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Wednesday, March 31, 2010

A FASCINATING WOMAN

I wish I had met Sara Emily Howe. She must have been a hoot. Talking with her must have been like a ride down Space Mountain at Disneyland; a thrilling sensation of breakneck speed, careening turns and narrowly missed catastrophe, followed immediately by an edge of your seat debacle. She was, according to one biographer, “one of the most exuberant, spontaneous, imaginative, and unnecessary liars that ever breathed”.  She was also a life long con artist. The only safe way to converse with Sara Howe was with both hands on your wallet. And even then, before I left the room, I would count my cash and my fingers. Alas, I shall never meet Sara, for, like John the Baptist, she was a prophet, foretelling the coming of Bernie Madoff, 125 years in the future.
By all accounts Mrs. Sara E. Howe was an amiable and gregarious woman of about sixty years of age when she first began our story. And when, during the winter of 1879, the owner of Number 2, Garland Street, in Boston, inquired of her, Mrs. Howe cheerfully explained that she wanted to buy the house because she was an agent for a charity organized by “The Quaker Aide Society” of Alexandria, Virginia. Using resources donated by and to the community, a bank (of sorts) had been created, “The Pacific Loan Company”, for the benefit of single women “young and old”. Deposits from ladies would be accepted, under strict rules and regulations. And it would all be headquartered in this humble home, if Mrs. Howe decided to buy it.
The seller, a woman and a successful grocer, was intrigued, and asked what the regulations were. Mrs. Howe explained that the bank would accept no deposits of less than $200 cash, and none of more than $1,000 cash. Generous interest of 8 % per month (per one thousand dollars on deposit) would be paid, once every three months, in advance. Further, Mrs. Howe assured the seller, the principle could be withdrawn at any time, during regular business hours. It was such an intriguing proposition that the seller not only granted Mrs. Howe a mortgage on the home, but she also invested the down payment with the Mrs. Howe. And with that single transaction the Ladies Bank of Boston, was born.
It was all a fraud, of course. There was no “Quaker Aide Society”, and thus they had no fund. The “Pacific Loan Company” consisted of Mrs. Sara E. Howe and her purse and her wits. But, for the mere investment of this invention, Sara Howe had received a real brick house she could live in. Of course, in three months, Mrs. Howe was required to meet the first payment. But that 8% payment was, at most, a fraction of what a mortgage payment would have been. And the lady grocer now felt safe sharing her good fortune with friends, who, one after the other, rushed to “invest” their savings with the “Ladies Bank of Boston.” And once that first cash had passed into Sara’s hands, the game was afoot.
The United States Census of 1870 was the first to inquire about working women. To its own surprise it found that at the height of the Victorian age, which was predicated upon women being less than men, women made up 15% of the work force. Despite this, legally, “…married women had rights similar to the rights of children….” Her property was her husband’s, but not the reverse. Her income was his, but not the reverse. “The wife was not able to (even sign) a contract on her own.” (Wikipedia – “Women in the Victorian era). However, because legally an adult women was a child, she could not be punished “…for certain offences, such as theft or bulgury, if she acted under the command of her husband.” And this may explain at least in part why Mrs. Howe had a husband, Mr. Florimund L. Howe. It seems he did not participate in the affairs of the bank, but he would have proved a handy “fall guy”, should one ever be needed.
Mrs. Howe never advertised, and never solicited deposits for her bank. She did not have to. However, she dutifully paid each lady their 8% dividend every three months. And as word of this windfall spread, new deposits accelerated. By the end of the 1879, Sara had 125 depositors and a staff of half a dozen – all women. So regularly did the “bank” meet its obligations that few if any ever sought to withdraw their principle. And then on January 8th and 9th , 1880 the Boston Herald published an investigative story on the bank, under the sneering headline, “How’s This for High? Eight per Cent a Month paid by a South End Bank For Women Only”. The reporter had even traded in his trousers for a dress and bonnet to interview employees, thinking his costume fooled the staff. He implied by tone and content that the bank was a fraud. So now the truth was out there.
Henry Clapp, in an article for The Atlantic Monthly, written in July 1881, (“Sympathetic Banking”) wrote that “Mrs. Howe and her crew have often boasted of the good which came to them from this their first passage at arms with a newspaper.” In fact, after the publicity they were deluged with new “customers”. It was found necessary to open two branch offices of the “bank” to handle the flood. And in May Sara Howe bought a larger home on Franklyn Square, in Boston, for which she paid cash - $20,000 in $100 bills. Shortly there after she bought a second home for $40,000, and paid for it the same way – with hundred dollar bills. By September of 1881, the “bank” was attracting twelve new depositors a day, and had deposits of half a million dollars. When asked how she maintained such a monotonous success for her depositors, Mrs. Howe would always demur, saying “We never discuss our methods.”
In fact Mrs, Howe was running a pyramid scam, in which there is no actual investment. Rather, today’s investor’s money was used to pay yesterday’s investors. And that is, by definition, a dead end. Assuming every one of the world’s six billion people invested $1 in a pyramid scheme, then the scheme would contain at most $6 billion. At best, everyone would get their initial investment back, with no profit. But since the early investors are given profits, to entice later investors, all pyramid schemes collapse, leaving later investors asking where their money went. To join early is to defraud others. To join late is to hand your life to thieves. Steve Keen (www.debtdeflation.com/blogs/2009/01/02/ponzi-maths-part-3) explains that there is never a reservoir of money sitting somewhere that could disappear. As soon as the cash comes in, it is paid out, “to investors who…spent it, or used it to pay other debts…So it evaporates in a comparative flash.” Or, in Mr. Clapp’s words, it exploded, and “Under that detonating dynamite disappeared the intelligence and the morality of women.” Heaven knows, no men have ever fallen for a pyramid scam.
The explosion went off Saturday, September 25th when the Boston Daily Advertiser began a relentless series of articles on the “bank.” By the following Wednesday a run began on the bank. On Friday alone, it is reported, the “Ladies Bank” returned $80,000 to its investors. But that meant that a large number of women were still making deposits, even during the run on the bank. The term “dupes” seems too inoffensive and incomplete a description. But the run continue, and the fresh investors could not keep pace. On Monday, October 4th, Mrs. Howe announced a suspension of payments. On Thursday, October 14th her home and all bank property was seized by the courts. On Saturday, October 16th, Mrs. Howe was arrested. “The Nation” magazine called it the first “conviction by newspaper.”
Mr. Florimund L Howe was paid $1,000 to drop any claims against the estate, and disappeared. That cleared the way for an accouting. It was figured that perhaps 1,500 women had deposited money in the bank. Three hundred got their money back. Nine hundred filed claims, but got nothing. Perhaps another two hundred were too destitute or too embarrassed to even file a claim. And Sara Howe, protesting during her trial that, if freed she could easily pay all debts, was sentenced to three years in prison.
Upon her release, Mrs. Howe immediately opened another bank, and customers flocked to give her their money. But she had learned from her first experience, and when her deposits reached $50,000, she and the money disappeared.
She turned up in Chicago, using the name of “Mrs. Elmer”, and paying $7 a week on every $100 deposited. Just as she was recognized, she disappeared again. She next appeared in New Brunswick, Canada, pulling the same scam, dropping out of sight when the local press began to show an interest. Age finally drove her back to Boston, where she died, destitute. And the last word should perhaps belong to Mr. Clapp. “The truth about Mrs. Howe”, he wrote, ‘was simply this: that she was a miserable old rogue”.
Yea, but she must have been fascinating to talk to, if you kept your hand on your wallet.
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