Gould, Sage, Dillon, and Eckert joined the Western Union board. During the first week of March, Gould moved into an office on the top floor of the Western Union’s beautiful and relatively new building at 195 Broadway. This was to be his main business address in Manhattan for the rest of his life. Western Union president Norvin Green–who’d replaced Orton after the latter’s death in April 1878 and then won Gould’s respect as William H. Vanderbilt’s chief operative during the fight against the Gould takeover–was allowed to stay. As for Eckert, in addition to joining the board, he became the Western Union’s vice president and general manager. Gould, meanwhile, oversaw everything and, some thought, began using the Western Union wires to eavesdrop on his competition at rival railroad lines and brokerages, virtually all of whom were now forced to use the Western Union to relay confidential messages. Of course, Gould’s own antimonopoly rhetoric quickly faded. All his roads entered into ironclad agreements with the Western Union. At the same time, New York attorney general Hamilton Ward, a Gould ally, announced that he had no legal grounds on which to contest the merger in court.
The impact of the consolidation was felt most quickly by the operators of the transatlantic cables. Heretofore, the American Union, the A&P, and the Western Union had each maintained separate agreements with three distinct Atlantic cable companies for their links to Europe. (The first Atlantic cables had been laid in 1858 and 1866, under the watchful managerial eye of Gould’s sometime associate Cyrus Field.) The American Union was linked with a French cable firm, the A&P with Direct Cable, and the Western Union with Anglo-American Cable. Immediately upon coming to power after the consolidation, Gould severed the A&P and American Union contracts. Later on, in September, Gould’s own experiment in transcontinental cable–built under the Gould-controlled American Telegraph & Cable Company while Gould thundered to the press about American business no longer being hostage to foreign-controlled cable operators–at first broke down. But the cable proved operational enough by 1882 for Gould to force a pool with the other three companies, each agreeing to uniform rates and the division of earnings.
It was in the offices of the Western Union that Gould first made the acquaintance of a thoughtful, bright, well-trained stenographer whom he made his personal secretary and sought to mentor. One year later, when the nineteen-year-old Edwin Bok–destined for a long and highly successful career in magazine and book publishing–gave Gould his notice, the mogul offered him a large raise to remain with the firm. In answer, Bok explained that the salary, although of importance, did not interest him so much as his desire to secure a position in another trade to which he aspired. “And what business is that?” Gould asked. “The publishing of books,” replied young Bok, who years later wrote up the conversation in his Pulitzer Prize–winning memoirs, The Americanization of Edward Bok. “You are making a great mistake,” Gould answered. “Books are a luxury. The public spends its largest money on necessities: on what it can’t do without. It must telegraph; it need not read. It can read in libraries. A promising boy such as you are, with his life before him, should choose the right sort of business, not the wrong one.” Nevertheless, after Bok insisted, Gould wished the young man well and even gave him a bonus check as a going-away gift.
Seven years after that conversation, fate led Bok to another encounter with Gould. During 1889, Bok was helping sail a yacht on the Hudson one afternoon when the sight of Jay Gould’s Lyndhurst “awakened the desire of the women on board to see [the] wonderful orchid collection” housed in Gould’s famous greenhouse. Upon hearing this, Bok explained his previous association with the financier and offered to recall himself to Gould in an attempt to gain access to the grounds. Soon one of the young men of the party, not Bok, rowed to shore bearing a note for Gould, and shortly the answer came back that they were welcome to visit the greenhouse. Jay himself received the sailors. Then, after placing the balance of the group under the personal care of his chief gardener, Mangold, Gould pulled Bok aside for a chat.
“Well,” said the financier, once the others were gone, “I see in the papers that you seem to be making your way in the publishing business.” When Bok expressed surprise that Gould had followed his work, Gould answered: “I have because I always felt you had it in you to make a successful man. But not in that business. You were born for the Street [Wall Street]. You would have made a great success there, and that is what I had in mind for you. In the publishing business you will go just so far; in the Street you could have gone as far as you liked. There is room there; there is none in the publishing business. It’s not too late now, for that matter.”11 Bok declined the offer. He was always more than content with his career in the world of literature, just as he was always grateful for Gould’s genuine interest in him and his prospects.
