Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad streets in New York city, you're inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism, right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now, welcome, Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
A few short weeks ago, the European Union agreed to a set of rules to regulate crypto markets. Stefan Berger, a German representative to the EU Parliament had this to say about that. I'm quoting Stefan here, "Today we put order in the Wild West of crypto assets and set clear rules for a harmonized market." Certainly activities like crypto trading and meme stocks are pushing the limit on what our regulatory framework can handle, but let's examine Herr Berger's analogy. The Wild West metaphor may make for a catchy quote, but despite recent volatility in the markets, they are far more civilized than the trading that went down when the actual wild west of the post-Civil war era was being settled. Back then a hostile takeover of a company often was truly hostile with armed men, physically removing management from their offices. Insider trading wasn't illegal, but rather a way of life for men of means or wit to take advantage of their position.
A dollar could be made by spreading a rumor that your rival, Cornelius Vanderbilt, for example, was killed in a train crash only for The Commodore to stroll in cursing like a sailor. The arbitrage opportunity evaporated when the old man materialized. For those who'd lost a fortune as almost everyone who tried to beat the crooked game did, there was little recourse from the law. The arrival of the securities and exchange commission was still a half century or more away from its formation. And this led to many to take matters into their own hands. And it seems no one was at the wrong end of a fist more than Mr. Jay Gould. Our guest today, author Greg Steinmetz, formerly of the Wall Street Journal spent the last few years diving deep into that wild west of the stock market and joins us to talk about the aforementioned Mr. Gould in his latest book, American Rascal: How Jay Gould Built Wall Street's Biggest Fortune. Out now from Simon and Schuster.
In the course of his short life, 56 years, regulation and consolidation by the New York Stock Exchange closed many of the loopholes that allowed grizzled gamblers to scheme their way to a fortune, losing it just as quick, but not before Gould pushed the limit on the rules to the breaking point. His success made him both the envy of his robber baron rivals and the greatest villain in American history, at least that according to Mark Twain. As always, the truth is somewhere in the middle and far more complex than the caricatures conjured at the time still shaping how we view those Wild West days. Our conversation with Greg Steinmetz on Jay Gould, the OG American rascal is coming up right after this.
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Josh King:
Every year come new books of narrative nonfiction, spanning American history that have their roots in one way or another, right here at the New York Stock Exchange at our historic intersection at the corner of Wall and Broad streets. And we try to bring you a deep dive to give you a little bit better perspective on how lessons from yesterday colored the world that we're living in today. Our guest today, Greg Steinmetz is a partner at the money management firm, Ruane, Cunniff & Goldfarb. He previously was a reporter at the Wall Street Journal where he covered investment banking before becoming Berlin bureau chief, and then the London bureau chief, his first book, The Richest Man Who Ever Lived: The Life and Times of Jacob Fugger was published in 2016. Welcome Greg inside the ICE House.
Greg Steinmetz:
Thank you very much for having me. I'm thrilled to be here.
Josh King:
So had Jay Gould been born a century and a half later, do you think he would've been known on Reddit as roaring Mephistopheles?
Greg Steinmetz:
Well, if you think of the things that Gould did, you mentioned one of them, insider trading, it was legal. Trading on rumors and creating rumors, pump and dump schemes, that was legal. Self-dealing was legal. If I was CEO of a company, I could set up a business on the side, funnel different activities to that business like if I had to buy paper, I could buy it for my own company, self dealing like that, which now you'd have to disclose in your 10-K, that was legal. So a lot of things he did were not prohibited. They were considered morally reprehensible. So yeah, he would still come under a fair share of criticism today.
Josh King:
I'm sure he'd also appreciate the safety of being behind a screen where his nose was less likely to be flattened. Curious, Greg, what drew you to this post cold war period of Wall Street? And why did you decide that Gould was the main character, the history that you wanted to bring to life?
Greg Steinmetz:
Well, if you look at the list of richest Americans of all time, which is typically calculated, not by looking at their inflation adjusted net worth, but by looking at it in context of how much of GDP they had, which puts John D. Rockefeller at number one, the only one in the top 20 besides Buffett is Jay Gould. I didn't know anything about Jay Gould. I saw his name on one of these lists. I thought, hmm, that's interesting. I'd like to know more about him. I didn't realize that he was this amazingly colorful character. I just knew the name. He was robber baron but when you think of robber barons, you think of Rockefeller, Carnegie, J.P. Morgan and Vanderbilt. Jay Gould doesn't spring to mind, but he is in many ways the most interesting. And as you mentioned, Mark Twain said he was the mightiest disaster to ever befall this country.
