
In the meantime, Hetty, who referred to Miss Harlow as Miss Harlot, had been busy on the stock market. As Lucius Beebe observed in The Big Spenders, “The New York Stock Exchange had hitherto been a closely guarded present of purely masculine rapacity, but Hetty, in the guise of a sort of reverse Florence Nightingale, was soon stacking the maimed and dying like cordwood as a result of her ruthless operations, and bears and bulls alike were licking financial wounds that were pitiful to behold.”
But indulging the odd occasional bout of securities manipulation was merely a pastime. She made her real money as a loan shark, lending money to bankers and brokers at the highest possible rate of interest from her rent-free desk at the Seaboard National Bank’s Wall Street office, where she always had $40 to $50 million on deposit.
During the Panic of 1907, perhaps her finest hour, the Knickerbocker Trust Company failed for $52 million. There was no Federal Deposit Insurance Corporation then: the depositors lost their savings. Hetty was not among them. Several weeks before the crash, she had told a friend to get her money out of the Knickerbocker. Hetty had already done so. “The men in that bank are too good-looking,” she explained. “You mark my words.”
Meanwhile, she continued to live in obscure and shabby boarding houses, sometimes in unfurnished rooms where she did her own cooking on a single gas plate. In April, 1916, while staying with a friend, the old lady suffered a stroke after arguing with the housekeeper over extravagance. The cook, Hetty claimed, was bankrupting her employer by using whole milk where skimmed would do. She died two months later: the Colonel had paid for round-the-clock care, the nurses dressing as maids lest Hetty have another stroke at the thought of the expense. She left $100 million to her two children.
At the time of his mother’s death, Colonel Green usually wore rimless spectacles, wing collars and, except on the very saddest occasions, a bemused smile. Thereafter, some say, his way of life became a protest against the penury that had cost him a leg. He collected stamps, coins, and pornography without restraint.
Hetty had been dead for less than a month when Ned married Mabel. To celebrate his nuptials, the Colonel wanted the world’s largest private yacht. With World War I raging, the Colonel was unable to order a vessel to his design. He inquired whether J. P. Morgan’s Corsair or Vincent Astor’s Nourmahal were available. They were not. Instead, he purchased a Great Lakes excursion steamer, the S.S. United States. It was only 195 feet long, shorter than Corsair. Green solved the problem by having the United States lengthened by sixty-one feet. When finished, the main cabin was 28 by 32 feet, with an open fieldstone fireplace. Here, the Colonel’s imagination failed him and the boat’s interior was furnished by John Wanamaker’s department store
When the United States arrived at Round Hill, the Colonel’s residence in Buzzards Bay, he encountered an insurmountable obstacle. The steamer burned nearly two tons of coal a day just keeping up enough steam pressure to activate the showers and fire lines. In wartime, nothing like this was available for a single civilian’s use. Then, on August 21, 1919, the United States sank at its mooring in sixteen feet of water. Colonel Green’s pride took ten hours to go down in broad daylight. There were no casualties; the furnishings were recovered; and the boat was scrapped.
In any case, he was finding that the money now piled up without his help. Eventually, the only words he was uttering at directors’ meetings were the motion to adjourn. Respectable neighbors on the Cape only noticed him when the Goodyear blimp he loved to moor to a tree on his front lawn got loose and was pursued by its custodians over their immaculately groomed estates. But he was wildly popular as a prize spendthrift of the Miami winter season. He signaled his arrival by presenting a $20 gold piece to each traffic policeman and would repeat the gesture when he went back North.
Colonel Green usually carried sufficient pocket money for emergencies. Once, he was breakfasting at the Adolphus Hotel in Dallas with Edward Harper, president of the Security National Bank. Just as the sausages were coming to the table, a shaken emissary rushed in to tell the banker of a run on his bank. Unwilling to see his guest inconvenienced, Green pulled out his wallet and counted out twenty $10,000 banknotes. As this might have been insufficient, Green sent a bellboy to his suite, instructing him to fetch a battered Gladstone lying on the bed. It proved to be almost entirely filled with $10,000 bills, from which the Colonel counted out another thirty and handed them to Harper, no receipt necessary. Half a million dollars proved sufficient to save the bank, and Green had the valise returned to his rooms instructing the bellboy to stow it safely in the closet.
Still, now and then his mother’s thrifty ways would surface in the Colonel too. When his estate foreman told him that fifty gallons of flat paint were needed for the outbuildings, the Colonel bought a carload, paying $1.00 a can instead of the retail price of twice that amount. Reportedly, the foreman never figured out what to do with the extra 3,000 gallons.
Ned’s right leg had been buried in the Green family plot of Immanuel Church, in Bellows Falls, Vermont. In 1936, the rest of him joined it. His last joke came during probate. Among the objets d’art that made up the appurtenances of the estate was one that resembled a crown: large, bejeweled, gilt and enamel. One lawyer finally picked it up and to inspect it. He suddenly wrinkled his nose. “Gentlemen,” he said, “it’s a chamber pot. And it’s been used.”
