Bernard Baruch: The Adventures of a Wall Street Legend

by James Grant

  The challenge to every stockbroker in the wake of the Panic of 1893 was to find enough solvent customers. Just starting out, Baruch had no customers of any description. His name was unknown to the public, the firm for which he worked was obscure, and the bonds that he sold were often in default. In an attempt to drum up business he wrote research bulletins and knocked on office doors. Once he called on James Talcott, a prominent dry-goods merchant. Turned away by Talcott’s secretary, Baruch waited outside until the merchant appeared, then hurriedly introduced himself and followed his man up the street, saying, approximately, that the spate of railroad bankruptcies afforded opportunity because mergers and consolidations were inevitable and values would be reclaimed, if only one knew where to look, which he, Baruch, having made a study of the situation, did. Talcott, who was tall and wore a gray beard and was descended from seventeenth-century Connecticut settlers, finally yielded, giving Baruch an order to buy a single 6 percent Oregon & Trans-Continental bond, which then was quoted at about 78 cents on the dollar. The issue in fact went up, as Baruch said it would, and Talcott became a steady customer. The commission on this, the first bond that he sold, was $1.25.

  Although he husbanded his customers’ money, Baruch played fast and loose with his own. He usually bought stocks on credit, or margin, and when he was especially sure of himself he committed every cent he had. The advantage of margin trading is that a small down payment controls a large investment. The drawback is the ever-present risk of being wiped out. In Baruch’s day the required margin was as low as 10 percent of the price of a stock, the broker lending the remaining 90 percent. The collateral for the loan was the stock itself. As long as the price went up or stood still, the collateral was safe. If, however, the price fell, the collateral was impaired, and the broker took steps to protect his loan. Time permitting he issued his customer a dunning telegram, or margin call. The customer’s choice was to put up more money or not. If not, the broker sold the stock, salvaging what he could of the value of the loan and billing the customer for the deficiency, if any. The down payment was lost. If losing on margin was spectacular, so was winning. For the investor who bought a share of stock for $100, and actually paid cash, a rise in price to $105 meant a gain of 5 percent. For the margin trader, who had bought the same stock with only $10, a $5 profit represented a gain of 50 percent. Baruch was drawn to margin.

  Until 1897 or so the attraction was ill fated. For every large profit, there was an offsetting loss. Losses, in fact, predominated, because he invested too much and held back too little in reserve.

  This manic-depressive financial life was discouraging to Baruch and deeply frustrating to his fiancée, Annie Griffen. They had met about the time he was graduated from college, a formal introduction following an unsuccessful overture by Baruch near the Griffen brownstone at 41 West 58th Street. He had seen her coming down the street: “Raising my hat, I asked if I were addressing Miss Annie Griffen. ‘No indeed!’ she retorted with a toss of her head and walked up the steps.”

  Annie was nearly as tall as he was—years later, after their three children attained their own lofty adult heights, the five Baruchs out walking were said to resemble a basketball team—and she had a long face, thin lips, and a corseted hourglass figure. Her father, Benjamin Griffen, was a Phi Beta Kappa graduate of City College and a principal in the glass-importing firm of Van Horne, Griffen & Company. He and his wife had some money (she was the daughter of a lard merchant, W. J. Wilcox); the family kept horses and a carriage.

  Mr. Griffen, the grandson of an Episcopal minister, opposed the intermarriage of Christians and Jews. He had nothing against him personally, he assured Baruch, quite the contrary, but religious differences would certainly spoil the chance of his being happy with Annie. His advice had the predictable result of uniting the lovers in a conspiracy against him. A kind of semaphore was devised to signal whether the coast was clear for calling: shades drawn meant no—Mr. Griffen was home; shades raised meant proceed. Happily for Baruch, Mrs. Griffen took his part. She welcomed him as a weekend guest in Pittsfield, Massachusetts, where she and her daughter spent their summers. He and Annie went to dances and disappeared together on long bicycle rides.

