Trivia Quiz Answer: Jay Cooke

ANSWER: In the United States, what is known as the Panic of 1873 (or the “Crisis of the Gilded Age”), began at 11 a.m. on Thursday, September 18, 1873. Wall Street was devastated before the day was over. I had no idea what would happen when I arrived at work that morning. We had a cash crunch and my firm could no longer meet its obligations.
My fall was a shock to the nation because I had an excellent reputation as the major financier of the Civil War. Abraham Lincoln was not fond of me but fortunately my firm was selected by his Treasury Secretary, Salmon Chase, to issue bonds to finance the war. We sold $1.6 billion in bonds and succeeded where others failed because of our reputation for honesty, and our innovative use of a new technology, the telegraph.
After the war I owned the nation’s most prestigious private bank, and I was more powerful than J.P. Morgan. I was the exclusive bond agent for construction of the Northern Pacific (NP), which was to be the second transcontinental railroad. Between the end of the war and 1873, over 35,000 miles of track were laid. The first transcontinental line was completed in 1869, and the industry was the nation’s largest non-agricultural employer.
The day I went bankrupt, Cornelius Vanderbilt explained my demise by saying “You can’t build a railroad from nowhere to nowhere.” He did not share my vision of America’s future, and my import export plan was based on expansion of the Pacific region. I wanted Duluth, Minnesota to become the next Chicago, where goods could be transferred to ships and sent to Europe. Congress wanted a railroad in the northern states and in return they gave NP 46 million acres of land.
The reaction to my bankruptcy was immediate, and 37 other firms and two brokerage houses also went out of business that day. The New York Stock Exchange (NYSE) was forced to close for a week.
Perhaps I was foolish but please don’t put me in the category of your bubble. There was fraud at Enron, Tyco, Worldcom and Adelphia, but that was not true in my situation. Some of my employees saw what was happening and sold out, but I did not realize how seriously we had over extended ourselves. I was surprised as everyone else by our cash crunch that day.
My firm only wanted to sell bonds. We wanted our role to be similar to what we had done during the war. We never intended to own 75% of the Northern Pacific. That happened because something had to be done about mismanagement at the railroad.
The problem would have been solved if we had been able to sell bonds, but everything came to a halt when the public read about clashes in the Dakota Territory with the Sioux Indians. George Armstrong Custer was helping protect our employees, and Sitting Bull was repeatedly defeated in 1872 and 1873.
He nevertheless had a big impact on public opinion and bond sales. I could no longer count on bank loans because their rates skyrocketed when they had problems. The crash began in Europe in May of 1873, and it was similar to what you experienced in 2008. European mortgages had been easy to obtain and land prices escalated.
The system worked well when the farmers of central Europe and Russia were prosperous, and were able to pay their mortgages. This all changed when they lost markets in places such as the United Kingdom because they were greatly undersold by grain shipments from the American Midwest.
European bankers then tightened their credit terms, which resulted in a U.S. financial crisis. I had already obtained significant loans to build the railroad, and when the banks cut me off I could not pay our creditors. The crisis in American lasted for four years and the depression continued for six years in Europe.
I was ahead of my time, and the Northern Pacific did become a success. Duluth never became Chicago but it did boom in the rail age and the city father’s constructed a statue to honor me. You can thank me for changing the face of western America, and for fostering the 1872 creation of the 3,468 square miles of Yellowstone, the first national park in the world.
The successor to the Northern Pacific is the Burlington Northern Santa Fe, which remains the largest private landholder in the United States.
The future President who frequently visited me was Ulysses S. Grant. I supported Salmon Chase when he unsuccessfully sought the 1868 Democratic presidential nomination, but then backed Grant in the general election.
Many people thought I would become Secretary of the Treasury, and Grant visited my New York City mansion one week prior to the bankruptcy. My portrait and furniture are today on display in the Treasury Department as part of the restored suite of offices used by Secretary Chase.
I never felt sorry for myself but for the one quarter of American workers who were laid off. I had the ability to bounce back, but they did not.
When my firm went bankrupt I had to give up my mansions and moved into a small cottage. I never returned to my NYSE seat, but my financial talents were not gone. I later paid $3000 for a Utah silver mine and went into business with Jay Gould. That investment alone brought back over $1 million, and I soon re-purchased my Philadelphia mansion.
The Federal Reserve did not exist in my day, and of course it has made mistakes. In 1929 it tightened money rather than loosed it which contributed to the length of the Great Depression. Nevertheless, you are fortunate to have a Federal Reserve.
For a century, financial panics occurred on average every 17 years (in 1819, 1837, 1857, 1873, 1894, 1907 and 1920). When the great Wall Street crash of 1929 came, President Herbert Hoover avoided using the word “panic.” He said it was “merely a depression.”
My NYSE seat and our remaining assets were taken over by my son and son-in-law, Charles Barney. The new company was in his name. A 1937 merger created Smith Barney, and in 1997 it became Salomon Smith Barney, the securities division of Citigroup. A 2008 merger resulted in Morgan Stanley Smith Barney.
One of the best books about me is Panic on Wall Street by Robert Sobel. My name is Jay Cooke (August 10, 1821 – February 16, 1905).

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