New York Press, April 28, 1999
February 14, 2015 No Comments
From New York Press, September 3, 1998
Some years ago, while researching William Cowper Brann, editor of The Iconoclast, a turn-of-the-century Waco, Texas monthly, I encountered the multi-talented New York–born George Graham Rice, one of America’s most successful and unscrupulous promoter-swindlers. This resulted from a natural confusion: one of Rice’s stock market tout sheets was also named The Iconoclast.
Colonel Brann (in those days most Southern editors were addressed formally as “Colonel,” owing perhaps to the degree of violence involved in the profession of journalism in that region), was a village atheist who wrote scintillating prose, supporting his paper with an admirably profitable sideline in pornography (“They were not texts from which a minister could take his lesson,” admitted one biographer). H. L. Mencken praised him as “the Voltaire of the Staked Plains” and “the greatest writer ever born in Toadsuck, Texas.” Like Villemessant of Le Figaro, the Texan believed that if a story didn’t cause a duel or a lawsuit, it wasn’t any good. Alas, while Brann was exposing some sex scandal at Baylor University, an outraged alumnus accosted the Colonel on the street and induced his death by severe lead poisoning, having shot him several times in the back.
Unlike Brann’s, Rice’s prose is utilitarian. He described himself as “a facile man with a pen”—“When news was scarce I could write more about nothing than any man I ever met.”—but his memoirs, written before his fiftieth birthday, mingle paragraphs of audacity with pages of unreadable self-justification. The book is not as much fun as its title: My Adventures With Your Money.
Rice flourished in those last innocent decades before the Securities and Exchange Acts placed restraints on a promoter’s enthusiasms. His admirer, J. S. A. “Alphabet” MacDonald, a/k/a Colonel John R. Stingo, praised him to A. J. Liebling, not as “a thief,” or even “a truly great thief,” but as a pisseur—“an appellation,” Liebling explained, “used for objects of his highest approval, like P. T. Barnum’s Jumbo, Elbert Hubbard, William Randolph Hearst, Boss Croker, or Al Jennings, the bank robber.”
He was born Jacob Simon Herzig in 1870. Disowned by his nice middle-class family after doing time for forgery, he resurfaced under a new name in New Orleans, reporting for the Times Democrat. By coincidence, he was in Galveston, Texas during the great hurricane of September 8, 1900, when the seawall broke and the Gulf laid waste the city. Rice escaped the tidal wave, stole a horse, found a working telegraph office, and—he claimed—was among the first reporters to get out the story.
Being Rice, he double-billed his expenses, was fired, lost his money gambling, and changed careers.
It is there he begins his memoirs, writing, “The place was New York. The time was March, 1901. My age was thirty. My cash capital was $7.30. I was out of a job.” Rice began making book, doing business as Maxim & Gay. (A partnership sounded more respectable than a one-man bookie operation.) He took the first name from a machine gun and the second from a sign he’d seen in the street. Within a year, he was publishing a sprightly racing sheet, Daily America.
Touting the publisher’s own bookmaking firm for its skill and integrity in horse-picking was acceptable, almost traditional. Rice’s flaw, then and throughout his life, was lack of restraint. As bettors began wagering by the Gospel according to Rice, he began systematically manipulating the odds, day after day, by reporting, not reporting, or inventing stories about the horses, the jockeys, the stables, and the tracks was not.
His competitors lacked a sense of humor about losing money and acted against him in mysterious ways. Rice lost control of his paper to The Daily Racing Form, and was soon broke. He went west.
In 1903, men died of thirst in the desert at the place that would become Tonopah, Nevada. Two years later, Tonopah had come into booming existence as the center of the last great North American gold rush. It was overrun with miners, prospectors, gamblers, vaudeville performers, mining stock promoters, boxers, newspaper reporters, and ladies of frail virtue. Main Street was a two-thousand-foot-long strip of bars, dance halls, and gambling dens, with fandango houses (a euphemism for love store or house of carnal recreation) every fifty feet. “Water was four dollars a barrel,” Rice wrote, “and there was some talk of building a church.”
It was a fast town. Lucius Beebe wrote in Mixed Train Daily of a trigger-happy bad man who descended from a Pullman of the Tonopah & Goldfield Railroad, investigated the resources of the Nose Paint Bar, shot up the Tonopah Bank & Trust Company, and became the unwilling guest of honor at a neck-stretching party, all within three hours. Rice suggests the Bank was better robbed from within: “It was a tin bank, literally and figuratively, being constructed of corrugated tin plate with a false front, and when it went up the flume in 1907, the officers having been informal in their book-keeping, the aggregate cash balance in the safe was eighty cents.”