  Another matrimonial hurdle was money. No sooner did Baruch accumulate some capital than it disappeared into the maw of the market. In 1895, seeking a surer source of funds than speculation, he asked Mr. Housman for a raise to $50 a week from $25. This was refused, but an even better counteroffer was made: one eighth of the firm’s annual profits. If business was no better than it had been the year before, the arrangement would yield about $35 a week. However, we may be sure Housman added that 1894 had been a quiet year in Wall Street and the times were bound to get better and better—which, in the event, they did.

  “Being a junior partner in a brokerage house, I decided, called for some expansion of my personal budget,” Baruch wrote. “I acquired a Prince Albert coat, a silk hat, and all the accessories that went with them.” In 1895, his first year in the partnership, A. A. Housman & Company earned $48,000, of which he kept $6,000, or about $115 a week. But there was no wedding that year or the year after.

  The outlook brightened in 1897. In the spring Baruch took an interest in the American Sugar Refining Company, the fortunes of which hung on the tariff. As long as cheap foreign sugar was barred from this country, American Sugar stood to gain. If foreign sugar was not kept out, the company’s profits, and therefore the price of its stock, would fall. In the Senate, a bill was pending to lower the sugar duty. Similar legislation had been passed in the House. The question before the market, then, was whether or not the Senate bill would pass. Baruch, reasoning that western sugar-beet growers had as much to gain from tariff protection as Wall Street did, thought not. He backed this educated guess with $300. If he bought on 10 percent margin, as seems likely, he would have controlled $3,000 in stock. He related only that he bought in the spring. In April and May, Sugar changed hands at about $115 a share. By the end of July it had reached $139. As the price rose, Baruch bought more, using the paper profits he had earned on earlier purchases as credit. He kept buying, or parlaying, as the price went higher, all the while protecting his position with a precautionary order to sell in case the market suddenly fell. This progressively higher “stop loss” order was never touched off, however, and Baruch’s profits mounted wonderfully. The Senate bill was defeated, and the stock kept climbing. On August 31, the price leaped by $8 a share, to $156.25, the largest daily rise of the advance, on the strength of a story that the Treasury Department was about to bar Dutch sugar from the United States. It evidently was about this time that Baruch sold. His profit totaled $60,000, an astonishing return on an investment of $300. It bears mention that at the time he was buying, Washington insiders were selling and Wall Street was mainly pessimistic.[3]

  James Keene was a long-standing bull on the company, but whether or not Baruch joined forces with him is unknown. “The Standard Oil people” were rumored to be buyers. Harry Content, a favorite broker of Baruch’s, and Arthur Housman both were heavy buyers on the day that the stock jumped to $156.25, which proved its high price for the year. “The move in Sugar,” said the Journal next day, “was generally attributed to [Housman] by the room [i.e., by professional traders], and there is reason to believe that he had a good deal to do with it.”

  When Baruch told Annie that he had taken $60,000 from the market and at last they could marry, she was incredulous. They had spoken on the telephone:

  “You’ll lose it as quickly as you made it.”

  “This time I’ll keep it.”

  Each was mistaken—Baruch didn’t lose the money; he gave most of it away. But she was persuaded and her father was overruled (evidently Dr. and Mrs. Baruch gave their blessings), and the wedding took place at her home on October 20. An Episcopal service was presided over by Dr. Richard Van Horne, a Griffen relative, who beforehand had taken Baruch aside and mentioned that he planned to dispense with reference to the Father, the Son, a
nd the Holy Ghost, in deference to him. Baruch thanked him but encouraged a traditional reading.

  The newlyweds honeymooned in Washington, DC, and at Old Point Comfort, on Chesapeake Bay, the groom becoming seasick en route. They paid a visit to the Baruch birthplace in Camden, South Carolina, and returned to New York to live in the Baruch home at 51 West 70th Street where the household already comprised the groom’s parents and three brothers. There Annie and he remained for two years or more.

  It was common enough at the time for a man to bring home his wife to live with his parents. Probably not everyone relished this arrangement, and perhaps Annie had her qualms. Baruch’s mother, a dominating woman, had always enjoyed the sole command of her home and the undivided attention of her sons. For Annie, who was seeing more of her mother-in-law than of her hardworking husband, the first few months of domesticity were a difficult prelude to a marriage that turned out more or less as her father had predicted, though not necessarily for the reason he gave.

