JULY 2017

JULY  2017
Greed and Monopolies Take Over the Ship

Translate

Amazon Contextual Product Ads

Friday, June 04, 2010

LIBERTARIAN HERO

I wish the average libertarian could meet Jay Gould, because he was unfettered capitalism in the flesh, “the human incarnation of avarice,” as one minister described him, the Mephistopheles of Wall Street, the robber baron par excellence, “prince of the railroad schemers”, annd the man within whom all the theories of the libertarians about capitalism and freedom met the reality of human nature, and got the tar beat out of it.
He was a “…short, thin man with cold black eyes, a narrow face and, in his maturity, a “full black beard”. Born into poverty, his mother was active in the Methodist Church until her death, when Jay was 10 years old. When he was seventeen, Jay apprenticed himself to a surveyor, Oliver Diston, at the salary of $10 a month. When Jay started issuing his own maps for sale, Diston sued. Jay’s attorney, T. R. Westbrook, managed to have the lawsuit dismissed, but, as one biographer noted, from that day forward, “…there was scarcely a day during his whole life that he did not have some litigation on his hands.”
His map business made Jay $5, 000, which he invested with Zadock Pratt, a Manhattan leather merchant. Smothering Mr. Pratt in adoration, the 21 year old Jay proposed to write the older man’s biography. That project drew the pair into a partnership in a new leather tannery south of Scranton, Pennsylvania. With Pratt’s money Jay built an entire company town, which he named “Gouldborough”. He wrote Pratt sycophantic letters, in one describing the organizing meeting for the new community. “Three hearty cheers were proposed for the Hon(erable) Zadock Pratt…This is certainly a memorandum worthy of note in your biography, of the gratitude and esteem which Americans hold your enterprising history.” However Mr. Pratt, who knew a lot more about the tanning business than young Jay, had begun to see through the fog of compliments.
Pratt showed up at the plant unannounced in the summer of 1858 to go over the books, and discovered them to be a confusing mess, showing unauthorized risky investments and a private bank which Jay had established in Stroudsburg, apparently with company funds, but without the company sharing equally in any profits. However, Jay had anticipated this, and had already lined up a richer and more docile partner. When confronted in August by Pratt, Gould stunned the man by offering to buy him out for $60,000. Pratt quickly accepted. The cash for the buyout had come from Jay’s new partner, Charles Lessup.
But it wasn’t long before even Lessup began to suspect he was being had, and by the fall of 1859 Lessup was panicked by the commitments Jay was making in his name. On October 6, 1859, facing financial disaster, Charles Lessup shot himself. Lessup’s daughters bitterly demanded Jay repay them for their father’s investment, and Jay countered with an offer of a payment of $10,000 a year for six years. He had, of course, neglected to include any interest during the five year delay. Unfortunately for Jay, the families’ lawyers caught the omission. Still, in the early months of 1860, it became clear that Jay was hiding assets from the family.
Lawyers and 40 deputized men were dispatched to the tannery on Tuesday morning, March 13, 1860. They flashed the legal papers, ushered the workers out and padlocked the doors. They held the place for a little over six hours, until Jay returned from New York. Just past noon some 200 men stormed the building with axes, muskets and rifles. Four men were shot, others were badly beaten, and according to the New York Herald, “…those who did not escape were violently flung from the windows and doors…” As Jay would later boast, ““I can hire one-half of the working class to kill the other half.” The courts would eventually throw Jay Gould out of the tannery, but by then he had shifted his operations to a place more suited to his nature; the unregulated economic free-for-all that was Wall Street.
While North and South battled over slavery, Jay Gould formed his own brokerage firm, Smith, Gould and Martin, and made the acquaintance of James “Big Jim” Fisk, who had made his fortune smuggling southern cotton through the Federal armies and selling Confederate War Bonds. And even while brave men died by their tens of thousands, this pair joined Daniel Drew, director of the Erie Railroad, in their own, private war.
Their enemy was Cornelius Vanderbilt, who owned every railroad in the east except the Erie. Naturally, “The Commodore”, as Vanderbilt liked to be called, was seeking a monopoly, so he could charge whatever freight rates he wanted, and he began to buy stock in the Erie. Sensing blood in the water, Jay and friends printed up 100,000 shares of Erie stock, which The Commodore promptly bought, and which the board of the Erie – Drew, Fisk and Jay Gould – immediately declared to be worthless.