So you add all that up and the fact that when I asked colleagues of mine, when I asked friends of mine who either know about history or know about Wall Street, "What can you tell me about Jay Gould?" It was blank stares. Maybe they knew the name, but as an author, you think, wow, there's an opportunity there. No one knows about them, but they should. And in my first book, which was about this Renaissance banker that you mentioned, Jacob Fugger, another name, people interested in the history of financial markets and how we got to where we are today should know these names, but they didn't. So I wanted to do the book on Gould.
Josh King:
So you got the name Gould in your head. What's your first step. How do you find his story?
Greg Steinmetz:
Well, there've been a couple biographies about Gould. There were three written at the time of his death back in 1892. Since then, there have been two, which I consider more academic. They weren't really aiming at the general public, the sort of audience that as a Wall Street Journal reporter I was going after. So the fact that I could put together a narrative, which wouldn't just sort of be a dry recitation of, okay, here's what Gould did. I wanted to write something short and snappy and just a sort of painless way for people to get introduced to Jay Gould.
Josh King:
Yeah. His story crosses paths, Greg, with several famous, also infamous characters in the pages of your book, including Edward Bok, best known for his work as the editor of the Ladies' Home Journal. From his interactions with Edward Bok, do you think Gould would appreciate your shift from being a journalist covering investment banking into finance itself?
Greg Steinmetz:
That's funny. Yeah, the thing with Bok was he worked for Gould as a clerk and he didn't like the sort of Goldman Sachs work-lifestyle balance that came with working for Gould. He was asked to perform miracles, get up early on Sunday mornings to show up at Gould's house bright and early to be a stenographer at Gould's meetings with other plutocrats and was a participant in insider trading schemes with Gould. Greed got the best of him because he was surrounded by other people who were making money by exploiting market inefficiencies and the fact that you could do pump and dumps, that you could trade on insider information.
The whole thing left Bach disgusted, and he got out of it and went into publishing, even though Gould tried to convince him to stay and told him, "You're never going to make a lot of money as a publisher. You could do much better in Wall Street." Which was probably true. Bok wanted no part of that. I did the reverse. I wasn't disgusted by the practices of Wall Street, at least that's how it's practiced at our firm, which has been around for 15 years and runs a mutual fund.
Josh King:
Staying on your story for a second, Greg. You joined that firm, Ruane, Cunniff & Goldfarb within weeks of the dot-com bubble burst, which kicked off this tumultuous period of the market. Bring us back to that time. Can you talk about your experiences covering finance from the '87 crash, which we've talked about a bunch of times on this program before, when you were working for the Houston Chronicle through the turn of the millennium?
Greg Steinmetz:
Well, the whole dot-com episode occurred when I was working in London as the bureau chief and I had 15 reporters working for me and they were upset that the Wall Street Journal had these rules about what stocks someone could own, how you could trade. And I had people coming to my office complaining and saying, I am losing so much money here because I'm not able to invest the way I want to. I think the rule was you could buy mutual funds, you could buy the index, you couldn't go out and buy Jupiter Networks or Cisco or any of these other high flyers. And I had some people come to me and they got really heated and angry saying, why can't I do this? And it turned out to be a blessing in disguise because they would've lost their shirts.
So we wrote about the dot-com situation in London. Yes. Then I got to Ruane, Cunniff just as the dot-com bubble was blowing up. And it would've been interesting to have joined a year before because the firm was coming under tremendous criticism for not participating in the boom. Our firm looked at the numbers and decided, well, this isn't going to last. This is unsustainable. We don't want to be there when the bubble bursts. The bubble burst when I got there and there was a feeling of vindication, I think, because like Buffett, we avoided that stuff and it turned out to be the right call.
Josh King:
So you got to continue being a close observer of the industry that you spent so long in, Greg. After years of declining valuations and growth in journalism, you can't deny there's been a number of high profile transactions in the space, including just last week, the sale of Axios to Cox Enterprises, The Athletic's acquisition by The New York Times, that company, of course, trading on the New York Stock Exchange under the ticker symbol NYT. Do you have any thoughts on what these market signals might mean for your former industry?