Rice had barely stepped down from the train when he encountered a former gambling associate who wanted to peddle shares of stock in the Tonopah Home Gold Mine. There was no mine, not even a hole in the ground. The Tonopah Home Gold Mine was merely a claim in an area near a gold strike, and the mining rights were held on a one-year lease. But the corporation had been organized and stock certificates printed up. This important factor eliminated “the delay and expense incident to preparing something for the immediate consumption of the public.”
As a mining stock promoter, Rice believed “having a market is as important as having a mine.” He established a news bureau to provide colorful stories about the mines, the miners, and the gold being found at Tonopah, and the nearby towns of Goldfield, Manhattan, Rawhide, and Bullfrog. He began wiring “reports of gold discoveries, shooting affrays, gamblers’ feuds, stampedes, hold-ups, narrow escapes, murders, and so forth. Some of them were true.”
At his most shameless, he could write a description of an ore sample from the Balloon Hill mine in Rawhide as “gold with a little rock in it,” going on to say, “When a man is broke in Rawhide, he can always eat. All he has to do is go…pan out breakfast money.” He describes concocting a story about an attempted robbery of the Tonopah Home Mine’s manager, complete with gunplay, posses, runaway horses, and dynamite explosions. He regretted only that the pressure of events prevented him from the ultimate touch: “I should have seen to it that the mine manager was actually robbed.”
Eventually, he and other promoters (Rice was not unique: merely more organized than most) even hired workers, leased mining equipment, dug shafts, and ran pumps and machinery night and day, not to search for gold, but to look busy for potential investors and visiting journalists. Just for the fun of it, he arranged a phony strike and riot, complete with torching a mine house, for the unwitting benefit of the wildly successful sex novelist Elinor Glyn, who was writing stories on the West for the Hearst papers.
He began promoting Tonopah Home at fifteen cents a share. “In my enthusiasm,” he later recalled, “I wrote stories about [the mine] which might have induced the reader to believe that when all the riches of that great treasure house were mined, gold would be demonetized.”
Tonopah Home was the first of many. Rice puffed and promoted the Four Aces, Gold Scepter, Bullfrog Gold Bar, Stray Dog, Jumping Jack, Flying Pig, Red Top, Silver Pick, Inspiration, Nevada Wonder, and dozens more, all for ten,twenty-five, or fifty cents a share. Looking back, he wrote, “It was an orgy in market manipulation and money fleecing that had no parallel in history. As a mining stock boom it was a dizzy bewildering success, full of red fire and explosions to the last curtain climax.”
For example, his syndicate purchased the Tramps Consolidated Gold Mine for $150,000 in notes; sold two million shares at fifty cents each, paying the notes from the proceeds; issued Rice and his associates 500,000 shares as a bonus and puffed the stock up to three dollars on the San Francisco Mining Exchange through dishonest publicity and wash sales, secretly buying and selling the same stock over and over again to generate artificial activity and attract investor interest. Then they unloaded. “Today,” Rice wrote in 1915, “the stock is at three cents a share and has never paid a dividend.”
Rice continued, “The Goldfield Daisy went from fifteen cents to six dollars a share. At one time, its market value was $9 million. It never earned a dime. Great Bend never even opened a mine. Yet it went from ten cents to $2.50 a share.” Pointing to a successful project, the Mohawk of Goldfield, which went from ten cents to $20 a share, Rice argued that “two hundred to one money is more than can be won on a long shot at the races and not so much less than the old Louisiana Lottery.” (Rice does not remind his reader that the old Louisiana Lottery was fixed.)
Over 2,000 mining companies were organized, raising over $200 million from investors, nearly all of which was lost. Rice said, “Far more gold was extracted from the pockets of speculators than from the Nevadan alkali. Stocks boomed up to $1.50 are now selling for five cents, others from one to three cents, and many not at all.”
By 1907, the book was dying. As one adventurer, Waymon Hogue, wrote in his 1932 autobiography, Back Yonder, “The road was full of men going to and coming from the mines. We met many who looked disappointed and dejected. We were stopped by a man wanting a match. He was a middle-aged man, carrying a bundle tied up in a red bandanna handkerchief suspended from a stick which he carried on his shoulder. Tom asked him the distance to the gold diggings.
“T’ey’s not any coldt,” he said. “T’ey toldt you a lie—a cot dam lie. You are a tam fool if you go up t’ere!”
“Wal, mister,” said Tom, “we want work. Do you thank they will give us work?”
“T’ey gif you not’ing,” he said. “T’ey got no work. T’ey got no goldt. It’s all a cot tam lie!” Saying this, he walked on.
By the late 1940s, Lucius Beebe wrote in Highball, “The big hotel at Goldfield was a haunted house, no longer did the glittering roulette wheels spin the Bank Club and the Double Eagle; the Palace and Heritage saloons were a memory and lizards sunned themselves among the cellarage debris of what had once been the glittering Montezuma Club.”