  For Baruch the fall of 1897 marked a coming of age. Between his coup in American Sugar Refining and his wedding, he bought a seat on the New York Stock Exchange. (“Yes,” said his mother when he gave her the news, “and you will go further.”) Harty, who had graduated from East Lynne productions to become leading man to the vamp Olga Nethersole, returned from the theater one night to report that contractual trouble had developed between his costar and him. As Harty came in, Baruch and his mother were winding up one of their regular collaborative solitaire games. Looking up from the cards, Baruch impulsively offered his brother his new seat if he would leave the stage and settle down. Harty accepted. Baruch exulted but presently despaired. Many sleepless hours later he decided that there was nothing to do but to buy another seat for himself. Then, late in November, he made his father the staggering anniversary gift of $20,000. He wanted to give $30,000, one thousand gold dollars for each of his father’s married years, but he had already settled $19,000 (the cost of the seat) on Harty. Thus in the course of a few months, Baruch had earned $60,000, distributed two-thirds to the men he idolized and married the woman he loved. All together, his standing at home had never been higher.

  3. Thus the Wall Street Journal on July 3: “Washington correspondents of various newspapers are taking extremely bearish views and nearly all Washington houses are short of the stock . . . The street [i.e., Wall Street] impression certainly is that the Sugar Co. has been defeated.” And on July 24: “Never in the history of Sugar manipulation have so few people been right on the stock.”

  Three

  Baruch’s Wall Street

  Considered as matters of timing, Baruch’s apprenticeship in Wall Street was unlucky but his journeyman years there were heaven sent. The signal event of his early career at A. A. Housman & Company was the Panic of 1893 and the long depression that followed it. Railroads failed (William H. Vanderbilt had assessed the prospects of that basic industry a decade before: “In a year or so we may have no Government. We must have railroads.”), violent strikes erupted, and the nation passionately chose up sides over the currency. In 1894 a seat on the New York Stock Exchange was sold for what would prove the lowest price from that day to this: $14,000. In Chicago, soup kitchens were thrown up to accommodate the casual travelers who had drifted to town for the Columbian Exposition of 1893 and who had been stranded by the panic as if by a blizzard.

  Not until after the defeat of William Jennings Bryan and the silver movement in the 1896 presidential election did the depression run its course. The ensuing boom smiled on Baruch’s stockbroking years. In 1896 a wave of corporate mergers began that would culminate in 1901 with the capitalization of the United States Steel Corporation at $1.4 billion, a sum a third again as large as the public debt. Industrial companies were organized, railroads were reorganized, and new securities poured from Wall Street. The stock market, which in the early 1890s had been in the hands of professionals, increasingly engaged the public. At the turn of the century more people traded more common stock than ever before. Endowed with what a later generation would call “glamour,” the shares of a trolley line, Brooklyn Rapid Transit Company, in 1899 leaped from 61 to 137, much to the delight of the waiters and clerks who had had no idea that money was so easily gotten. Late in the 1890s, 400,000 shares was considered a good day’s business on the Stock Exchange. In 1901, a single session brought 3,000,000 shares and a seat changed hands for $80,000. “Everybody was making money,” a fictional but authentic account of those days related:

  The steel crowd came to town, a horde of millionaires with no more regard for money than drunken sailors. The only game that satisfied them was the stock market. We had some of the biggest high rollers the street ever saw: John W. Gates, of “Bet-you-a-million” fame, and his friends, like John A. Drake, Loyal Smith, and the rest; the Reid-Leeds-Moore crowd, who sold part of their steel holdings and with the proceeds bought in the open market the actual majority of the stock of the great Rock Island system; and Schwab and Frick and Phipps and the Pittsburgh coterie; to say nothing of scores of men who were lost in the shuffle but would have been called great plungers at any other time. A fellow could buy and sell all the stock there was. Keene made a market for the US Steel shares. A broker sold one hundred thousand shares in a few minutes. A wonderful time! And there were some wonderful winnings. And no taxes to pay on stock sales! And no day of reckoning in sight.[4]

