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History and News

Continued from page 1

A History of the New York Stock Exchange and America's Financial Markets

 

A CHANGE OF PACE

From despair, Exchange Memberships came into great demand. Not wanting to share their hard won victory with outsiders, the members determined to make it the most exclusive club in the world. It soon became de rigiour for members to dress most elegantly while executing their brokerage transactions on the floor of the New York. The old guard circled the wagons, raised the dues and initiation fees, brought in the black ball system and pranced like a bunch of peacocks enjoining their newfound and hard won respectability. During 1856, the trading surpassed 1 million shares in one month for the first time.

In the midst of the Civil War, in 1863, the exchange adopted its current name, The New York Stock Exchange (NYSE). Speculation during the war years was rampant and three new exchanges opened during that period all feeding in one form or another on the NYSE. One of those embryonic competitors was the open-air progeny of the American Stock Exchange and it began by trading the same stocks as the NYSE except at different hours.

During the War, for some reason, speculation ran amuck, and people from all walks of life engaged in its pursuit almost to the exclusion of other interests. Yet during this same period the value of currency substantially declined against the price of gold and greenbacks sold at a discount when the government refused to redeem them. Gold became the prime vehicle for speculation and exceeded securities trading volume on the NYSE for a period. Ultimately, members of the Exchange determined that their continued support of gold trading was hindering the war effort and banned it. Trading in the precious metal was immediately commenced in the "Coal Hole" as the predecessor to the "Gold Exchange" was called. Trading in gold remained at a fever pitch during the entire Civil War and even after it had ended. Systemically, confidence in the Greenback had almost evaporated and efforts by the government to reverse this trend were fruitless.

THE ROBBER BARONS

If the western part of the United States was truly the "Wild West in the 1800s because of it’s lack of laws and law enforcement, the eastern part of the United States should have been known as the "Wild East". The East had laws and they also had people to enforce their regulations, unfortunately the problem was that, for a price, the laws could be shaped to conform with the needs of the highest bidder.

The term "robber barons" probably originated by virtue of the fact that they were able to flaunt the law by paying to have it twisted into a scenario that accommodated the current environment. These were tough-minded individuals, who once having set their sights on a target, were not particularly concerned with what obstacles stood in their way. Their tactics were fearsome to many, but yet the American industrial frontier was not to be scaled by the faint of heart, and ultimately many of them were instrumental in the unparalleled growth of the United States. They were attracted to many sectors of commerce, but nowhere was financial war waged in a more brutal fashion than in their battles for control of the nation’s railroads. Names such as Drew, Fisk, Gould and Vanderbilt became synonymous with the times.

Railroads were of particular interest because the government would grant generous right’s of way to the fledgling carriers to help them augment their risk. Thus, as the roads spread westward and towns grew up around their tracks, success became self-fulfilling as the people settled in and purchased their land from the ‘line’ that served them. Wall Street was unable to provide all of the funds necessary for this breakneck expansion so that these additional revenue sources became critical to the country’s manifest destiny.

Vanderbilt, being a pioneer in both the shipping and railroad businesses, understood the economics better than most, often expanded by acquiring one road and then another. Commodore Vanderbilt took a fancy to the Erie Railroad, which he thought, would fit in nicely with the properties that he had already acquired. He showed little concern for the fact that an unholy alliance of Daniel Drew, Jay Gould and Jim Fisk already were of the opinion that the "road" belonged to them. In spite of the fact that these gentlemen had reputations for taking no prisoners in financial warfare, the Commodore began acquiring stock in the open market at a fearsome pace.

Not missing a beat, the evil trio began printing new shares, thus diluting Vanderbilt’s purchases. The more shares the Commodore bought, the lower his percentage interest in the Erie became, and the more elusive potential victory. Ultimately, the Commodore, not known for unlimited patience, became crotchety and evened the odds by having his adversaries declared criminals by a friendly federal judge. An arrest warrant was duly issued and Erie Management fled New York, one step ahead of the police.

As the story goes, they landed in boats in Jersey City, New Jersey and set up what amounted to a militia within the City limits.

; Jersey City’s Chief of Police furnished, at their request, a squad of police to augment the force of railroad detectives who patrolled the streets and wharves, new "Fort Taylor"; three twelve-pound cannon were mounted on the piers; and Jim Fisk, at the head of a squad of four dozen men, equipped with Springfield rifles and lifeboats, strutted about, bursting with pride: he was now "Admiral" Jim Fisk" ()

In spite of their hasty retreat, they had had the presence of mind to retain the printing press and continued to thwart Vanderbilt’s plans. The fact that they were now on the lam, and residing in Jersey City, was not a major consideration when the Commodore determined to even the score. He offered $25,000 to anyone that could kidnap the trio and bring them to justice in New York City. A literal navy of toughs set sail for Jersey City, bristling with arms. Alas, this was not to be the Commodore’s day. The toughs were beaten back by the Jersey "Militia" and Fisk, Gould and Drew remained free and still in control of the Erie.

Gould came up with a most grandiose plan. If Vanderbilt could buy a federal judge, he and his associates could buy the New York Senate, and they did. Spending enormous amounts of money, the fearsome trio paid anyone and everyone that could vote. The conviction was renounced; the Erie remained outside of the Commodore’s empire.

JAY TRIES AGAIN

This aberrant trading frenzy created the environment for the first major attempt by someone to corner a market in this country. Legendary Jay Gould, who had as his partner, President Grant's son-in-law, assumed logically that as long this relationship existed he could buy gold until he had it all, ultimately corner the market and make anyone who needed it, pay through the nose. And buy he did, two, three four times what existed in the marketplace with a little always set aside for Grant's heir. When Gould's buying continued unabated, Grant's son-in-law panicked and ran to papa with the news that the gold market had been corned. Gould, who wasn't born yesterday, figured out that the jig was up and unloaded his holding on his dubious associates. When the U. S. Government started dumping the precious metal, Gould was long gone, leaving his cohorts holding his worthless paper. Gould walked away with millions in profits, his partners with bankruptcy. A failed attempt some might judge, but by Gould's twisted logic, a great victory. Friday September 24, 1869 was to go done in financial history as "Black Friday".

During this period volume on the Exchange continued to rise and the concept of "calling" securities was abandoned in favor of a continuous market. Technology was changing rapidly and the stock ticker appeared during this period followed shortly thereafter by the telephone. The Exchange merged with the Open Board of Brokers and the Government Bond Department bringing membership to 1,060 seats, all of which became negotiable for the first time. The Exchange sold additional 40 seats with the proceeds used for expansion. For the next 50 years, no new memberships were created. As speculation increased, it seems as though morality dropped in direct proportion. The age of the so-called "Robber Barons" had arrived with a vengeance; it brought with it avarice, greed and unknown creative forms of larceny. Stock certificates were printed at will, or at least until the presses gave out, pools were formed to manipulate securities prices both up and down and misinformation was publicly conveyed whenever it suited the issuers fancy.

In an attempt to put an end to this over-issuing of shares, the Exchange mandated requirements that listed companies maintain transfer agents and registrars to police the system. Along with these new listing regulations, the Exchange also attempted to control member's floor conduct and instituted a series of fines to restore lost decorum, $10 for throwing a paper dart or for standing on a share were at the upper limit of offenses while the member was only assessed $.50 for knocking off an associates hat.

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