The Richest Woman in America (7 page)

Everyone wanted a piece of the prosperity pie. Eager clients could almost taste their earnings as they bought shares of everything from the Crystal Palace, even as its stock was plummeting from 175 to 53, to the Reading Railroad to Pacific mining ventures. “You can’t lose,” stock salesmen promised naive clients. Trading in railroad stocks
zoomed. Canny manipulators devised new instruments that enabled them to purchase more shares with less cash. In April 1854,
Harper’s Magazine
ridiculed the Wall Street operations of the firm of “Dry, Sly and Lye” and mocked its greedy customers who gambled on thin margin, bought puts and calls, and sold stocks short. It was no different from being at a roulette table, the editors said, not knowing how often future generations would repeat the scenario.

That same month Erie Railroad stocks started sliding. Soon after, investors were agog when the New Haven Railroad announced that its president, Robert Schuyler, a prominent member of New York society, had swindled the company of $2 million. More railroads slipped as confidence fell, and for a few months Wall Street, trading primarily in railroad stocks, ran gloomily off the track. But if speculators who had bought on margin were forced to sell their shares to cover their losses, shrewd investors like Commodore Vanderbilt and speculators like Jay Gould swooped up the stocks at low prices. Hetty Robinson would later do the same.

Railroads were falling, but a feverish rush for gold sent mining stocks soaring. Midwestern banks opened branches in New York so that customers could redeem their notes in the East. Five new bank buildings, commended for their graceful architecture, were under construction on Wall Street, and the total number of banks in the city was on its way to doubling. It seemed as though everyone was becoming rich.

For three years the boom continued. Banks encouraged spending and loaned generously at low interest. When customers reached their credit limit, instead of cutting off further loans, the bankers urged them to borrow more, and then sold the loans at discounted prices to other institutions. With easy money, merchants and manufacturers expanded their businesses. Consumers shopped at a furious pace, importing fancy French furnishings for their oversized mansions, cashmeres and furs for their elaborate wardrobes, truffles and caviar for their lavish dinners and opulent balls. The banks exported gold to pay for them.

The country was drunk on prosperity. The nation reveled. New York floated on bubbles of champagne. New Bedford tippled. In 1857 the city boasted a record number of ships in its whaling fleet, and local
citizens thrived in its commerce. For those who sought new homes, the New Bedford Five Cents Savings Bank opened its doors to lend them low-cost money for mortgages. To decorate their new houses, a few bought paintings from local artist Albert Bierstadt.

Henry David Thoreau’s Lyceum lecture “Getting a Living” drew a sizable crowd. The impoverished author of
Walden
wrote that he was “rich in sunny hours and summer days.” He had no regret, he said, that he had not wasted his hours in a workshop or a classroom. He preferred truth to money. “Money is not required to buy one necessary [necessity] of the soul,” said Thoreau. In the New England town where many like Edward Robinson equated wealth with virtue, the puzzled audience walked away scratching their heads. They found his words “decidedly peculiar,” the local newspaper said.

Instead, the hardworking residents of New Bedford erected a new building for the Friends Academy, started new enterprises, and enlarged their existing businesses. One entrepreneur, Abraham Howland, experimenting with coal, discovered a way to distill the chunks of fossil so that drops of oil trickled out. It was a portent of things to come.

Like other firms, Isaac Howland Jr. and Company prospered, making Edward Mott Robinson and Sylvia Howland two of the richest people in town. Sylvia spent some of her time eyeing her investments and much of her time in the world of books. Her favorites included the abolitionist works of Harriet Beecher Stowe, the lyrical travel writing of Bayard Taylor, and the feminist volumes of Fredrika Bremer.

The Swedish author traveled for a year around America and wrote a forthright account of her impressions. She admired the country’s education of women and the value its citizens placed on teachers. After meeting Quakers, she praised the “chaste and dew-like purity” of their women and applauded the antislavery position of the group. But she derided their suspicion of beauty and art and their fear of joy, and she noted that their numbers were dwindling. Attending a Friends meeting one hot day, she observed that not a single person was moved by the spirit inside them. After an hour of utter silence in the trying heat, the assembly finally broke up. “Peace be with them,” she said.

Bremer spent time with friends in New York and complained about the crowds and the bustle and the boring dinners. “Is there anything
in this world more wearisome, more dismal, more intolerable, more indigestible, more stupefying, more unbearable, anything calculated to kill both soul and body, than a great dinner in New York?” she asked.

Hetty Robinson gave her own account to her aunt. Her stories of endless dinners and chatty teas, costly clothing and overfurnished homes, relentless traffic and dizzying throngs fed the imagination of Sylvia, who might have enjoyed this life. How different the Grinnells’ world was from the dull routine of the frail spinster whose companions were more and more the maids and nurses who looked after her. She was pleased her niece had spent time in New York and disappointed she had shortened her trip. Sylvia may have wanted to live her life through Hetty, but Hetty kept thwarting her dreams.