  So intimately bound up with Wall Street is Baruch’s story that a social, financial, and geographical digression on that place as he first knew it might now be in order. To begin with appearances: the financial center, of which the epicenter was the New York Stock Exchange, at Broad and Wall Streets, was small, sunlit, and equine. The Trinity Building, up Broadway from Wall and just north of the Trinity churchyard, was six stories high, not the twenty-one stories of the current successor Trinity Building. Across Broadway, the Equitable Building rose eight stories rather than the current thirty-eight (a mass which at its construction in 1915 constituted the highest office structure in the world). The streets downtown were thronged with horse-drawn transport: wagons, hansom cabs, and streetcars; also with pushcarts and with men who invariably wore hats. To venture outdoors bareheaded or in shirtsleeves was to risk the open derision of passersby. (Wall Street was very much a man’s world. In 1900 the census counted exactly 240 women brokers and bankers in all of New York State as against 11,293 men, of whom 7 were black.) Before the arrival of subways in 1904, the main locomotive transportation downtown from the Upper West Side was the Sixth Avenue Elevated. For a nickel the El bore passengers down past Central Park and the Plaza Hotel, past the reservoir at 40th Street and by Macy’s and Union Square, down to Chambers Street and around the steepest railroad bend in the world, past Newspaper Square and City Hall and the old Post Office (a magnificent granite neo-Renaissance pile, razed in 1938–1939), by the churchyard at St. Paul’s and the Jersey City ferry slips to Rector Street; all in all, from Baruch’s first house at 245 West End Avenue near 72nd Street, a trip of about forty minutes. Baruch’s first year as a clerk in 1891 was the last year before the advent of the Stock Exchange Clearing House. Every share that was bought or sold was received or delivered by hand even if a subsequent offsetting transaction made the receipt or delivery redundant. A few blocks east of this old-fashioned clerical swirl, longshoremen drove horse carts to the sailing ships that were moored along the East River and boys swam nude, in season, from the docks at the Fulton Fish Market. In all seasons at the Curb market, antecedent to the American Stock Exchange, brokers traded stocks in the open air.

  Among the many latter-day landmarks not then built or conceived was the New York Federal Reserve Bank’s Florentine structure on Liberty Street. Until 1914 no Federal Reserve System existed. There was no Securities and Exchange Commission, no federal insurance of bank deposits, and no federal law to segregate commercial and investment banking. Most important, there was no federal income tax, except for the short-lived statute that was struck down by the Supreme Court in 1
895. Limited government was as fixed and obvious a condition of finance in Baruch’s youth and middle years as a regime of federal regulation was to become in his old age.

  In the early 1890s, life on the Stock Exchange was clubbable, sometimes lighthearted and, by the later standards of the McKinley bull market, dull. Trading began at 10 a.m. and ended at 3 p.m., except on Saturdays, when the closing bell was at noon. On Mondays in the summer the opening was civilly put back until 11 a.m. (an amenity dispensed with in the crush of bull-market business in 1902). Baedeker’s United States, in 1893, described the trading floor as a “strange scene of business, tumult, and excitement, a wilder scene probably than that presented in any European exchange,” but on a sleepy day in July 1892 only 30,000 shares were bought and sold. The amount of commission income thereby produced, according to an estimate that discounted sleight-of-hand transactions in which little commission was paid, was less than $1 per member, or barely enough for sandwiches for two. Earlier the same month, on another dull day, the brokers honored the visit to the galleries of several hundred members of the Christian Endeavor Societies with a spontaneous chorus of “Shall we gather at the river?” Business, such as it was, was disrupted for half an hour.

  Trading on the floor, then as now, was done at a high pitch by high-spirited people. The Governing Committee, a forty-man council elected by the members (and to which Baruch, at the unusually tender age of thirty-three, was elected in December 1903), was charged with upholding decorum against difficult odds. One long-standing fugitive rite was the hazing of new members. On his first day on the floor, a member might expect to be stripped of his buttons, to have his hat pulled down over his eyes, and to have his suit ripped from his back. The governors, who officially deplored this roughhouse in 1894, were obliged to condemn it again in 1900 and 1912. Another worry was gambling, a subject on which the constitution was silent except to prohibit the laying of bets on stock prices. (That is, betting without buying or selling the shares.) Voting 18-12, the governors in 1897 outlawed all wagering, and in 1900 they went so far as to forbid the playing of bridge-whist in the library.