Another young man of promise who received a bit of help from Jay Gould was the future congressman W. Bourke Cockran. Having opened an office in Manhattan in 1878, the twenty-four-year-old Cockran–who, as a mutual acquaintance had advised Gould, was both smart and struggling–received one day a request to call at Jay’s office the following morning. The next day, sitting across from Gould, the Irish immigrant confronted a tiny, taciturn, and to-the-point gentleman of business. “Young man,” said Gould, “I should like to retain your service for any jury trials that may come up in my business for the next year. Will you accept a retainer?”12 After Cockran nodded in the affirmative, Gould wrote out a check, blotted it, folded it, and handed it across the table. Intensely interested to know the amount he’d just been handed, Cockran nevertheless feigned nonchalance as Gould talked at him for more than an hour, dishing out advice on the habit and practice of law. Not until Cockran got outside onto the street did he unfold the piece of paper and find he’d just been given $5,000. Subsequently, even though Gould needed a great deal of lawyering that year, as in any other, he never called upon Cockran once. The check was not in fact a retainer but a leg up for a motivated, entrepreneurial young fellow working to make a start in life. It was to such young men, above all others, that Gould could best relate.
The third and last pillar of Gould’s empire, after the cross-country railroads and the Western Union, was New York’s elevated railroads. All three businesses were embryos that held great promise. All three constituted what, during the Gilded Age, would have been considered the new economy. All three had histories that were both brief and troubled, characterized by inefficiency, fraud, and failed grasps at grand ambition.
Two early attempts to create elevated lines in Manhattan had sunk in the depression that followed the panic of 1873, leaving half-finished routes run by individual private entities: the New York Elevated and the Metropolitan (formerly the Gilbert) Elevated. The New York ran up Ninth Avenue from western Greenwich Village to Thirtieth Street. The Metropolitan ran from Rector Place, in New York’s financial district, up to Sixth Avenue, and then on up Sixth to Central Park. Two years following the panic, in 1875, the New York State Legislature created a Rapid Transit Commission empowered to consolidate and improve these lines, create new routes, and plan construction for an integrated system. After study, the commission gave the New York Elevated leave to expand its truncated line all the way to Harlem, down to South Ferry, and over to Third Avenue. It also licensed the Metropolitan Elevated to run parallel to the New York Elevated on Sixth and Second Avenues. As a prod, a third, newly formed company–the Manhattan Elevated–was empowered to build any line not completed by either the New York or the Metropolitan Elevated within specific dates.
Promoters behind the New York Elevated–among them Governor Samuel J. Tilden of New York–persuaded Gould’s friend Cyrus Field to buy into the New York Elevated in May 1877, after which Field became the firm’s president. Within two years, the New York Elevated would grow from six miles of track to thirty-one miles. The Metropolitan–dominated by Gould’s acquaintances Commodore Garrison, his son William, George M. Pullman, Horace Porter (whom Gould recalled from the days of the gold corner), and a Spanish investor named Jo
se de Navarro–experienced trouble with landholders along its intended routes. Nevertheless, the Metropolitan managed to open its extended Sixth Avenue line by June 1878.
Both the Metropolitan’s and the New York Elevated’s construction was handled by the New York Loan and Improvement Company. This firm, organized by the directors and chief investors of the two elevated companies, allowed them, in a way eerily reminiscent of the Credit Mobilier, to award themselves contracts and profit doubly from the exercise. (As an example, work on the Metropolitan Elevated, worth about $9.7 million, was done for a fee of $21.5 million in securities.) Subsequently, with both firms moving along punctually against the benchmarks laid down in the charter of the Manhattan Elevated, the latter found itself with nothing to do.
