Looking back at a Black Friday
Commentator John Steele Gordon
KAI RYSSDAL: The commodities markets sagged a little bit today. Oil was down. About 50 cents or so. Sugar futures, curiously enough, dropped more than 4.5 percent today. To their lowest level in a year. It's curious because the U.S. dollar's on the weak side. Which usually makes it easier for holders of other currencies to buy dollar-denominated commodities.
Gold, though, bucked the trend. Up almost 2 percent at one point today. Flirting with $600 an ounce. Almost 140 years ago, gold fever was behind Wall Street's very first Black Friday. Business historian John Steele Gordon tells the cautionary tale.
JOHN STEELE GORDON: September 24th, 1869, was one of those beautiful early fall days for which New York City is justly famous. But by 10 in the morning the city's financial district — and by extension the country's entire financial system, linked by telegraph — was in utter chaos.
A sickly, little man named Jay Gould brought about this single-most exciting day in the history of Wall Street. Gould made up in brains and financial courage what he lacked in physical stature. And that summer he'd decided to corner gold. On Sept. 24th he very nearly did.
To corner something in financial parlance means to get total control of the floating supply, whether a stock, a bond, or a futures contract. Once you do, those who must buy have no choice but to pay you whatever you demand.
But gold in the 19th century was not just a financial asset. It was wealth itself, legal tender throughout the world.
To pull it off, Gould managed three things. He hoodwinked the honest but hopelessly naive President Grant into not selling gold from the government's vast reserves. This he did with the help of the President's brother-in-law. He knew ahead of time whether the Treasury had orders to sell gold. The new sub-treasurer in New York, Daniel Butterfield, had proved eminently bribable. And at least for a short time he convinced The Street that he had the corner on gold, so short-sellers who had sold gold they did not own, hoping to buy it cheaper later, had to pay up before the price went up still more and they were ruined.
Gold soared from the opening bell and the short sellers panicked. Up the price went, until one of Gould's brokers screamed that he'd buy $5 million in gold at a price undreamed of only an hour earlier. There were no takers until suddenly, a broker named James Brown, yelled, "Sold!" The market knew that Brown must be selling short, figured he knew something the rest didn't, and the price collapsed in seconds. The gold corner was over.
We'll never know if Gould made money, for the mess was mostly swept under the rug. But that day has been known ever since as Black Friday, the first, but not the last, black day on Wall Street.
Could such a thing happen again? Well, as recently as 1980 the Hunt brothers went broke trying to corner silver.
John Steele Gordon's latest book is called "An Empire of Wealth."