Bilked out of $7 million, Vanderbilt filed legal papers to examine the Erie’s books. Jay and friends grabbed the company records and retreated to New Jersey, where they re-incorporated. Vanderbilt then had arrest warrants issued for all three men, but since New York law could not touch them, the Commodore began to assemble ships and men to invade New Jersey, all by himself. While the Erie Board prepared to receive the invaders, Jay managed to slide a bill through the New York State assembly making the issuing of worthless stock, legal, retroactively.
This trick was managed by the simple expedient of giving William “Boss” Tweed, the head of political graft in New York, a seat on the Erie board. That brought the Erie War to a temporary end. And if you are feeling sorry for the Commodore, remember that Cornelius himself once said, “Law, what do I care about the law? Ain't I got the power?" Another libertarian hero.
With the Commodore’s cash, and further fortified by looting the Erie’s assets, Jay, Fisk and Drew began their own complicated scheme to raise freight rates on the Erie Railroad. In 1869 they began to buy and hoard gold, because raising the price of gold would raise the price of wheat, which would allow them to raise the freight rates they charged farmers for shipping the wheat. As insurance the trio took on another partner, Abel R. Corbin, who happened to be President Grant’s brother-in law. That gave the appearance that “the fix” was in, and other investors jumped on the bandwageron. The price of gold skyrocketed.
When Grant learned about the manipulations, he immediately ordered the U.S. Treasury to sell $4 million in gold. The sudden influx hit the market like a bomb, on September 24, 1869, when gold dropped 30%. The date would henceforth be known as “Black Friday” (at least until October of 1929). Thousands of investors were wiped out, including Abel Corbin, and an angry mob swarmed the Gould’s brokerage offices, smashing the furnishings and chanting “Who killed Charles Lessup?” Of course the trio of Gould, Fisk and Drew, walked away from the wreckage with an $11 million profit.
Daniel Drew was to be Jay’s next victim. In 1870 Fisk and Gould sold their shares in the Erie to the Commodore for $5 million. The deal gave Vanderbilt his monopoly, but it also revealed that the Erie was bankrupt. And it left Daniel Drew, abandoned by his partners, out $1.5 million. He would die flat broke nine years later, just one more partner and one more victim of Jay Gould.
Big Jim Fisk was saved from a similar fate when, in 1871, a competitor for a woman shot him to death in a New York Hotel. After that Jay was reduced to stealing from lesser partners, such as Major Abin A. Selover, who actually considered himself a friend of Gould’s. It was Selover who introduced Jay to a California friend of his, James R. Keene. After Keene and Selover had both been battered by Gould in a contest for control of Western Union, Jay and Selover happened to meet on the street one day. Jay tried to walk away, but for once in his life, Jay Gould was caught.
Selover grabbed Jay be the collar and shouted, “I’ll teach you to tell me lies!” The six foot tall Selover then threw Jay to the ground, and then yanked him up again by one hand, dangling him above the stairwell of a below-street level barbershop. With his free arm Selover began slapping the Mephistopheles of Wall Street and shouting, “Gould, you are a damn liar!” When Selover finally let go, Gould dropped 8 feet to the stairs. A stock broker the next day quipped, “It was characteristic of Mr. Gould that he landed on his feet.”
Overnight, Abin Selover became the most popular man in New York City. Jay Gould was wise enough not to press charges, since no jury could be expected to convict anyone of assaulting Jay Gould. Henceforth, Jay never went out without a body guard. He began to describe himself as the “most hated man in New York”, but he never changed his ways. Selover went broke, as did Keene. However, when he died in 1892, Jay Gould was the ninth richest man in America, worth about $77 million. He died a hero only to those who never did business with him. Gould scoffed at the idea that Wall Street should be regulated. “People will deal in chance….Would you not, if you stopped it, promote gambling?”
It was and is a philosophy which fails to see an advantage to drawing a line between gambling and investing. It is the philosophy of libertarianism. It is the philosophy of greed. It was the philosophy of Jay Gould.
- 30 -

