Tuesday, September 24, 2013

Black Friday: September 24, 1869 - Madams, Moguls and Mediums

Gold prices on a blackboard from the NY Gold Room on Black Friday
Today when Americans talk about Black Friday, we are referring to the big shopping day after Thanksgiving in November. This is a day when many Americans venture out to the shops to begin spending money on Christmas gifts for their families.

The term Black Friday has an older, darker, more salacious meaning though: in 1869, there was a crash on Wall Street that was so sudden and harmful that it resulted in many suicides. The story of the original Black Friday- the crash- involves moguls, mediums and madams entangled in a bizarre set of circumstances.

Josie Mansfield
In the 19th century, rich and powerful men in New York often frequented brothels to avail themselves of the services of the working girls. The madams running these establishments got wise to the possibilities of hosting such men regularly. The girls were trained to extract financial information from their patrons while giving the impression that they were not even listening or understanding what they were hearing. Unbeknownst to these traders, businessmen and political heavyweights, every morsel of information they divulged was being passed to the madam.

Victoria Woodhull
One such working girl was named Josie Mansfield, a friend of Victoria Woodhull. Woodhull was a
successful and well-known fortune teller, and went on to become the first female owner of a Wall Street brokerage firm. Josie became the mistress of financier Jim Fisk, who was a competitor to notable industrialist Cornelius Vanderbilt. Fisk and his partner Jay Gould cooked up a scheme to drive up the price of gold and turn a quick profit by selling at a peak price. Essentially the scheme involves buying enormous quantities of gold, thereby driving prices up. Once the prices reach an acceptably high level, the schemers sell their share and collect a tidy profit.

Jim Fisk
Josie learned of this scheme, of course, from Fisk, and informed her friend Victoria Woodhull. Woodhull was very smart in terms of investing yet she was still selling her services (very successfully) as a medium. Woodhull came to Vanderbilt “in a trance” and advised him to buy gold at $132. Vanderbilt pulled together all of the cash he had and managed to buy $9.5 million worth of gold at $132. This was early in the week.

By Wednesday afternoon, the price of gold had risen to $141. Thursday morning, Fisk and Gould met at Josie’s house to plan their scheme. They decided to buy as much gold as possible and then sell it when it reached $150. They carried out their purchase through anonymous brokers.

On Thursday evening, Woodhull, armed with more exact information, visited Vanderbilt once more and advised him to sell at $150.

On Friday, upon the opening of the market, gold was valued at $150 and Vanderbilt sold his share at a profit. By late morning, the price of gold was at $160.

Gold. Chased for centuries.
Part of Fisk and Gould’s plan involved an Assistant Treasurer named Butterfield who was in on it and stood to profit himself off of this scheme. When the price of gold had hit $162, Butterfield knew he had to inform Washington of the circumstances. The government, in response, instructed Butterfield to sell their shares of gold the following day. Butterfield secretly informed Fisk and Gould, allowing them to sell their shares and make their profit. Butterfield then publicly announced the government’s plan to sell their gold the next day, instantly devaluing the gold price from a high of $162 all the way back down to $132.

Fisk and Gould turned a profit through the scheme. Their chief competitor Vanderbilt did as well, although he did not know he was being fed Fisk & Gould’s info. The rest of Wall Street was left in ruins. The rapid devaluation bankrupted several investment houses and by midnight, 25 people had committed suicide, earning September 24, 1869 the name “Black Friday.”

For more information about Wall Street and New York's Financial District, join a Wall Street Walks guided walking tour!

Tuesday, September 17, 2013

The Buildings of the Financial Crisis: History in the Details

Federal Reserve Bank: note bricks of varying colors
It has been five years since the start of the most recent financial crisis.  Recently, there has been an intense media focus on the crisis: what caused it, what has happened since the crisis, and various projections for the future.  

Many of the buildings where the 2008 financial crisis played out also stood witness to previous stock market crashes and panics, and today we are going to highlight a few of those.  

The Federal Reserve Bank was created after the Panic of 1907, when the government realized they could no longer function without a central bank.  The Federal Reserve was signed into law by Congress in 1913.  It was the eve of the First World War and they decided to delay the construction of the Federal Reserve building in New York until after the war.  After the war, they also decided to construct the Federal Reserve as cheaply as possible. When you look at the Federal Reserve, all the stones are different colors (see photo above).  The construction would have been much more costly if they had used stone of a uniform color.
70 Pine Street was the AIG building.  That building was under construction at the time of the crash of 1929.  70 Pine is one of the beautiful examples of the early implementation of the setback law.  The law read (at the time) that only 25% of the building can rise to an unlimited height.  The rest of the building would have to be set back so that the sky would be more visible and the neighborhood would feel more open. The engineers at the time calculated if they put in regular elevators, there would not be enough floor space to make a commercially viable building, and thus they installed double decker elevators to maximize the floor space.  

It was also very important for buildings before and during the 1930s to have a Wall Street address. 70 Pine therefore has a sky bridge connecting it to Wall Street. 

During the 1930s and the Great Depression, not many people were looking for office space on Wall Street, so the management hired beautiful young women to be the elevator operators, and eventually they were able to rent out the entire building.  
Yellow bricks outline footprint of 1st skyscraper

Another key player in the financial crisis was Goldman Sachs, and in 2008 they were located at 85 Broad Street. Prior to the construction of that office tower in the 1970s and '80s, they did an archaeological dig to try to find the remains of the old New Amsterdam of the 1600s. When you walk alongside Goldman Sachs, have a look at the yellow bricks.  That yellow rectangle inlaid into the brick sidewalks outlines the first “skyscraper” ever built in Manhattan. It was 5 stories high, and constructed in 1642 by the Dutch.

When you walk onto Williams Street, across from Delmonico’s is an Italian bank. That building was the head office of Lehman Brothers for almost 50 years. Lehman moved in there during 1920s, and left in 1979, moving to the recently-constructed World Trade Center.

For more information about Wall Street and New York's Financial District, join a Wall Street Walks guided walking tour!

Monday, September 16, 2013

September 16: AIG Insurance Gets Bailout, Forced to Sell Building

AIG Insurance building
AIG Insurance, once the world's largest insurer, nearly collapsed in September 2008 under losses from bad mortgage bets made by a financial products unit. The U.S. government has since stepped in with up to $180 billion in financial support. On September 16, 2008, AIG Insurance avoided bankruptcy thanks to an $85 billion bailout by the United States government which gave the government a 79.9 percent stake in the insurer.

One condition of this bailout was that AIG would sell their building at 70 Pine Street to raise capital. The building was valued at $330M but they could not find a buyer. In desperation, they sold it for $150M (half of the asking price) to a Korean based investment bank called Kumho in August 2009.

To put that sale into perspective, in December 2011, a Russian billionaire paid $88 million for a 4-bedroom penthouse on Central Park West. Just think: for a measly $62M more, the Russian family could have bought an entire building downtown.

For more information about Wall Street and New York's Financial District, join a Wall Street Walks guided walking tour!

Tuesday, September 3, 2013

Play with the Smithsonian's fun interactive map of 1836 New York City

From Neatorama:
Smithsonian has an interactive map in which a satellite image of New York is overlaid with a map drawn by cartographer Joseph Colton in 1836. Moving the earlier map around, you can see that the streets are mostly in the same place, but the shorelines have expanded, the islands are bigger, and there is no Central Park -in fact, a lot of the city was countryside and hills back then. Read more about it at the interactive site.