Undaunted, Rice in association with one J. L. “God Bless You” Lindsay began promoting copper mines. Some copper had reportedly been found at Greenwater, Nevada, by Charles M. Schwab’s Greenwater & Death Valley Mining Company. Rice immediately organized and promoted the Greenwater-Death Valley Consolidated Mines (similar corporate names were never a coincidence in Rice’s business), El Capitan Vindicator, Copper Queen, Crackerjack, and other mining companies.
It was all fake. There were surface copper carbonates, but no exploitable ore bodies. To Rice’s disappointment, “The boom busted when only $30 million had been paid in.” But his professional pride reasserts itself: “Greenwater: it exists no more. All mine development work ceased long ago. The ‘mines’ have been dismantled of their machinery and other equipment, and not even a lone watchman remains to point out to the desert wayfarer the spot on which was reared the monumental mining stock swindle of the century. Every dollar invested by the public was lost. The dry, hot winds of the sand-swept desert now chant their requiem.”
After all, there had been gold in Goldfield: creating the copper boom at Greenwater had been a matter of artistry.
The Copper Handbook of 1908, a copper industry almanac proudly quoted by Rice, commented on the Greenwater-Death Valley Consolidated: “Taking the lowest percentage of ore reported by the company, and the company’s own figures as to the size of its ore-bodies, the first 100 feet in depth on this wonderful property would carry up to 20,000,000 tons of refined copper, worth, at thirteen cents per pound, the comparatively trifling sum of five billion, two hundred million dollars.
“It is indeed lamentable to note that this magnificent mine, which carries, according to the company’s own statements, more copper than all the developed copper mines of the world, is idle and its present office address a mystery.”
Rice later operated bucket shops (a gambling house disguised as a brokerage firm, where customers did not buy stocks but wagered on their fluctuations) as well as promoting still more cheap mining and oil stocks. All involved shameless hype through either bogus news services or a succession of tout sheets masquerading as newspapers, such as the Rawhide Stampede, Mining Financial News, Nevada Mining News, or The Iconoclast. He was imprisoned four times on various charges, including tax evasion. When Liebling interviewed Rice in 1934, the Wayward Pressman described the swindler as a potbellied, white-haired old man with an air of injured innocence. He died in obscurity.
Back in 1998, R. M. Smythe & Company, then at 26 Broadway, both researched obsolescent securities and retailed old stock certificates to collectors. Whether elegantly framed or filed in the drawers, Smythe had a Golconda of old securities with the intrinsic value of wood pulp (I once wall-papered my dorm room with gaudy certificates for busted companies such as National Telephone, Middle West Utilities, and Amalgamated Copper). Amidst the sheaves of Pierce-Arrow, Packard, and Penn Central is a bright orange certificate for one hundred shares of Rice Oil Company’s common stock. Issued in 1917, signed by Rice, ornately engraved with a heroic bald eagle. At $75 this piece of paper is worth more now than at any time since Rice adventured with other men’s money.
February 13, 2015 No Comments
Occasionally, we think about investments we could have made that might have made us rich. Armed with clairvoyance, who would not have sunk the farm into Microsoft, back when Bill Gates was a nebbish? But we probably would have put our money into AT&T, U.S. Steel or Western Union—sound investments that would become much riskier through technological change and management by mediocrity.
It’s easy to see why a century ago, an investor choosing between, on the one hand, an automobile factory promoted by an obscure Michigan mechanic named Henry Ford and, on the other, the New York, Westchester & Boston Railway, backed by J.P. Morgan & Company and controlled by the bluest of blue chips, the New York, New Haven & Hartford Railroad, might have opted for the known quantity.
The Westchester—“the Road of Ease”—ran its first train on May 29, 1912 and its last on December 31, 1937. It was safe, stylish, and efficient. Its trains ran on time. Though it never turned a profit, part of its main line survives as part of the IRT number 5 line, carrying passengers between East 180th Street and Dyre Avenue in the Bronx.
The Westchester was an old idea. On March 20, 1872, the New York, Westchester & Boston Railway was incorporated to build from New York through the Bronx to the Connecticut border beyond Portchester. The Panic of 1873 cut off new investment in the scheme as abruptly as the 2001 recession cut off the dotcoms, and so the Westchester slumbered as a paper railroad—a file of corporate papers, including its franchise to build through the Bronx to Westchester—in its lawyers’ office. In 1906 investors headed by J.P. Morgan and William Rockefeller (John D.’s roguish brother) bought control of the Westchester for $11 million. This was a lot of money for an abstraction.
However, the corporate charter and the franchise justified the expense to Charles Sanger Mellen, the New Haven railroad’s arrogant, sharp-tongued, and audacious president. Throughout his presidency, from 1904 to 1913, Mellen enjoyed the confidence of J.P. Morgan, who was as much a financial statesman as an investment banker.