Wednesday, June 02, 2010

MIND OVER MATTER

I don’t know if you know this, but the French have long been obsessed with finding a way around Spain. A trip from the French port of Marseille, on the Meditrerranean, to the French port of Bordeaux, on the Atlantic, covers 1,500 miles – a month’s long voyage in the age of sail, through storm tossed pirate infested seas. In the first century Roman engineeers schemed with the idea of building a canal, from the Gulf of Lion, following the River Herault north toward the Montagne Noir – the black mountain -  through a pass called the Collar of Naurouze, and then dropping down to Toulouse, at the head of navigation on the River Garone, and via that river north 180 miles to the Atlantic. There was just one thing missing from this grandious and brilliant solution of a canal; water.
See, the thing about the Mediterranean coast of France is that the climate is Meditrranean; it has short, mild, wet winters, and very long and very dry summers. Every river in southern France shrinks in August, some years drying up completely. And a canal without water is not a canal. Even Leonardo da Vinci, asked by the King of France to come up with a workable solution in 1516, failed because of the lack of water. A century later, in 1618, the Council for the Languedoc province in southern France sat through yet another sales pitch for a canal, this time from huckster nammed Bernard Arrobat. The Council voted it down, in part because of arguments presented by William Riguiet, the povincal prosecutor. But witnessing that sales pitch was the prosector’s young son, Pierre-Paul Requiet, and he was sold.
Pierre inherited property from his father, and in 1630 he bribed himself into an appointment as the Controller of the Languedoc gabels, which was the tax on salt. Now, every French citizen above the age of eight was required to buy a minimum amount of salt each week from the state. The price varied from provence to province, and could be as high was as 12% of a families’ income. The King received 40% of this money, off the top. From the remaining 60%, the Controller paid the costs for collecting and enforcing the tax, and then pocketed the profits. It was a system designed to be gamed. From his profits, Pierre not only paid for a wife and three daughters and two sons, but a fancy house in Toulouse. But he spent most of his time in the village of Revel, next to the Montagne Noir
Pierre’s had never forgotten that sales pitch, and hired experts to comb the mountain above Revel, looking for the water needed to build a canal. And in 1661, he claimed to have found it. According to Pierre, a stone had fallen from a minture dam he had built across a stream on the Montagne Noir. As the water poured out, it divided, half flowing north (toward the Atlantic) and half south (toward the Meditrranean), and a leaf in the pond was left spinning, unable to decide which way to go. It was a typically French moment of inspriration, poetic and lyrical and probably made up, but it did lead to a serious mistake.
The mistake was the Basin of Naurouze, a huge 8 sided water tank embeded in the ground, which Pierre porposed to build at the site of his test dam. It would be fed by numerous mountain streams, and once filled would provide the year round water supply for the canal.
Pierre took his plan to the King’s Minister of Finance, Jean Baptiste Colbert. This guy was a genius with money, who once observed that “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing”. That was "truthyness" in the extreme. But Colbert knew nothing about canals, so he asked the advice of the formost hydrolical engineer in France, Chevalier de Clerville.
Chevalier took one look at Pierre’s Basin Naurouze and knew immediately it would never work. Instead he proposed an artificial lake in the Laudot valley at St. Ferreol, higher up in the mountains. And since Pierre needed Clerville’s approval to open the King’s check book, Pierre agreed to build the reservoir, so long as he also got to build his Basin. Colbert thereupon approved Pierre’s plan, with a couple of catches. First, only the southern half of the canal would be built initially, because of the expense. And second, the King would finance the project only if Pierre kicked in the first 25%. That way, if it turned out Pierre didn’t know what he was doing, it wouldn’t cost the King a single livres. And that is why Colbert was a financial genius.
Pierre was not. He was so obsessed with building the canal, he might as well have been a complete fool about everything else. On March 1st, 1667 the Council of Languedoc loaned Pierre 2 ½ million livres to begin construction, and on April 16, the first earth was moved for the dam at St Ferreol...
and the Basin Naurouze...
and first bricks were laid for the locks at Toulouse.
In all the 240 mile long canal would have 103 locks. It would cross several rivers, and it would have to build two aqueducts so rivers could cross the canal. Since Pierre had found the money to get started, the King had to cough up 3 ½ million livres to finish the canal. Other investors, pressured by the King, provided the rest of the 15 million livers, but the canal (along with his other expensive construction projects) would bankrupt the King. It did not bankrupt Colbert, bit it also bankrupted Pierre.
The terms of that 8 year loan from his friends at the Council would prove to be crushing. Pierre had to sell off most of his property to meet the interest payments, and eventually he even had to cash in all three of his daughter’s dowries to meet refinance extensions. For 14 years, 12,000 workers sweated and strained with picks and shovels – over a thousand of them women – to reach the Mediterranean at the little port of Sete.
When Pierre died in 1680, at the age of 71, he still owed 2 million livres, and his canal was still a mile and a-half short of completion. His sons were forced to sell half of their interest in the canal to finish it, and it would take a century before they could pay off the debts.
But of course, once the canal, originally called the Canal Royal de Languedoc, was finished on May 15, 1681, Pierre got credit for the whole thing, including the Basin of St. Ferreol...
and the Malpas tunnel, the first tunnel built using explosives. Both of those innovations were designed by and forced on Pierre by Chevalier de Clerville. But Chevalier is just a footnote in history.
Worse, a few years after the canal’s completion, Pierre’s center piece, the Basin Naurouze was abandoned. It had been a failure for just the reason Clerville said it would be; the tank kept filling with sediment. But on the monument eventually erected in 1825 by his sons near the site of the abandoned and dismantled Basin Naurouze, there is no mention of any mistakes.
And every school child in France knows that the Canal du Midi – as it is known today – was built by the genius and drive of one man only, Pierre-Paul Requit.
- 30 -