Greg Steinmetz:
The statistic that I cite most is I used to work with a guy who was a reporter at the Miami Herald. When he was there 25 years ago, the Herald had 400 reporters and editors in their newsroom. Five years ago, it had maybe a hundred. I don't know what it has now. Traditional print journalism has just gotten killed and no one has really hit on the magic formula about how to survive when you have competition from the internet platforms, when people get their news from Facebook, from LinkedIn. New York Times has done it better than anyone. We're still waiting for something that might revive traditional journalism and that hasn't happened yet.
At the Wall Street Journal, I used to cover M&A at the Journal. And the joke was, well, I could get my inside information at 5:00 and go home because the rule was, if something was disseminated to the Journal, they were allowed to publish it even though they were the only ones who had that information, as long as we didn't trade on it, that was okay. Nowadays, if the Journal something, they better get it out there on the wire quickly, because there are a lot of other people, Bloomberg, others who are eager to publish that information too. The business of journalism has just changed so much and I don't know where it's heading. No one has the answer right now.
Josh King:
So sometimes it's heading into the fact that companies like the New York Stock Exchange and ICE are creating their own podcasts and doing their own storytelling because people like you have such a fascination with telling stories that for so many people had been buried for so long. And that paper of record The New York Times would probably be one of the foils to Gould's ambition once he made a name from himself. But the book looking at it pretty closely, it really begins in this Hamlet in upstate New York, barely known to most people but which I know fairly intimately now known as Prattsville, sitting along the Schoharie Creek, the gateway to the New York City watershed. What was that area like back then when Jay's father John Gould took over the family farm?
Greg Steinmetz:
So gold grew up near Prattsville in a town called Roxbury. It was just dairy farms and you drive upstate these days and that's still what you see. You see dairy farms. You're not going to see big ranches. You're not going to see acres of corn. About the only thing it's good for is grazing cows, maybe grazing sheep. Gould's father was a dairy farmer. He had made cheese and shipped it to Albany in New York. Wasn't the greatest businessman. He really struggled. He had seven kids. Gould was the seventh. He had six girls before that.
His wife died when Gould was only four. That gave me the opportunity in the book to create sort of a sympathetic air around Gould by pulling out the sort of Disney, Bambi opening, where the mother gets killed off in the first scene. Gould was four and the only thing he remembers about his mother is kissing her cold lips on her deathbed. So it was a poor community. Gould's family was as poor as everyone else around there. I think it was Gould saw an opportunity to save his family and the family that he hoped to create himself by making a lot of money. And that's what drove him.
Josh King:
So let's talk about making a lot of money, Greg. Even as a teenager, Jay showed this proclivity for making money at any expense. How did he come to the attention of one Colonel Zadock Pratt named for Prattsville whose bust is now immortalized on a stone cliff above Prattsville and find that his interests lay in the financing, not necessarily the operation of industry?
Greg Steinmetz:
Gould wanted to make money, like you say, from an early age. He got started by teaching himself surveying, got started with that. Then he got into the tanning business. Pratt was the biggest tanner in the country. At that point, he had a big tannery in Prattsville. The reason that Prattsville was a perfect place for a tannery, they had lots of hemlock trees. Hemlock has a very high concentration of the tannic acid which you use to tan hides. Gould was doing some surveying work for Pratt, but he wanted to do something bigger. And when he heard that there might be this huge hemlock grove in the Poconos, he went to Pratt and says, "Hey, you'd be my 50-50 partner on this. You give me the cash and I'll do all the work." And Pratt was impressed by Gould's industriousness and said, "Okay, let's do it." And that's how he got together with Pratt and Gould became a force in the tanning business. And then from tanning-
Josh King:
Explain for the listener, what did tanning mean to American industry back at the time?
Greg Steinmetz:
We still use leather for shoes. We still use it for belts. Back then you used it for boots. I guess we still do but people wore boots a lot and people needed saddles for their horses. They needed reins for their horses. Tanning was a huge industry and Pratt was the leader in this and the trading of tanning, someone like Pratt and also Gould when he was in the tanning business would bring their tanned hides right here to just about to where the stock exchange is. It was an area called the swamp. There's a little plaque outside in the street commemorating what this used to be. The swamp was where originally people in New York were tanners and after all the hemlock was cut down, it still was the place where hides came to be exchanged.