Morgan had dominated the New Haven through sheer force of personality since 1892. Mellen later testified that without Morgan the New Haven’s board of directors would have been “as lacking in interest as a herd of cows deprived of a bull.” Morgan’s policy was simple: eliminate competition. He saw the railroad as a route to a monopoly over southern New England’s surface transportation that would literally control “everything that moved.”
By 1912, Mellen had achieved this. Through new construction, stock control, or lease, the New Haven operated over 2,000 miles of track: nearly every inch of steam railroad and trolley in Connecticut and Rhode Island and most of southern Massachusetts. The New Haven even controlled the coastal shipping companies—like the great Fall River Line with its huge white wedding-cake four-decker steamers Commonwealth and Priscilla. (The heroine of John O’Hara’s Butterfield 8 ends her life aboard a thinly disguised Fall River Line steamer.)
The Westchester’s peculiarity was that, though controlled by the New Haven, it would directly compete with its parent for commuter passengers between New York City and its northern termini, White Plains and Portchester. Yet this wasn’t an absurdity. First, Mellen believed the Westchester would eventually save the New Haven money. The Interstate Commerce Commission (ICC), which regulated railroads, required the New Haven to operate commuter trains with cheap tickets between Westchester and Connecticut and Grand Central Terminal in Manhattan, which was owned by a rival company, the New York Central. The New York Central charged the New Haven up to twenty-four cents for each New Haven passenger passing through Grand Central. This meant the New Haven lost money on every commuter it carried.
The Westchester’s planned southern terminus was at 132nd Street and Willis Avenue, where its riders could board the IRT subway at 129th Street or the el train at 133rd. This obviated Grand Central’s terminal charges. If the Westchester charged lower fares than the New Haven, New Haven commuters might shift to the Westchester, cutting Mellen’s losses.
Second, Mellen believed that New York City’s commercial center would continue expanding northward. Between 1800 and 1850, the commercial district had grown from the tip of Manhattan to Canal Street; by 1900, it had passed 42nd Street. Mellen expected that it would reach the South Bronx between the 1930s and 1950s. (The city fathers planned for this: look at a map of the roads, railroads, and subways that converge at 149th Street in the South Bronx neighborhood nicknamed “The Hub.”) The Westchester would be right there, waiting for it.
The Westchester drove its first spike in 1909. Mellen spared no expense: Roger Arcara described it in Westchester’s Forgotten Railway as “the culmination of railway development: the most modern and efficient design, the most solid and sturdy construction, the greatest capacity (for its amount of trackage), and the most attractive layout and appearance of any line in the world.” It cut through rocks and hills and filled gullies and bogs to keep a straight, level right of way. Its bridges, viaducts, embankments, and retaining walls were designed to last for the ages. Although most of its route was then rural, the line was solidly built as a four-track heavy-duty electric railroad using the finest technology of the day.
It opened on May 29, 1912. From the beginning to the end, it was a first-class operation. Its 72-foot-long olive-green steel cars, with upholstered double-seat benches and a toilet compartment, could reach 57 mph within a minute. At E. 180th Street, Morris Park, Pelham Parkway, Gun Hill Road, Baychester Avenue, and Dyre Avenue the railroad built fabulously ornate stations of poured concrete and steel, designed in a kind of Spanish Renaissance style (“modified Mission” it was called), several of which still serve the MTA today. It carried 2.8 million passengers in 1913, 4.5 million in 1916, and 14 million in 1928.
Yet the Westchester never quite caught on. Its elegant trains were rarely more than five coaches long, in contrast to the fourteen-coach commuter trains run by the New York Central and the New Haven. Commuters preferred a one-seat ride to midtown over changing to the subway at the East 133rd Street terminal. Second, the city’s zoning laws, adopted four years after the Westchester opened, effectively set the northern limit of commercial development at 59th Street.
Third, the Westchester never developed much freight traffic: indeed, it operated only one freight locomotive throughout its existence. Some said it hauled a single load of coal up to White Plains in the fall and took out the ashes in the spring.
Fourth was the fall of Charles S. Mellen. The New Haven’s press bureau made the railroad seem a financial Rock of Gibraltar. Yet as early as 1907, Louis Brandeis, then a Boston lawyer, later a justice of the United States Supreme Court, had shown that Mellen’s profits were largely bookkeeping magic. Few paid attention then. In May 1912, a few days before the Westchester accepted its first paying passenger, the ICC began a routine review of the New Haven’s services and freight rates. Their accountants found confusing transactions between the New Haven and its 336 identified subsidiaries. The review became a full-scale investigation.
