Gotham_ A History of New York City to 1898 - Edwin G. Burrows [454]
Browning and Dunham’s foundry stood on the Hudson River shore at the foot of North Moore Street. Water color, 1837. (The Metropolitan Museum of Art, Bequest of Edward W. G. Arnold, 1954. The Edward W. C. Arnold Collection of New York Prints, Maps and Pictures)
The Barings were right to be cautious, for the rail boom had provided an opening for traders far less circumspect than Nathaniel Prime. Younger men, despised by their seniors as gamblers, seized on the opportunity for speculative scheming. Playing the stock market, after all, was much easier than dealing in real estate. Securities could be bought and sold quickly, and the invention of “margin trading” (a form of securities purchase on credit that was indigenous to the United States) allowed one to play at the table without anteing up huge sums: five dollars to a broker could buy fifty dollars’ worth of stocks.
Railroad issues were risky, glamorous, and potentially highly profitable—perfect for the adventurously inclined investor. But speculative traders didn’t often bother with assessing a company’s real-world chances. Instead they manipulated the virtual reality of the market itself. By the early thirties warring cliques of bulls and bears were driving prices up and down, using underhanded maneuvers that were not only legal but were widely admired for their daring.
Jacob Little, the New York stock market’s first full-time “operator,” was one of the most famous and successful of the manipulators. Little, a tall, tense, preoccupiedlooking man, started out on Wall Street clerking for a private banker. He opened his own office as a money broker in 1822, joined the NYS&EB in 1825, and by the 1830s was known as “the Napoleon of Wall Street.” In his heyday, 1832-35, Little speculated in cotton, securities, canals, and above all railroads, with spectacular success.
Little was credited with inventing—and was certainly a master of—the “manipulated short sale.” He would promise to sell someone shares of stock, shares he didn’t yet own, for delivery in, say, sixty days. Then he would launch a campaign to drive the price of the stock down, perhaps by planting false rumors about the company’s impending insolvency. If all went well, just before the sixty-day limit expired, he had forced the shares well below the price he had promised to sell them for. He could then buy the shares, make his delivery, and pocket the difference between what he had paid for them and the price the buyer had obligated himself to pay. The spread could be enormous.
Politicians who could influence a railroad’s destiny were quick to follow Little’s lead. State Senator Kemble made a speech opposing any enlargement of the NY&H’s capital. When the news of impending scarcity hit Wall Street, the price of Harlem stock rose. At the top of the market, Kemble’s broker sold short. Kemble then pushed a bill through the legislature enlarging Harlem’s capital, and the price plummeted. As these were early days, and such behavior was still considered inappropriate, Kemble was expelled from the Senate.
Bulls countered such bearish tactics by trying to “corner the market” in a contested stock. If they could round up most available shares, they could block bears from buying the amount of stock necessary to fulfil their contracts. Better still, if they secured a complete monopoly, they could hoist the price as high as they chose, forcing bears to buy at the inflated price, then sell at the lower, promised one—likely driving them into bankruptcy. Profits of 200 percent were routine for successful corners. In the 1830s boom, corners were common.
Little was a master of this tactic too. In 1834 he drove Morris Canal and