Gould wanted to know everything he could about the tanning business, not just how to tan leather, but also how it was bought and sold. And he came down to the swamp, got to know the business and he was captivated because he saw the real money was made right here on Wall Street, which then was adjacent to the swamp. And the whole idea about being the middleman, buying and selling without having to take a lot of capital risk, just getting a commission on the sale or being able to seize on market intelligence and buy something cheap and sell it for a lot was something that really appealed to him. So that's what brought him to New York City and the corner of Wall and Broad.
Josh King:
Yeah, the corner of Wall and Broad and Gould's burgeoning career on Wall Street, but it was almost over before it began when he got caught up in the 1857 crash and if Pratt gave Gould his introduction to the cutthroat business practices at the time, how did old Commodore Vanderbilt provide a finishing degree with the Harlem railroad?
Greg Steinmetz:
After Gould wrapped up his tanning activities, because like you said, the crash of 1857 just devastated the industry. Gould still had some capital and he decided, okay, I'm going to move to New York City and become a trader on the stock exchange, not knowing a whole lot about it, but Gould was very smart and he was very educated, self-educated, and was able to see patterns and spot how other people were making money. And in the course of talking to other people, he learned about an opportunity to buy bonds in a railroad up in Vermont for $0.10 on the dollar.
He went up, bought the bonds and ran the railroad as an operator, nursed it back to health, sold it for a fair bit of money. And that gave him a nest egg to insert himself into a battle then raging for the Erie railroad between Vanderbilt and this fellow Daniel Drew who controlled the Erie railroad. Gould was able, by buying proxies, to vote the stock, insert himself as the king maker in their battle. And after a long, ugly, protracted fight with Vanderbilt characterized by bribes to judges and lawmakers, Gould emerged with the Erie railroad, although it was, financially, sort of an empty husk at the time.
Josh King:
And that was called I think the Erie war from reading the book and it led to additional regulations from the stock exchange, notably requiring at least 30 days notice before increasing the number of shares that were outstanding. And that was one of the tricks that Gould was employing. How was that still legal at the time? And another thing that was legal at the time was insider trading and rumor mongering. How should we judge Gould's character considering many of the most distasteful things that he did was perfectly legal?
Greg Steinmetz:
I want to back up and say, one thing. I can give a plug for the stock exchange here. To get around that 30 day rule, Gould started a rival exchange called the National Exchange and the only thing that traded on it was Erie. It didn't get anywhere but then he had to come hat in hand back to the stock exchange. Okay, insider trading, legal, self-dealing, legal, all sorts of things were legal. Bribing judges wasn't legal. Bribing lawmakers wasn't legal. Conspiring with others to defraud people, it's analogous to theft. It was theft. That was illegal. So Gould was a morally reprehensible figure, but there were redeeming qualities. The one that comes to mind, of course, is that he was a great family man. And there's this series on Netflix called The Gilded Age. Lo and behold, the lead male character in that show is Gould. Why is that?
You can't have someone who is always villainous and have a hit show. You have to have someone with some redeeming qualities. And what they were able to do in that show is by using Gould, who was a great family man, have this person who was cunning and ruthless and couldn't look people in the eye and was a cutthroat on Wall Street, but then come home and be a very loving husband and a great father. And what made that interesting from a story perspective is the idea that Mrs Astor wouldn't invite the Goulds to their parties because he was nouveau riche. That was real. And it's something that Gould's wife wrestled with her whole life. She had two daughters that she wanted to get married off, introduced to society. Lady Astor stood in the way and that shows up as the driving action in that TV series.
Josh King:
I mean, despite or maybe because of Gould being such a buttoned down family man, maybe an unexciting personal life beside the affection he had for his wife and daughters, he did form this devoted partnership with Jim Fisk. And when you were researching the pair, did it remind you of the contemporary vaudeville double acts popular at the time, with Fisk's character serving as the other side of the teetotaling family man, Gould.