The report, issued in early 1913, proved Brandeis correct. The New Haven was insolvent: it had lent money to its money-losing subsidiaries, which they used to pay dividends to the parent company, which the parent then classified as income. Worse, Mellen had constantly shuffled assets between subsidiaries to inflate profits. One relatively clear example, outlined in George H. Foster and Peter C. Weiglin’s Splendor Sailed the Sound, was the New Haven’s coastal steamship operations. The ships themselves were sold in 1907 by one subsidiary, New England Navigation, to another, Consolidated Railway. They were not paid for in cash but with Consolidated Railway stock, worth $20 million but only because Mellen said it was.
The New Haven’s accountants showed a paper profit on the sale for New England Navigation, which was reported as real income, and an increase in the assets of Consolidated Railway. It looked like the real thing. With each transfer, though, the corporate books became works of increasingly elaborate fiction, showing explosive growth without any real increase in value. The steamboats alone shuttled from subsidiary to subsidiary (Consolidated Railway to New England Steamship to New England Navigation and back) over the next five years, pumping up the asset values on one or another set of books, depending on which one needed to be made attractive to investors at any point in time.
An immediate result of the investigation was Mellen’s resignation in August 1913. Within the year, the ICC offered and Mellen accepted immunity from prosecution in exchange for his testimony. He described the steamboat deals and numerous other secret transactions. The New Haven’s treasurer, Hiram Kochersperger, was taken ill; his doctors advised him to travel to Europe for a rest, rendering him regrettably unable to testify. Mellen, when asked how long Kochersperger had been ill, replied, “Since the Commission began to get after the New Haven’s accounts.”
On November 2, 1914, a federal grand jury indicted twenty-one New Haven directors; Mellen spent thirty-one days on the stand at their trial.
Meanwhile, the Westchester lost money on its day-to-day operations from 1912 until 1921 and from 1932 through 1937. Even in the good years, it never made enough to cover the bond interest, which was paid by the New Haven. Much as the dotcoms relied on infusions of fresh venture capital, so the Westchester relied on advances from its parent. In 1935, six years into the Great Depression, the New Haven went broke. The advances stopped. In its annual report for 1935, the New Haven wrote off the Westchester, stating that “The advances made to the New York, Westchester & Boston Railway Company amount to $21,460,494.87, but as the prospect of their being repaid is very remote, they have been reduced to a nominal value of $1.” The next day the Westchester defaulted on its bonds and filed for bankruptcy.
By April 15, 1937, the Westchester’s receiver determined the line was hopelessly insolvent. On December 31, 1937, the Westchester made its final run. In June 1939, scrappers began removing the tracks in Westchester County; a year later, the City of New York purchased the line between E. 174th Street and Dyre Avenue for $1.7 million—much less than it had cost to build—and began operating it on May 15, 1941.
Here and there, the Westchester survives. The East 180th Street and Morris Park stations still bear the initials “N.Y.W.B.” The overpass at Brady and Matthews Avenues bears the railroad’s symbol: the caduceus, a staff entwined with coiled snakes, symbol of Mercury, the swift messenger of the gods. According to Cox Rail, an online site for collectors of obsolescent railroad securities, one of the Westchester’s handsomely engraved bonds, meant to be redeemed in 1946 for $1,000 in gold, is worth about $50.
New York Press, February 19,2002
February 3, 2015 No Comments
Who’s Who in the United States often rewards the casual reader because it reveals how its subjects view themselves. In the 1905 edition, the great J. Pierpoint Morgan modestly calls himself a banker and William Randolph Hearst a publisher. John W. Gates bluntly calls himself a capitalist. He lists no honorary doctorates, philanthropies, or hobbies. A reckless bravo who won and lost fortunes on the toss of a coin or the turn of a card, he had entered American folklore as “Bet-a-Million” Gates, who flinched at no stakes and feared no odds.
In 1905 Gates was stumping back and forth on the platform beside his private railroad car at Kansas City Union Station when a man introduced himself and invited Gates to play a game—any game—with him. Gates said he didn’t plaly for small sums, and anyway he was leaving in five minutes. “Show me the money,” he said. The challenger took out $40,000 in one-thousand-dollar bills. Gates reached into his pocket, took out a $20 gold piece, and tossed it into the air. “Call it,” he said. The local called heads. Both looked at Gates’s wrist. It was tails. Gates grinned, pocketed the bank notes, and stepped into his car. The loser became a local celebrity: the man who had lost $40,000 in forty seconds to “Bet-a-Million” Gates.
Gates was born poor in 1855 in Turner Junction, Illinois, passing through which, on his American tour, Charles Dickens had written, “Nothing ever has or ever will happen there.” Gates grew up a fat, angry troublemaker, driven by envy and class resentment. He was expelled from Sunday school for robbing the collection box. In his early teens, when he and his gang were skinny-dipping, a group of girls from school sneaked down to the riverbank, stole their clothes, threw them on the roof of the schoolhouse two hundred feet away, and ran back to tease the boys. Gates strode stark naked out of the river and “waved himself” at the girls as he went for the clothes.