In New Bedford, Hetty shuttled between her father’s house on Second Street and her aunt’s house on Eighth Street and kept a room at both. Weekends and summers, she and Sylvia, one rumpled, the other crisp, rode in the carriage together on the two-hour trip to Round Hills. But tensions ran high between them. The young woman who had been sent to Quaker schools to learn plainness and thrift frowned on her aunt’s indulgences. Hetty insisted on using simple linens for entertaining and complained when Sylvia wanted a butler instead of a servant girl for a dinner party; she criticized her aunt for hiring a fancy livery hack instead of keeping a one-horse carriage; she admonished the older woman for keeping too many in help.

Hetty’s insolent behavior irritated Sylvia. Her sorry wardrobe had not improved, her temper tantrums had not ceased, and her air of defiance had not eased. She argued incessantly with the servants and ignored her aunt’s advice. When Sylvia warned her away from a dangerous horse, Hetty took it upon herself to break him and rode the wild animal until he settled down. The agitated Sylvia, trembling from head to heels, had to be put to bed.

Under her father’s sharp eye, however, she worked for her money and kept an accurate account of her spending. Once more she set off with him to the countinghouses and storerooms, the commodities traders and stockbrokers, and followed the intricacies of his dealings. He often reminded her that as the sole heir of her aunt, her mother, and himself, she would inherit the family’s entire wealth. “If you can
manage your brain,” he told her, “you can manage your fortune.” She knew from his frequent admonishments that it would be her responsibility to turn over the fortune undiminished to the next generation. His lessons taught her the value of money and the necessity of having it. “We have to have money to be happy,” she said. But she carried the burden like a sack of gold bricks strapped to her back.

A
re we a happy people?” asked
Harper’s Magazine
. “The richest man has no definite idea of a fortune, and is more eager to double his million than … to turn his first dollar. His only sense of enjoyment,” the editor said, “consists in making more.” More happy people were making more dollars in New York.

And then the bubble burst. Toward the end of 1857, the news from the Ohio Life Insurance and Trust Company leaked the first bits of air. Unbeknownst to its Midwestern directors, the manager of its New York branch had embezzled millions of dollars. In addition, the bank had borrowed funds from other New York institutions in order to lend money to railroad builders and speculators in railroad stocks. But European demand for American grain had waned with the end of the Crimean War, and with bumper crops around the world, Midwestern farmers received lower prices and shipped fewer foodstuffs by railroad.

The overextended railroads had borrowed millions of dollars from Ohio Life and could not pay them back. When the insurance company revealed its $2 million loss from the embezzlement plus $5 million in losses on loans to railroad builders, stock speculators, and in its own trading accounts, the New York banks demanded the money owed them. In response, Ohio Life declared bankruptcy at its New York office and shut its doors.

Events spiraled downward.

Midwestern banks were forced to borrow more money from New
York. The farmers who withdrew their money from their accounts every summer to cover seasonal costs could not replace it in the fall; nor could they repay the merchants who had extended them credit. N. H. Wolfe, the oldest flour and grain company in New York, declared bankruptcy. The president of a Michigan railroad announced his resignation. Railroad stocks slid to half their prices of four years earlier.

Big bankers, worried that other clients were overextended, nervously called their customers for immediate repayment of matured loans. But Ohio Life was not the only one that had borrowed far beyond its means. Within weeks other banks and major Wall Street investors, ruined by bad loans, suspended operations or defaulted. Rumors raced through the city, growing more exaggerated at every telling. Crowds huddled in the canyons of Wall Street as panicked creditors, worried that their banks would not be able to pay them, withdrew their money. Although each bank issued its own version of paper money backed by gold, in reality the paper notes were not at par value with the metal. The public demanded the gold. With imports high and confidence low, the banks were forced to make their payments in gold, but their stores of specie, as metal coins were called, were shrinking.

Dark clouds hovered. “People look dubious and whisper darkly,” one man wrote, noting that several stock operators suffered serious failures. A few clever men like Russell Sage, a future role model for Hetty, kept substantial amounts of cash on hand and used it to buy stocks at rock-bottom prices. John Pierpont Morgan told his son there was a good lesson to be learned from other people’s greed and good bargains to be found in the aftermath. In future times, Hetty would always keep cash available and use it to buy when everyone else was selling. Much later, Warren Buffett would do the same. But most people watched their money wash away in the flood; it felt like the crash and depression that had taken place twenty years before. “Wall Street stocks panting and tumbling under a pressure that reminds one of the financial tragedies of 1837,” wrote George T. Strong.

The situation grew worse. The English needed capital to fight a rebellion in India and raised their interest rates for depositors to attract funds. European investors, concerned about American banks and drawn to the higher rates in London, demanded their deposits in gold from the New York financial institutions. In the spring of 1857 the
steamship
Central America
set sail from California with four hundred passengers and $1.6 million in gold bars for the New York banks. But a few months later, as the steamer rounded Cape Hatteras, a hurricane smashed across its hull. The passengers and the gold went down with the ship.

“Extra! Extra!” newsboys called out every day, as customers grabbed the latest edition of bad news. More banks in New York and other cities suspended business, seven railroads failed, including the Erie and the Reading, factories closed, and merchants around the country shut their doors. Bankers, worried about the solvency of their borrowers, raised their interest rates and refused to lend money to anyone who did not have rock-solid collateral: certified checks were required; stocks and bonds were dismissed as worthless.