Greg Steinmetz:
Yeah. Fisk would do things that Gould wouldn't do. Gould was the brains and Fisk was the muscle. And when they were playing in this bare knuckled world where anything was possible and where vigilante justice prevailed, it was good to have some muscle. And Fisk provided that when there was the fight with Vanderbilt over the Erie and Gould and Fisk and Drew escaped to Jersey City to escape the long arm of the New York law, Vanderbilt, at least, Gould and Fisk thought, had sent thugs to kidnap them and bring them back to New York City. Fisk was the one who hired the Pinkertons to deter Vanderbilt's pirate forces and save Gould and Fisk from jail.
Josh King:
Gould and Fisk brought in reinforcement like the Pinkertons for what would become the defining scandal of President Ulysses S. Grant's checkered administration. For the audience, can you provide a summary of that particular scandal and how narrative even more than reality is responsible for how we remember President Grant's involvement today?
Greg Steinmetz:
Well, Gould had this idea that the gold price was too low and it's a little complicated, but we had been on the gold standard before the civil war. We got off the gold standard in order to finance the war. And it was public policy to gradually get back to the gold standard after the war. So the Treasury Department was involved in buying and selling gold in order to gradually lower the price of gold and bring it into parity with the dollar so we could go back on the gold standard. Gould was watching all this. He saw an opportunity to buy gold and make a lot of money if he could convince the administration to let market forces dictate the price of gold. He cozied up to President Grant. He would've liked to have bribed him. Grant himself was uncorruptible. He was surrounded by a lot of people, however, who were corruptible, including his brother-in-law, and Gould got close to his brother-in-law, who was well connected in Washington, was a longtime lobbyist down there.
Through the brother-in-law, Gould and Fisk got to know Grant. They talked to him about the gold price and by telling Grant that well, it's really in the interest of American farmers to let the gold price run and we've got national security concern here because if the farmers can't sell for a good price, then Russia would sell all the gold and that would be bad for farmers and bad for your administration. He was able to convince Grant to let the gold price go. This culminated in black Friday when the gold price crashed because in order for Gould to get out of his trade alive, Fisk had to make a bunch of fraudulent trades to bid up the price. The whole thing burst. It was a big mess. It was unclear whether Grant was involved, was a co-conspirator in this at the time events proved and hearings proved that Grant wasn't involved, but it did tarnish his reputation. And also cement the idea subsequently confirmed by later events where Grant's son had a brokerage firm and collapsed, Grant becoming destitute. Grant just was no match for Wall Street and finances.
Josh King:
Yeah. The movement of the price of gold due to either real or perceived market forces overwhelmed the market data devices at the time and hastened, the demise of the New York Gold Exchange and the shell of what remained would be acquired by this organization, the New York Stock Exchange in 1877. And fortunately, one of the operators of that exchange was a young Thomas Edison who in his early inventing career designed and built better stock tickers for this place. What was the business and personal relationship between Edison and the man that Edison would describe as having an atrophied conscience?
Greg Steinmetz:
Edison was involved with the Western Union company. It was one of his first jobs as a young man was as a key punch operator for Western Union. He came up with a faster way to send code and Gould looked at that technology and thought, huh, I would really like to own Western Union. It's too big at the current market cap for me to buy but if I can scare the daylights out of the market by promoting this technology that Edison has, maybe I'll get an opportunity. So he partnered with Edison, gave him a bunch of money to buy the technology, promoted the technology. It wasn't quite there and it didn't result in Gould being able to buy Western Union, but eventually events conspired so that Gould had another chance, and he did buy Western Union.
But yeah, Gould and Edison had this relationship. Gold went out to visit him in New Jersey, liked what he saw. Edison came to visit Gould and so in order to maintain secrecy, he had to sneak in through the back door. He spent three hours listening to Gould's ravings about the possibilities of telegraphy and railroading and the merger of the two and how Gould planned to buy up all the Western rails and Edison was not impressed by Gould's character, but he did acknowledge that Gould was supremely skilled at what he did, which was to deprive other investors of their fortunes.
Josh King:
I mean, he did not possess that strong character that Edison was looking for, but he had this incredible drive and work ethic, which I think you think anyway, that Edison saw. For the most part taking on the US Treasury and attempting to destabilize the global economy would take the entirety of someone's focus but what was Gould doing with DANS and central railroad over at the New York Stock Exchange while also trying to corner the gold exchange at the same time?
