The Black Friday Gold Scandal, 1869
One of the (many) consequences of the American Civil War was that the United States moved off the gold standard – gold was at the time the official currency of international trade. In order to raise money to fund the Unions’ war effort Congress had authorised the issuance of $450 million government-backed greenbacks. Once the war had ended it meant that there were two competing currencies in circulation.
That there was only $20 million of gold in circulation at any one time and Wall Street had created a special Gold Room in which brokers could trade, Jay Gould thought he had found the perfect get-rich-quick scheme. If he could only corner the gold market, he would be able to drive up its price, sell at the height of the market and make a fortune.
There was one significant problem. Ulysses S Grant and his administration had a policy of buying up greenbacks with gold and such was the government’s pre-eminent position that it controlled gold prices and could thwart a speculator simply by selling off gold and driving its price down. For the scheme to work, Gould had to persuade the Government to abandon its policy.
The solution to that conundrum was simple and, in many ways, elegant. He simply bribed officials, in particular the President’s brother-in-law Abel Corbin, whose palm was greased with $1.5 million in gold. Suitably encouraged, Corbin used his political influence to have General Daniel Butterfield appointed as US sub-treasurer in New York. He too was given $1.5 stake in the scheme and a $10,000 loan, his role being to alert Gould to any imminent government gold sales. By the late summer of 1869 Corbin had succeeded in persuading Grant to abandon his policy of selling gold.
This was the signal that Gould and his co-conspirators were waiting for. They had been stockpiling gold during the summer but went into overdrive, using an army of brokers to buy up as much gold as they could. By mid-September they held as much as $60 million in gold – one of Gould’s partners, Jim Fisk, bought $7 million – and the price rocketed. Rumours spread that speculators were manipulating the market and pressure was exerted on the Treasury to take some action.
Corbin advised Gould that the President had rumbled them and was going to resume selling gold, information that Gould omitted to tell his partners. When trading resumed on 23rd September, Gould sold as much gold as he could and the price closed at $144.5. On Friday 24th September when trading resumed it reached $160 and Fisk was filling his boots, confident that the price would rise still further.
At midday, the President announced that the Treasury would sell $4 million of gold the next day. The reaction was cataclysmic or, as the New York Herald noted afterwards, “possibly no avalanche ever swept with more terrible violence.” Gold prices plunged, even the stock market took a dive, dropping 20% and bankrupting or severely damaging a number of old Wall Street firms in the process. Thousands of speculators were left ruined, foreign trade stopped and farmers saw the value of their crops halve.
As for the protagonists, Gould is said to have made around $12 million from his fire sale of his gold stock whilst Fisk was able to evade his massive losses by claiming that the trades were made by third party brokers without his knowledge. Despite numerous inquiries and claims of malfeasance, the array of lawyers they deployed and their political influence and network meant that the duo evaded justice. Grant’s presidency, though, was blighted by the affair and the American economy took some time to recover.
If you enjoyed this, look out for Fifty Scams and Hoaxes by Martin Fone,