In due course, the graft-swollen interests behind the Metropolitan and the New York Elevated elevated lines began to think that a consolidation–expressly forbidden by their New York State charters–might be desirable. And it was now, during late 1878, that the Manhattan Elevated emerged as a convenient vehicle for working around the charter restrictions. Each elevated company leased its lines on a 999-year basis to the Manhattan, also providing $9 million with which the Manhattan was to complete the last phases of construction. (This task would be accomplished by 1880.) In return, the Manhattan gave each company, the New York Elevated and the Metropolitan Elevated, $6.5 million of its own stock, agreed to pay interest on the bonds outstanding for each firm, and guaranteed a 10 percent dividend on the stock of each firm. This odd business formulation meant that the Manhattan was a holding company with only two assets: its leases. It owned no securities in either of the two firms it “held,” firms to which it owed strict payments. The Manhattan possessed a monopoly on New York’s elevated rails, but the overhead inherent in the structure of the lease meant that it was virtually impossible for the Manhattan to render any dividends on its own stock.
Still more complexity lay ahead. Once the lines stood complete, Field and his New York Elevated cohorts grew restive. The New York quickly proved far more profitable than the Metropolitan. But since the two lines were pooling their receipts, Field and his partners began to feel they were carrying the Metropolitan. The Metropolitan group soon created even more bitter feelings when they sold off all their Manhattan stock. In response, Field liquidated his 13,000 shares of the Manhattan and resigned from the board, after which Tilden dumped his Manhattan investment along with his long-term interest in the New York Elevated.
Meanwhile, in Albany during the spring of 1881, a bill empowering the state to legislate elevated fares nearly became law. After this threat was averted, managers of the Manhattan barely had time to express relief before a court ruled that property owners along the elevated lines were within their rights to sue for damages related to smoke, foul odors, cinders, and other side effects of rapid transit. On the heels of this ruling, a court of appeals ruled that the Elevated’s structures were taxable as real estate, a decision that dealt a potentially fatal blow to the Manhattan’s bottom line. Watching this quagmire develop, Gould sensed his favorite kind of opportunity: a wounded property of vast potential waiting to be absorbed at a bargain rate.
In late April–within weeks of Gould’s buying Scott’s Texas & Pacific and its subsidiary, the New York World–the World began printing a series of items criticizing the Manhattan’s operating structure, management, and capital position: all stories designed to drive down the price of the stock. Despite the Manhattan management’s protests that they and their firm were being unfairly portrayed, by early May the Manhattan–which had claimed a high of 57 in 1880–was bottoming at 21. (The facts of the Manhattan’s position hardly mattered. The constant rebukes by the World signaled Gould’s interest–either a long interest or a short interest, most betting on the latter–which was enough to scare buyers away and influence the price of the stock.) Two weeks later, New York attorney general Hamilton Ward sought and received permission from the New York State Supreme Court to nullify the Manhattan’s charter–an option he never used, since Gould’s goal in having Ward obtain the order was merely to strike fear into the hearts of Manhattan investors and drive down the price of the stock still further.
At this point, Russell Sage–already well known on the Street as a close Gould ally and frequent Gould functionary–stepped forward, picked up vast piles of the security on the cheap, and published a plan whereby he would guarantee the Manhattan’s meeting its lease obligations for the coming twenty-four months. Concurrently, Gould and other associates purchased still more shares of the Manhattan privately and quietly while also waging bear campaigns against both the New York Elevated and the Metropolitan. In June, when whispers about Gould’s activities began to circulate, he halfheartedly moved to shut down speculation. “The rumor,” stated the “Wall Street Gossip” column of the World for 15 June, “that Mr. Gould’s party is largely interested in the Manhattan and Metropolitan Companies has been put forward merely to make a market on which to sell the stock of these companies.”13 In more than one financial neighborhood, the World’s denial of Gould’s involvement only served to confirm that involvement. Gould himself did not care. Confusion about his movements and goals achieved his most immediate ambition: keeping people guessing. At the same time, other newspapers, including dailies like the New York Times and the Herald, which had no interest in helping Gould, inadvertently did so by issuing cold analyses of the Manhattan’s financial position. This, most agreed, looked genuinely dire, given the unprofitability of one-half of its business (the Metropolitan), the enormous burden of the newly taxable infrastructure assets, and the unsoundness of the firm’s fundamental organization (a holding company that did not own the assets it held). The financial writer for the Philadelphia North American positively asserted that the Manhattan’s stock would soon be “worth fully the ragman’s price for the paper on which it is printed, but hardly more.”14 A solution really did have to be found–and Gould and Sage, soon joined by Cyrus Field, were only too happy to supply it.