In 1873, Gates watched a demonstration of how a new invention, barbed-wire, restrained cattle. Colonel Ike Ellison, who owned a wire mill at De Kalb, Illinois, offered him a salesman’s job at thirty dollars a month plus commissions. He took it: being on the road as a traveling salesman would be more fun than staying behind the dry goods counter in Turner Junction.
By day, Gates produced rodeos in the plazas of dusty cowtowns, building arenas of barbed-wire that restrained the wildest steer. At the end of his first week in San Antonio, he had sold every piece of steel in his possession except his corkscrew. By night, he was doubling and tripling his commissions at poker, for even then he possessed what Arabs call baraka, the true luck.
Within a decade, he had built his own wire mills, become Ellison’s boss, and become famous for his willingness to wager the largest stakes on the weirdest things: the weight of the next man to enter the room, or which raindrop would first reach the bottom of the window.
He won the nickname Bet-a-Million after his horse, Royal Flush, won the Steward’s Cup at Goodwood, an exclusive English race track. The wire services claimed he had won $1,000,000 (he had actually pocketed only $600,000). Gates loved newspaper publicity. His wild betting and extravagance were great copy beloved of desperate editors and a public clamoring for details of his incautious spending.
Once, to surprise his wife, Gates bought a townhouse near the Waldorf for $300,000. With the residence came the former owner’s personal valet, Francis, whom Gates instructed to furnish the premises. Pausing only for a quick one at the Waldorf bar, Gates and Francis visited the Wildenstein Gallery in search of paintings for the downstairs rooms. They were shown a vast assortment of paintings in the academic style—the taste of the time—largely battle scenes of the Napoleonic Wars, all in massive gold frames.
“What do you think of them, Francis?” asked the master. “Are they the McCoy?”
“I believe them to be authentic and of reputable genre,” said Francis.
“Tell the fellow to pack them all up and send them over.”
He became richer still by buying industrial lame ducks cheap and combining them into new corporations, overvaluing their assets, and manipulating the price of the stocks with insider information. Some of his companies became famous, such as Diamond Match (the match trust) and Nabisco (formerly National Biscuit, the cookie trust). He helped finance the Plaza Hotel, and when it opened in 1908, he and his wife rented a lavish apartment for $40,000 a year.
He became squat, even saurian, with a huge dragoon mustache, and his language was coarse. His private life was a succession of whores, “artist’s models,” and actresses. His manners were boorish and his personal relations a matter of gruff discourtesy, save where he might profit by a show of good manners or generosity.
His taste in interior decoration, lacking the disciplined self-restraint of Ludwig II of Bavaria, consisted largely of exploding gold over every imaginable interior surface and the display of biologically correct bronze nudes.
He was a denizen of the old Waldorf-Astoria Hotel, holding court in a leather arm chair at a heavy oak table in the oak-paneled Men’s Bar. On days when the stock market was quiet, he played bridge for $100 a point. The journalist Albert Stevens Crockett wrote in his memoirs of a young politician who, invited to sit in on one of Gates’s card games, assumed that Gates’ statement that they were playing for “one a point” meant a dollar. The young man walked away from the table a winner, expecting a check for $330. He nearly fainted when he received one for $33,000 in the next morning’s mail.
And Gates ate, diligently packing on the poundage. It was the 1890s, the age of the lobster palaces such as Rector’s, Jack’s, Churchill’s, Shanley’s, and Bustanoby’s, restaurants of lavish decor and food of heroic quantity, variety, and expense. A late exemplar of that kind of eating was Henry George—not the social reformer, but the 300-pound head carpenter of the old Metropolitan Opera. One Christmas Day, Mr. George wandered into Bleeck’s, where he sat down to a dozen double Southdown mutton chops, a four-pound chateaubriand, and two roast capons topping five pounds each. When he ordered a Kentucky ham and six mince pies for dessert, Bleeck instructed the waiter to cut him off. “I don’t want him dead on the premises,” he explained. Mr. George shook an angry fist at the management and stamped across the street to the Greek’s, where “they wouldn’t turn away a man hungry at Christmas!”
Early in 1896, Gates learned that J. Pierpont Morgan was negotiating with Andrew Carnegie to create United States Steel, the world’s first billion-dollar corporation. Gates hated Morgan: they distrusted each other; they had clashed in the stock market; but most importantly, Morgan was suave, masterful, and secure, the kind of aristocrat that aroused Gates’s Jacobin instincts.