Greg Steinmetz:
Well, gold worked all the time. He saw synergies between the different things he was doing. It was the Erie treasury that allowed him to buy as much gold as he did. He didn't like to leave money lying on the table. If he saw 20 bucks in the street, just like any of us, he would bend over and pick it up. If Gould saw an opportunity, even if it was small one, he would take advantage of it. DANS, well, that was early in his career. It was small. He did it.
But one interesting thing about this whole episode was Gould did not care about the financial repercussions to the system. He was short the Erie for a while, and he concocted some scheme where he deprived banks of a lot of cash, made them hold a lot more cash on reserve than they needed. And the intent of that was to drive up interest rates, to drive down the whole market so that Gould could just profit on one stock. And that was a prelude to what he did with gold. He didn't care about anything except making money for himself
Josh King:
After the break, Greg Steinmetz, author of American Rascal, and I are going to discuss more about Gould's ambitions to create a truly intercontinental railroad and how that should be remembered today. That's all coming up right after this.
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Josh King:
Welcome back. Before the break, I was talking to Greg Steinmetz, author of American Rascal: How Jay Gould Built Wall Street's Biggest Fortune, about the tumultuous start of Jay Gould's career. Greg, you write that one reason that Jay Gould may not be as famous as his robber baron contemporaries like J.P. Morgan, Cornelius Vanderbilt, and others, is that he made money in finance, not industry. When he made forays into other businesses, why don't you see him as a railroad man first and foremost, as he actually seemed or wanted to see himself?
Greg Steinmetz:
Well, he did own 15% of all the track in the country at one time. And he was a railroad man, but he wasn't the one who would go out and lay the track. The Union Pacific track was there when he bought it so was the track of the other railroads. He would expand on it, but he would see the opportunity on Wall Street by buying railroads for pennies on the dollar what they're really worth, and then flipping them, or in some cases, keeping them.
Now, the reason that he isn't well known, I don't think it's because he isn't linked with railroads, I think it's because he just died young. If you look at when Carnegie built Carnegie Hall, when Vanderbilt endowed Vanderbilt University, when Rockefeller started Rockefeller University here in the city, this was all stuff that they did in their 70s and 80s. Gould died when he was 56. New York University had its hooks into Gould at the time and I think had Gould lived longer, New York University might now be called Gould University and we would all be talking about Gould and know his name a lot better.
Josh King:
Whether we call people like Gould industrialists, robber barons or astute businessmen, the power that they held over the country, whether they lived long enough or not to endow a university during this period really is unrivaled in history because we do have Carnegie, Mellon and Vanderbilt. But with the exception of maybe the tech companies today, do you see a similarity between now and the period that you're writing about?
Greg Steinmetz:
Oh, without question Warren Buffett, is he a financier or an operator? Well, he owns every share of stock in the Burlington Northern Railroad. And the similarity that I see is you mentioned crypto at the start here. We don't know how to regulate crypto. We don't want to stand in the way of innovation, but we also don't want to be in the situation where we are now, where a lot of people who didn't really understand what they were getting into have lost a lot of money. That's the same set of facts that we had with the railroads. They're brand new. It was new technology that came about at the same time that Wall Street was just getting going. America since the early days believed in free markets and laissez-faire. People didn't know what to do about it.
And if you think about the impact that Gould made it wasn't by teaching people lessons about how to invest although there's a lot of that, but Gould was the one that triggered people's interest in regulation. The battle with Vanderbilt, for the Erie railroad prompted the creation of the Massachusetts Railway Commission, which was the first regulatory agency in the country. There's absolutely nothing before that. If you think about all the regulatory agencies we have now, the 40,000 laws we have on the books to regulate finance to the point where if someone's a stock broker, they need to get fingerprinted as if they were a common criminal. All these rules are to protect investors. There wasn't any of that when Gould got going but after the thing with Vanderbilt and the Erie, a guy named Charles Francis Adams, who was the grandson and the great-grandson of the president's, who are Adamses, he thought, okay, we have to do something to get the railroads under control. He began writing about it.
He got his home state of Massachusetts create this agency. But even after that, it took more than 20 years before the Inner State Commerce Commission got started. That was the first federal regulation of railroads. And that's exactly what we're wrestling with now. What do we do about the big tech, the platforms? What do we do about cyber? We're running around. We don't know what to do. It's going to be a while, I think, before we figure it out if you just look at how long it took federal regulators to figure out what to do about railroads.