Early in July, Attorney General Ward applied to the New York State Supreme Court to put the Manhattan Elevated into receivership. Sitting in Albany, Judge Theodore R. Westbrook, a former Gould attorney, approved the application without hearing arguments from any of the Manhattan’s management. Westbrook appointed A. L. Hopkins and John F. Dillon as receivers. Hopkins was an executive with Gould’s Wabash Railroad. John F. Dillon, not related to Sidney Dillon, was one of many Gould attorneys. Simultaneously with the appointment of Hopkins and Dillon, Gould joined the board of the Metropolitan Elevated, continued to buy the beaten Manhattan at prices ranging between 16 and 20, and took care to gain influence on the board of the New York Elevated.
At the same time, Gould, Sage, and Field evolved a party line–soon echoed in every paper where Gould had influence as well as every paper where he didn’t–that the Manhattan Elevated was nothing but a corrupt and hollow shell that must be done away with. As the World editorialized on 23 September, “We are informed on very good authority this afternoon that the New York and Metropolitan Elevated Companies have decided to unite their forces in an attack upon the Manhattan Company, with a view to getting their roads into their own hands. Should they succeed–and we see no reason why they should not–Manhattan will be wiped out as a thing of the past.”15 Both firms sued for their freedom. Then, in September, after Gould’s resident judge (Westbrook) approved an application from Gould’s resident receivers (Hopkins and Dillon) to issue certificates with which to raise money to pay some of the Manhattan’s bills–all of which must have been done with Gould’s personal approval–Gould attacked the certificate issuance in a widely published affidavit. “The Manhattan Elevated,” he said speaking as a director of the Metropolitan, “is hopelessly and irretrievably insolvent, and the borrowing of money by its receiver will be a most desperate expedient which can at most afford to said company only a temporary relief from its fatal embarrassments.”16
As Gould spoke, his bear raid on the Manhattan
continued. On 8 October–the date of the close of the Manhattan’s transfer books, thirty days prior to the firm’s annual meeting–Gould held 48,000 of 128,000 outstanding shares. Combined with shares owned by his allies, these gave him control of the company. In the election one month later, Gould, Sidney Dillon, Sage, and Field all joined the board, and Gould emerged as president. (Field, who’d hoped not for this result but rather to liberate the New York Elevated from its bondage to the Manhattan, was placated not just with a board seat but with a timely tip regarding an anticipated rise in Western Union securities. However, Field was to quickly get under Gould’s skin when he publicly protested a planned doubling of the fares on the Manhattan from five cents to ten. Organizing minority shareholders during December, Field beat back the idea. In the long run, Field’s collaboration with Gould in the Manhattan Elevated would not have a happy ending.)
As for the Manhattan itself–damned by Gould just a few weeks before as suffering from “fatal embarrassments”–its prospects suddenly seemed brighter so far as Jay and his coterie were concerned. Judge Westbrook brought the firm out of receivership and simultaneously denied a motion from the board of the New York Elevated for return of its lines. (In the weeks to follow, a young reform assemblyman named Theodore Roosevelt would try without success to make the truth of Gould’s alliance with Westbrook and Attorney General Ward public. Roosevelt’s lobbying resulted in a formal inquiry by the New York State Assembly’s Judiciary Committee that quickly devolved into a whitewash.) A week after the seating of the new board, Manhattan Elevated stood at 55. In short order, Jay sewed up majority positions in both the Metropolitan and the New York Elevated. Later that November, the Manhattan board authorized the issue of $26 million in new Manhattan stock. Eleven million dollars went to shareholders of the Manhattan, $7.8 million to shareholders of the New York, and $7.2 million to shareholders of the Metropolitan. Then, once he was done watering the Manhattan’s stock for quick cash, Gould took a few key steps to improve the Manhattan’s operating position for the future. He arranged legislative compromises to ease the tax burden of the two firms. After this, he renegotiated the terms of the Manhattan’s leases on the New York and Metropolitan Elevated, all to the profound advantage of the Manhattan.
Dark Genius of Wall Street Page 31