Gates merged seven Illinois barbed wire factories into the Consolidated Steel and Wire Company. A few months later, he added seven steel mills and created the American Steel and Wire Company of Illinois, issuing $24,000,000 in beautifully engraved stock certificates. Less than a year later, having repeated this process in the East, he had his new company, American Steel and Wire of New Jersey, buy up the old for $36,000,000. Only old fogies sneered at the old firm’s fifty percent increase in value within eleven months. To the younger generation, it was undoubtedly the synergy of the plants with Gates’s executive talents.
Gates’s private car was rolling through Ohio one night when one of his associates glanced out the window long enough to recognize where he was. “There’s a nice plate mill in the next town,” he told Gates. “Why don’t we stop off and buy it?” Gates and his men, all of whom had been doing things with cards and bottles, located the home of the mill owner and routed him out of bed long after midnight. They suggested $200,000 as a fair price and offered to write a check then and there.
“But my plant isn’t worth $200,000 and anyway it isn’t for sale,” protested the sleepy owner. “Why don’t you gentlemen sober up and go home?”
“Let’s not be small about it,” Gates said. “We’ll make it $350,000.”
Morgan finally invited American Steel & Wire to join U.S. Steel. Gates, knowing Morgan needed wire mills, named an unreasonable price. Negotiations were joined.
Now, the skin of Morgan’s nose was affected by an incurable acne rosacea, which left it red, enormously swollen, and pustulous. Morgan had learned to live with it, his self-loathing channeled into a hatred of mirrors and photographers, although an occasional disgusted glance from a passerby still disturbed him.
Gates and his partners stumped into J. P. Morgan & Company for the final talks. Morgan had delegated the job to Judge Elbert Gary, U. S. Steel’s president and, by coincidence, a childhood acquaintance of Gates. Immediately noting the snub, Gates cocked his head and, referring to Morgan, asked Gary, “Where’s Livernose?”
Around 5 p.m., Gary slipped out of the room to advise Morgan to deliver an ultimatum. Morgan strode in. He neither greeted Gates nor shook his hand. He said, “Gentlemen, I am leaving the building in ten minutes. If by then you haven’t accepted our offer, we will build our own wire plant.” Then he left the room.
Turning to one of his partners, Gates said, “Well, I don’t know whether he means it or not.” “He does,” came the reply. “Then we’ll sign,” Gates said. American Steel & Wire’s market value was only $60,000,000; U.S. Steel paid $110,000,000 for it. Gates then asked for a place on the board of directors. Morgan refused, “It is impossible. You have made your reputation and we will not be responsible for it. Good day, sir.” Gates needed four days of steady drinking to regain his composure.
They tangled again during the Northern Pacific corner of 1907, when E. H. Harriman (backed by the Schiffs) and James J. Hill (backed by Morgan) fought for the railroad’s control. Gates sold short at 110, agreeing to deliver shares for future delivery. Gates believed once the issue of control was resolved, Northern Pacific would go down. But Harriman and Hill between them had purchased 78,000 more shares than actually existed. There were no shares for future delivery.
On one terrible day, Northern Pacific closed at 1000. The short-sellers had to liquidate everything: stocks, bonds, gold. The securities market collapsed. Thousands of speculators and dozens of brokerages were wiped out. Gates lost nearly everything he had made in the American Steel and Wire deal.
Gates brooded over his misfortunes, “snarling like a trapped wolf whenever anyone mentioned the great J. Pierpont, even by implication.” Months passed. Then he devised a plan.
Morgan dominated southeastern transportation through the Southern Railway. Its greatest potential competitor was the Louisville & Nashville. The railroads cooperated through a pooling agreement. But if another person bought control of the L&N, the agreement could be abrogated and Morgan made to sweat blood.
Secretly, Gates and his partners began buying L&N stock through intermediaries. On Monday, April 14, 1908, Morgan, aware of the purchasing through not of the purchaser, caused the L&N to issue 50,000 shares of stock and dump them on the market in a lump, hoping to break the demand. Gates bought it all.
That evening, J. P. Morgan & Company announced its surrender. Morgan bought out Gates at his price. The bank announced it had “consented to take control of the stock…purchased (by Gates)…solely to relieve the general financial condition and not for the benefit of any railroad company.” Gates made $7,500,000 for himself and more for his associates. A few days later, when Gates handed Diamond Jim Brady a check for his share of the profits, $1,250,000, Brady shouted, “I consent to receive this money solely for the purpose of relieving my general financial condition.”
It was Gates’s last big deal. In 1911, he died suddenly while in Paris, where he had gone for a rest. His only son, Charlie, a good-looking man without an ounce of brains, preferred booze and babes to business. In 1913, Charlie traveled to Cody, Wyoming, for a reunion with his old friend, Colonel William F. “Buffalo Bill” Cody. A single evening in the company of that accomplished drinker finished him. He died the next morning aboard his private car, Bright Eyes. “I didn’t know he was a tenderfoot,” Cody murmured. “I never should have ordered those last six bottles.”
New York Press, October 20, 1998
January 29, 2015 No Comments