Sunday, May 30, 2010

WHAT EVER HAPPEND TO JUDGE CRATER?

I admit, the more you know about Judge Crater, the less likely you will be to find him attractive. And you are even more likely to think he deserved what he got, whatever that was. But if I owned a time machine, one of the very first places and times I would visit would be West 45th street, in Manhattan, outside of Billy Haas’ Chophouse, shortly after 9:00 PM on the night of August 6, 1930. What I would hope to see would be a middle aged man, about six feet tall, about 180 pounds, wearing a dark brown double-breasted coat and matching trousers, a bow tie, a Masonic ring and a gold wristwatch, a pair of pearl-gray pinstriped spats and all set off by a straw panama hat tipped at a jaunty angle, and with a self satisfied smirk glued on his face. You see, this arrogant jerk was the newly appointed New York State Supreme Court Judge Joseph Force Crater. And leaving the resturant, he climbed into a cab. And after that cab pulled into the New York City night, he dropped completly off the face of the earth; he vanished.
Judge Joe Crater was, until Jimmy Hoffa, “the missing-est man in America”. One biographer has described him as a man with multiple personalities: “A jurist, a professor, a Tammany Hall stalwart - meaning a crooked politician - and a family man.” He was also “Good Time Joe”, with a penchant for liquor and lovely available showgirls. After he disappeared rumors said he had committed suicide or (more likely) run off with a show girl, or that he had died in bed with a prostitute or was killed for reneging on a debt. He was reported seen prospecting for gold in California, shooting craps in Atlanta, on a steamer in the Adriatic and (my favorite) running a bingo game in North Africa. But for all the hoopla over his disappearance, nobody even reported him missing for three weeks.
The judge had left his wife Stella on Sunday August 3, at their summer cabin in Maine. He told her he was going back to the city for a day or two to “straighten those fellows out”. But he never identifed "those fellows", and he promised to be back in Maine by Friday, August 9, Stella's birthday. In fact the romantic guy had already ordered Stella's present; a new canoe. He took the overnight train to New York City, arriving on the morning of Monday, August 4, 1930, at Grand Central Station, just in time for the start of a heat wave of ninety plus temperatures.
Joe went immediately to their two bedroom co-op at 40 Fifth Avenue where he cleaned up and told the maid she could take a few days off. But, he told her, she was to return on Thursday ( August 7) to clean up after he had left again for Maine. That night Crater took in a show and had dinner at the Abbey Club, a notorious gangster and political hangout - this was still prohibition America, and liquior was still available only through the mobs. On Tuesday Joe had lunch with two of the judges he would serve on the appeals court with, and that  evening he played poker with friends.
In the early afternoon of Wednesday, August 6, his last full day in New York City, Crater went to his old office in the Foley Square Courthouse, where he began going through his files. He ordered an assistant to cash two checks for him, closing out some stock and bond accounts. The total was  $5,150 in cash. He took the files and the cash with him, in two locked briefcases. He then headed off to dinner with his friend Bill Klein and the showgirl Sally Lou Ritz. Sally was one Crater’s mistresses. They ate cool lobster cocktails and cold chicken for dinner. Then, just after 9 p.m. Joe left the resturant and climbed into that cab on West 45th Street.
Later, someone picked up the single ticket Joe  had reserved at the Belasco Theatre. The show was a comedy, "Dancing Partner", which had opened the night before, and Joe usually arrived at the theatre late, timing his arrival so he would catch the big production numbers in the second act. Those were the ones usually featuring the scantily clad chorus girls. But no one reported actually seeing the judge at the theatre.