Josh King:
I think it's a good time to note that while Gould was active at the New York Stock Exchange, we did his search and our records show he was never a member of this institution. Did he leave the trading floor work to manipulate the market to people like Fisk and others to better hide his ambitions? Or was there another reason?
Greg Steinmetz:
No, he didn't see any need to get his hands dirty. He had his brokers, but also yeah, he did want to keep it a secret. He would use 10 different brokers so that would obscure what he was doing. Some of those brokers that he used that were most closely associated with him, they might be shorting stocks as a head fake for the other brokers who are buying stocks for Gould. So yeah, there's no reason for him to walk down to the exchange. Fisk showed his face on the gold exchange on Black Friday to show his confidence in the gold price. And so for theatrical purposes, Fisk showed up at the exchange. Gould didn't step foot onto the exchange, but he made it clear that he was downtown that day too. That's as close as he got to trading on the exchange.
Josh King:
He made several attempts to create the first truly intercontinental railroad, we'd referenced it earlier in our conversation, Greg. It would require gaining and then keep control of Union Pacific, still trading here on the exchange under the ticker symbol UNP. How did the 1873 depression help that happen and kick off years of fighting over track beds, land rights with the Commodore's son and others?
Greg Steinmetz:
The 1873 depression, it lasted seven years, but I want to say something about the Union Pacific. In the lobby on the way here, I saw that the Union Pacific, it's the only company that was listed back in 1870 that's still listed today and there isn't another stock in the exchange that's been on the exchange as long as Union Pacific. And Gould owned this thing and built a whole network around it. The crash of 1873 is really interesting to me because there wasn't too big to fail. And the reason we had this crash and it was very devastating, it was the longest depression we had other than the Great Depression, the guys whose failure triggered it, he was the Goldman Sachs of his day, the guy named Jay Cooke.
He financed the civil war for Lincoln by going out and selling bonds to retail investors. This guy was huge in financial circles. He was trying to build a railroad across the Northern tier, the Northern Pacific Railroad. Sitting Bull stopped him in his tracks in Montana. He couldn't get the railroad done in time. Debts piled up. The thing went under. The whole economy crashed when he crashed and it was just devastating, but for Gould, because he was liquid at the time, it was a great opportunity. So although Gould lost a ton during that period, he was also able to buy things for a song and made a lot of money.
Josh King:
His efforts with the Union Pacific, put him not just in the crosshairs of the likes of Vanderbilt but also Washington DC. I mean, what were the circumstances that hauled him before Congress? And how did he differentiate himself from the stiff testimony of his contemporaries, both then and now?
Greg Steinmetz:
Well, Gould was hauled before Congress on several occasions. The most noticeable was to talk about the collapse of gold, his attempt to corner the gold market and Gould answered questions. He wasn't evasive. He had all the facts at his fingertips, but never divulged anything he didn't want to divulge. He didn't hide behind the Fifth Amendment or anything like that but then again, he wasn't being charged for anything. Those hearings were to find out just what happened and why the gold market had these horrible convulsions when Gould tried to corner it. Gould in the terms of The New York Times was a charming witness. He told some funny anecdotes. He dispensed some investment tips. He wasn't at all evasive and The New York Times, which probably hated Gould more than anyone because Gould manipulated the Times during the gold scandal to help his cause, even the Times said, "Okay, this guy, he's a scoundrel, he's a crook, but he's not all bad."
Josh King:
He had this career that was built on practices that regulation would eventually make illegal even when he was alive, Greg, but Gould wasn't against using, as you write in the book, and I'm going to quote here "the muscle of government to achieve objectives otherwise impossible" when it suited his needs. How did this lead to Gould to forge an unlikely alliance with the great-grandson of the nation's second president?
Greg Steinmetz:
This fellow John Francis Adams II did not like Gould. He wrote about the gold exchange. He vilified him... the gold corner. His brother, Henry Adams, who was a famous writer, also wrote about the gold scandal and Erie. Adams just thought Gould was a miserable s-o-b, but because Adams had inserted himself into this discussion about railroad regulation, the government was able to place him on the Board of Union Pacific, which had some government representation because of all the money that the government had provided the Union Pacific to build the transcontinental railroad.
