Gotham_ A History of New York City to 1898 - Edwin G. Burrows [826]
But the railroad wars revived as well. Rival barons had agreed to a new “pool” in 1877—a cartel to curtail competition, fix prices, and divvy up markets. Unenforceable at law, the arrangement was soon in tatters. Supply rapidly outstripped demand. When one line proved a route’s profitability, others jumped in and built another, forcing the established firm to slash rates. Profits spiraled downward. Faced with catastrophe, the roads formed new pacts, only to find them quickly violated by predators.
The biggest shark of all was Jay Gould. With fellow manipulators like Russell Sage, Gould bought up western lines, puffed their stock, sold out at profitable highs, and turned a final profit by selling short on the way down. Gould joined pools, then sabotaged them without compunction, precipitating yet another round of conflict.
By the early 1880s each major line was struggling to transform itself into a giant, self-contained, nationwide system capable of withstanding all possible rivals. Gould expanded his core lines in all directions and by 1882 owned over fifteen thousand miles of road, 15 percent of the national trackage. William Vanderbilt retaliated with his own massive expansion program. So did Henry Villard and the group of New Yorkers—including August Belmont, Robert Goelet, and the young Edward H. Harriman—who controlled the Illinois Central. But all this did was reproduce the warfare at a higher level.
By 1883 the combat was buffeting Wall Street. At first there were just isolated failures: high-flying financiers like Henry Villard plummeted suddenly into bankruptcy. Then, as competition blighted earnings, rail stocks declined, and iron stocks dipped downward. Alarmed European capitalists retreated again across the Atlantic. Rumors spread of an impending collapse. The president of the Exchange asserted that “the situation now is in no respect like that which preceded the panic of 1873”—a sure sign of trouble.
By 1884 the contraction had become so pronounced, the speculative marketplace so vulnerable, that anything might have triggered disaster. In the event, the unwitting precipitant turned out to be Ulysses S. Grant Sr.
After the war, an unscrupulous young man named Ferdinand Ward had plunged into the stock market and scored with a series of modestly successful speculations. On the strength of this, Ward persuaded Ulysses “Buck” Grant Jr., airhead son of the expresident, that he could make him a millionaire overnight. Grant and Ward, stockbrokers, was born. Next, the smooth-talking Ward convinced Grant Senior—the general had moved to New York City in 1881 and settled into a brownstone on 66th Street—that he could advance his son’s career by joining the firm too. Then Ward went to James D. Fish, president of the Marine National Bank, and hinted lucrative government contracts were on the way to the ex-president’s firm. Fish took the bait and advanced large sums of depositors’ money, which Ward used for stock market speculations.
Ward, unfortunately, bet on a bullish market just as stocks turned bearish. He lost heavily but continued to pay dividends to Grant and Ward’s investors—including the Grants—by arranging further loans from Marine Bank. The Grants, père et fils, thought themselves rich.
In April 1884, with both Ward and Marine Bank desperate for funds, Ward went to the credulous general and said the bank, and thus his brokerage house, were in a spot of temporary trouble. Could the general borrow $150,000 from William Vanderbilt to tide things over? Grant did as requested, though Vanderbilt, who like most rich businessmen had a great affection for Grant, said: “To you—to General Grant—I’m making this loan, and not to the firm.”