Wall Street History
Jay Cooke, Part I
We now commence our story of Jay Cooke; generally
acknowledged as the first major investment banker, creator of the
first "wire house," and the Financier of the Civil War.
Cooke was born in 1821 in what was to become Sandusky, Ohio.
He was the son of transplanted upstate New Yorkers who left for
the Illinois Territory after the War of 1812. Jay''s father would
serve both in the Ohio legislature as well as a term in the U.S.
House of Representatives.
Cooke eventually made his way to Philadelphia where he went to
work for his brother-in-law in a shipping firm. Then in 1839, he
took a job as an apprentice with E.W. Clark and Company,
where he began to learn how to market securities to customers.
It was his first taste of Wall Street.
Clark and Co. was unique in that it employed the local press
(through newspaper advertising) to tout whatever stock and bond
issues it wished to sell. And, aside from Pennsylvania related
offerings'', it also became a big player in the sale of railroad
securities, an area that was beginning to explode.
The firm''s first major success came about as a result of the
Mexican War (1846-48). Clark sold Texas bonds to the public
just before the start of the conflict. A strong marketing angle
was provided in that it was expected that Texas would be
annexed if the U.S. emerged victorious. [Officially, Texas was
annexed prior to the war, in 1845, but victory would formalize
the arrangement.] Investors thus flocked to buy the bonds,
assuming the securities would increase in price when the
Mexicans were defeated.
[Through the Treaty of Guadelupe-Hidalgo, Mexico ceded the
present states of Arizona, California, New Mexico, Nevada,
Texas, Utah, and parts of Colorado and Wyoming. In return, the
U.S. paid Mexico $15 million in compensation. For $100, who
do you think got the best of this deal?]
As a result of this experience, Jay Cooke learned that his greatest
profits could be made in times of war.
But E.W. Clark did not survive the panic of 1857, when it was
caught holding the bag, so to speak. The market was collapsing
and Clark was unable to unload its own portfolio holdings
without incurring tremendous losses. Jay Cooke was out of a
Lest you feel too sorry for Mr. Cooke, you should know that he
had amassed a nice nest egg as a result of his tenure at Clark and
Co. Coupled with his conservative nature, he didn''t need to rush
into his next venture.
He did get involved, however, with the burgeoning railroad
industry and offered to raise capital for several of them through
bond underwritings. He also reorganized several bankrupt
railroads and canals. Cooke hadn''t even bothered to establish a
banking house. But he was performing all the roles of an
Finally, on January 1, 1861, Jay Cooke and Company was
founded in Philadelphia. While the firm was small.Cooke was
worth a relatively puny $150,000 when he commenced
operations.what he lacked in capital he made up for in his
experience with marketing large issues of securities.
Cooke was dwarfed in size by the big Philly banks, particularly
Drexel and Girard. But Cooke masterfully used his political
connections, the biggest being former Ohio Senator Salmon Chase.
Chase had sought the Republican presidential nomination in
1860 and Cooke had contributed to his campaign. And there was
another valuable connection between the two; Jay''s brother,
Henry was the former editor of the Ohio State Journal of
Columbus, a newspaper in which Chase had a financial interest.
When President Lincoln took office, Chase was appointed to be
his secretary of the Treasury. Chase, in turn, brought Henry over
to be an assistant in the department. And it was from this
position that Henry was able to dispense all kinds of hot
information about impending Treasury actions to his brother Jay.
Salmon Chase''s race for the presidency had been an expensive
one, in part because of his young daughter Kate. It seems that
Kate was quite the hostess, holding elaborate parties in
Washington. Jay Cooke wormed his way in by extending loans
to Chase. Historian Russell Weigley describes the process.
"(Cooke invested) the amount of the loans and paid Chase
generally out of the dividends and profits, without either man''s
bothering to keep a careful accounting of whether the money
reaching Chase was merely what was owed him from investment
of the loans. In any event, Cooke''s investments for Chase had a
happy habit of returning proceeds just at those times when
Chase''s financial needs were greatest."
[Hostess Kate later married William Sprague, a Rhode Island
textile heir, politician and speculator who illegally traded cotton
with the Confederacy while Treasury agents looked the other
Fort Sumter fell on April 13, 1861. President Lincoln sought a
short war and requested 400,000 troops and $400 million to pay
for it. Treasury Secretary Chase intended to raise about $320
million, of which $240 million was to be borrowed through the
sale of paper. But Chase also knew that his predecessors,
Secretaries Cobb and Dix, who had served under President
Buchanan, had failed to sell as much as $10 million of any single
offering. Salmon Chase was a lawyer, not an investment banker.
It was time for Jay Cooke, banker and marketing guru, to come
to the aid of his country.
Next week, the financing of the Civil War.
Charles Morris, "Money, Greed, and Risk"
John Steele Gordon, "The Great Game"
Charles Geisst, "Wall Street: A History"
Robert Sobel, "The Pursuit of Wealth"
Russell Weigley, "A Great Civil War"