He got to know Gould personally, and he never liked Gould, but he came to respect Gould and there was a period late in Gould's life where Adams and Gould came up with a plan together to regulate the railroads at a time when there was just ruinous competition. They came up with a scheme to consolidate the railroads and hold up pricing and do a lot of things that would result in a very smooth transition from there being too much capacity to just enough and it would involve the federal government. And Gould and Adams, they might have pulled this off had not Gould been deeply ill at the time and recovering from the death of his wife.
Josh King:
His proposal to J.P. Morgan and others to use government to create a railroad cartel was a non-starter and his premature death kept his plans to control a unified railroad from actually coming about but was that a good thing or a missed opportunity for the country, you think?
Greg Steinmetz:
Well, the way things later sorted themselves out one year after his death, a bunch of railroads went out of business, which was devastating of course to the employees and to the investors and all sorts of others. So yeah, had they been able to pull off this scheme, it wouldn't have been a calamitous, disruptive event as it subsequently was.
Josh King:
As we wrap up our conversation, Greg, Jay Gould's career, not unlike someone like Elon Musk today, can be viewed through maybe positive or negative prisms. What role, as we think about it, did antisemitism, despite not being Jewish play in how Gould was thought of during his life and how he's remembered?
Greg Steinmetz:
The country in Gould's day was controlled by the Protestant elite. It's funny, Gould was a member of the Protestant elite. His ancestors came over before George Washington's ancestors. One of them fought besides George Washington in the continental army, but for people looking to discredit Gould and advance their agenda of making life miserable for Gould, it was easy to tar him by saying, "Well, he's Jewish." And antisemitism was very strong at the time. And by implying that he was Jewish, even though I think Gould attended an Episcopalian church every Sunday, it, like I said, advanced this idea that he was evil.
Josh King:
So tell us about his eventual demise.
Greg Steinmetz:
From his teenage years, Gould acquired some lung problems because he didn't sleep enough. He was riding around in the Poconos on a horse on frigid days, didn't care about his health. All he cared about was making money. So he had health problems his whole life and he came down with TB when he was 56 and that was it.
Josh King:
And what did he leave behind? I saw some calculation of his wealth and how to think about it at the time.
Greg Steinmetz:
If you look at the stock prices of the things he owned at the time of his death, it came to about 70 million. You do this percentage of inflation sort of calculation and it would put him in the top 20, top 15 of all time, largest American fortunes. And what he did is he divided it equally among his six kids, which was very different than Vanderbilt who gave it all to, or 95% of it to his oldest son. That allowed the Vanderbilt family, or at least that branch of the Vanderbilt family to perpetuate itself and Gould didn't do that. He thought, okay, everyone should get the same. The girls should get as much as the boys. None of them were particularly good at managing the fortunes. At least four of them squandered it. Two of them preserved it but not to the point that they would impress anyone now with their holdings.
Josh King:
So reflecting now on his passing and his legacy, how should the public remember Jay Gould? And is there anything that investors or the market can learn from the story that you've uncovered and brought back to life through American Rascal?
Greg Steinmetz:
The lesson that I take from this is there's this thing that people say about Gould is, "Watch not what he says, but what he does," or as it applies to Gould, they'd say, "When his lips are moving, he's lying. When they're not moving he's scheming." And I think investors could learn from that. Just because a CEO says something, don't take it to the bank. Look at the track record, look at what that person's motivations might be. Don't get conned by a story. And the investors who were buying stocks when Gould was promoting them and selling them when Gould was going the other direction, learned these lessons the hard way.
Josh King:
So Greg you've now written books on the world's richest man and Wall Street's richest man of the 1800s, is there another underappreciated Titan of Wall Street that you're considering for the next one?
Greg Steinmetz:
Yeah. I've been thinking about things and I don't think I want to do a straight biography starting with the moment they're born and ending when they die. I want to tell more of a story, even though that means just looking at a snippet of someone's life. So that's what I'm looking at now.
Josh King:
Well, thank you for sharing not just a snippet, but the whole span of American Rascal, Jay Gould's life. It's been a pleasure having you Inside the ICE House.
Greg Steinmetz:
Yeah, this was great. Thank you very much.
Josh King:
And that's our conversation for this week. Our guest was Greg Steinmetz whose new book, American Rascal: How Jay Gould Built Wall Street's Biggest Fortune. It's available now from Simon and Schuster. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @icehousepodcast. Our show is produced by Pete Asch with production assistance from Ken Abel and Ian Wolff. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
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