Stella grew worried when Joe did not return by Friday, the 9th of August. She called his friends and staff, and all of them urged her to remain calm and not raise a fuss. It appears they were all worried about the potential political complications that might arise from the publicity, for Joe but mostly for themselves.
Joe Crater had been a surprising appointment to the New York appeals court because he was not openly affiliated with New York Mayor Jimmy Walker (above), or his friends at Tammany Hall, the center of graft and greed in New York City government since the 1840’s. But Crater was connected. The proof of this was that the standard practice in New York was that an appointment to the bench required the payment to Tammany Hall of one year’s salary, and in April of 1930, just after Governor Franklyn D. Roosevelt had announced Crater’s surprise appointment, Crater had withdrawn $23,000 from his bank (the equivalent of a a quater of a million dollars today). That amount was exactly the yearly income of an appeals court justice.
But Roosevelt was already positioning himself for a possible run for the White House and he could not afford to be connected to the Tammany Hall machine in the public’s mind. Reform minded state and federal investigators were already sniffing around, looking for an opening in the Tammany Hall graft machine.
Recently one of New York’s most successful madams, Polly Adler, who had operated houses of prostitution for more than a decade under mob protection, had been arrested. Many of the power players from Tammany Hall were her best clients, and there were lots of people worried about just whose pocket one of Polly's distinctive calling cards might fall out of next. She and Judge Crater were now both loose threds  connected to Tammany Hall, that, if pulled on, just might start the great unraveling.
Finally, on August 16, ten days after her husband was last seen, Stella sent her chauffeur to the city to look for him. He reported that the Judge's luggage was still in the closet, empty. The maid had tidied up on Thursday, but had not seen the Judge. And no one at any of the Judges’ usual hangouts remembered seeing him, either. Still, Joe's friends and staff counseled Stella to keep quiet. Even when the courts opened again after the summer recess on August 28 without Judge Crater, no public alarm was raised.
Then, finally, on September 3, 1930, a desperate Stella finally called the New York City Police to report her husband missing. In an instant the bubble of silence was popped and everybody was rushing to correct their public statements that had kept the lid on. Justices on the state Supreme Court were asked why they had claimed to have talked with Carter as late as August 14th.
And Governor Roosevelt promised that if anyone ever proved any of the Tammany Hall politicians were connected to the disappearance of Judge Crater, they would be prosecuted. The mayor and city council posted a $5,000 reward. A lawyer surfaced with a show girl client who claimed to have spent a weekend in an Atlantic City Hotel with the judge, just a week before his disappearance. He announced that his client was ready to sue Joe Crater for “breach of promise”, asking for $100,000 ($1.2 million today).  A grand jury was convened, and Sally Ritz joined Stella Crater and half the denizens of Tammany Hall in testifying under oath. The story and scandal was a great distraction from the bread lines and other growing signs of the Great Depression.
The scandal over Judge Joe Crater and what it revealed about graft in New York City was the final crack in the walls of Tammany Hall, and spurred the election in 1933 of the reform Mayoral candidate Fiorello LaGuardia
But none of the revolations got anybody any closer to finding the Judge. In 1937 poor Stella Crater had to hire the law firm of Ellis, Ellis and Ellis, (brothers Myron, Emil and Jonas), to sue the insurance companies and force them to pay out on Joe’s three life insurance policies. But without a body they could not be forced to pay the double indemnity clause.  In 1939 Missing Person File # 13595 was closed, and the courts considered the Good Time Judge Joe Crater to be legally dead. But the debate continued in barrooms around the country for decades; what really happened to Judge Crater?
- 30 -

Blog Archive

Amazon Deals