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Wall Street History
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12/13/2002
The Erie Railroad, Part I...the early years
A loyal reader of this space, Joseph Fisher, once asked me to
explore doing a piece on the demise of the Erie Lackawanna
railroad. Frankly, I didn’t know if there would be much there,
but I purchased a book by H. Roger Grant titled “Erie
Lackawanna: Death of an American Railroad, 1938-1992” and
perused a few pages. It was then I realized I could easily tie in
the great robber barons of the 1800s, since their story is part of
Erie Railroad, the predecessor operation. In a series on Jay
Gould that I once did, I touched on Erie’s history, but there is far
more to tell and before I even really get into Grant’s book.
While you will read different dates in various sources, for our
purposes the Erie Railroad was founded in 1833, but didn’t really
get cranking until 1851, upon completion of the longest railroad
in the world at that time, the 480-mile stretch between Lake Erie
and New York City, connecting the lakes to the ocean. Within a
few years some of the great speculators/dirtballs in Wall Street
history had discovered that the Erie, like other railroads, was
easy pickings, Daniel Drew being among the first.
There was a saying on Wall Street involving Drew, “When
Daniel says ‘up’ – Erie goes up. Daniel says ‘down’ – Erie goes
down. Daniel says ‘wiggle-waggle’ – it bobs both ways.”
When Drew was a director of Erie back in the 1850s he used to
sell short more shares than the company actually had. You
wouldn’t think that this would work, except to obliterate Drew,
but “he had a reserve of stock unbeknownst to the rest of the
market convertible bonds,” which he then used to cover his
position, thereby ensuring his killing.
Charles Geisst has a great story along the same lines. “In order
to get the price of the stock as high as possible before beginning
to sell it short, (Drew) visited a New York City club where stock
traders congregated. Sitting down on a particularly hot day, he
pulled a handkerchief out of his pocket to mop his brow. As he
did so, a small piece of paper fell onto the floor, but no one
bothered to tell him. After he left, the other traders pounced on
the paper, which just happened to contain a ‘bullish’ piece of
news on the Erie. They then proceeded to frantically buy the
stock, pushing it to new highs in the market. It was only then
that Drew began selling it short, wiping many of them out in the
process as the stock price dropped precipitously.”
Folks, you just can’t make this stuff up. Later, Jim Fisk and Jay
Gould hooked up with Drew and as Paul Johnson writes, “If two
men came close to deserving the title of Robber Barons, it was
(these two).” Nothing exemplified this better than the struggle
over the Erie.
For his part, Fisk had quite a background before he entered the
world of high finance. In his youth he was actually a carnival
barker, before he began buying cotton in the South and selling it
up North following the Civil War. It was said he could “spot a
sucker at a hundred yards” and it was Jim Fisk who coined the
phrase, “Never give a sucker an even break.” According to
Johnson, Fisk “was also reputed to have been the first man
habitually to pinch girls’ bottoms.” Along the same lines
Edward Chancellor adds that Fisk always had a female executive
assistant on the payroll, including one who was actually paid
$1,000 for “services rendered.”
But it was on October 8, 1867 that the real fireworks
commenced. As the gang of three, Drew, Fisk and Gould, went
after the Erie and Cornelius Vanderbilt (who was vying for
control as well), Vanderbilt played his hole card, George C.
Barnard, a judge tied to Boss Tweed of Tammany Hall fame.
Gould then started the “Erie Panic” by throwing 100,000 shares
into the market, whereupon they “exploded like a mine” and,
according to Drew, “Erie went down like a dead heifer,” as
the three then picked up the pieces and the railroad.
At the climax of the battle, as Edward Chancellor relates, “Drew,
Fisk, and Gould, who had taken over the Erie HQ in New York,
gathered up $8 million of greenbacks there, tied them in bundles,
threw them into the back of a hackney cab, drove to the New
Jersey ferry, crossed, collected an army of thugs, and fortified
Taylor’s Hotel on the Jersey City waterfront, renamed Fort
Taylor, with their armed men and three cannon. They also had a
shore patrol in four lifeboats, each containing a dozen gunmen.
All this was to fend off the naval assault of the Commodore
(Vanderbilt) who, it was said, ‘could be heard roaring from the
New York shoreline.’”
Chancellor describes another classic move, this one by Fisk
when he was director. “He sold short the stock of the United
States Express Company, which had a contract with the Erie, and
then cancelled the contract. Once the express company’s share
price had fallen, Fisk covered his shorts, bought more shares, and
then reinstated the contract.”
Now how do you like them apples? To digress a bit, Chancellor
also describes a similar situation involving the gambler and
speculator John “Bet-a-Million” Gates, who once shut down a
Chicago steel plant that he owned during boom times, putting
thousands on the street, claiming that business was awful. Well,
it turns out all he was doing was covering his short position in
the company. Once this was accomplished, presto, he reopened
the operation. And you thought Bernie Ebbers and Dennis
Kozlowski were bad?!
Back to Fisk, he was known as “the Prince of Erie” after his
seizure of the railroad, and there was also a real sense of danger
about him. As David Bain writes in “Empire Express,” once he
“arranged for a judge to have the Springfield Republican editor,
Samuel Bowles, arrested and jailed in New York for libel,
bribing officials to make themselves scarce so that Bowles could
not be bailed out.”
Fisk also carried the moniker “Jubilee Jim” for his extravagant
ways. His office was always open to all, with boxes of cigars
and bottles of whiskey prominently displayed on his desk. Well,
following the takeover of Erie Railroad, Fisk and Gould, having
pocketed more than $20 million (along with Drew and another
partner Frederick Lane) went on a shopping spree, as David Bain
describes, “buying theaters and opera houses and palatial
mansions on Fifth Avenue.”
Of course you have to figure this ends badly, at least for Erie
Railroad, and by 1877 it was bankrupt, as Fisk, Gould et al bled
it dry. Erie was nonetheless able to limp along until the 1940s, at
which point it was finally in a position to pay out dividends once
again to the shareholders. We, too, are going to fast forward next
week, to a time when yours truly would pick up two hot dogs and
two beers before boarding the Erie-Lackawanna for my grueling
commute home from Hoboken.
Sources:
“Devil Take The Hindmost” Edward Chancellor
“Empire Express” David Haward Bain (sic)
“A History of the American People” Paul Johnson
“Wall Street: A History” Charles R. Geisst
“The Growth of the American Republic” Samuel Eliot Morison,
Henry Steele Commager, and William E. Leuchtenburg
“America: A Narrative History” George Brown Tindall and
David E. Shi
Brian Trumbore
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