Financial History Issue 129 (Spring 2019) | Page 18
Massachusetts whaling fortune accumu-
lated in the 1830s–1850s, Green meticu-
lously compounded her capital during
the gilded age of the late 19th century. She
was notoriously frugal, perhaps miserly,
a trait that when combined with her will-
ingness to sue—her spending on lawyers
was positively profligate—earned her the
name “The Witch of Wall Street.” Green
was nevertheless willing to speculate in
greenbacks following the Civil War and
in railroad stocks, yet also made sure she
kept considerable cash on hand to back up
these somewhat speculative positions.
“I like to buy railroad stock and mort-
gage bonds,” she told a reporter in 1905.
“Government bonds are good, though
they do not pay very high interest,” she
added. She went on to define her modus
operandi as follows: “When I see a good
thing going cheap because nobody wants
it, I buy a lot of it and tuck it away.”
Two years later, when the Panic of 1907
struck and the New York City govern-
ment was starved for cash, Green wrote
them a check for $1.1 million in exchange
for some freshly minted New York City
revenue bonds. Her son supervised her
holdings in Texas, and he later estimated
her total emergency lending at that time to
be at least $6 million (approximately $200
million today) in Texas alone.
George Baker became president of the
First National Bank of New York in 1877 at
the age of 37, and he proceeded to run the
bank for over 50 years. The First National,
“Baker’s Bank,” operated in a way that
is almost unthinkable today. There were
only 20 holders of First National stock in
Baker’s early years, and the Bank’s direc-
tors owned 92% of the shares. They did
a big business trading in US treasuries,
turning over an astonishing $250 million
of them in 1877.
Baker’s Bank was focused on liquidity,
on trading in securities, not commercial
loans. Deposits were taken only in six-
figure or greater amounts, upon which a
placid (but “real”) interest rate of 2% was
paid. In those days before deposit insur-
ance, Baker’s reputation for prudence
and discretion was such that conservative
businesses kept large amounts with him:
the privately held Ford Motor Company
often kept some $50 million or more at the
First National, and Henry Ford himself
often $5 million. In October 1907, when
J.P. Morgan convened a conference of
his fellow New York bankers to organize
a loan to support the call loan market,
Baker’s First National Bank was ready and
willing to lend.
Of these eccentric characters of yester-
year, the only one whose behavior during
the Panic of 1907 echoes down to us at all
is that of the Boy Plunger, Jesse Livermore.
His large positions “shorting” the market
were similar in spirit to those of the hedge
fund managers of 2007–2008, like John
Paulsen and Steve Eisman, who aggres-
sively shorted the market for home mort-
gages. Livermore’s plunging later caused
him severe losses, just as it would later for
those modern-day hedge fund managers.
The conservative ways of Baruch, Green
and Baker—their skeptical, liquid 1907
investing styles—have now been ban-
ished into irrelevance. Their descendants
on Wall Street today are a less skeptical
group, one that trusts their central bank to
provide when things get tough. When the
call went out for liquid funds in September
2008, Wall Street turned to the Fed. Wall
Street’s residents would have explained
that there was no point in holding cash,
that short-term interest rates yielded next
to nothing and even less after inflation
and that there was big money to be made
in issuing and securitizing mortgages and,
thereby, helping with the government’s
goal of creating an “ownership society.”
In the wake of the Panic of Septem-
ber 2008 that government, as mentioned,
did provide. Many of the government’s
elected leaders, however, were critical of
Wall Street’s titans. In committee hear-
ings similar to the Pujo Hearings they
announced that the denizens of Wall Street
brought before them had been reckless
and overpaid in the years leading up to the
panic. Lawmakers pointed to the “lever-
age” employed by some of these financial
firms—borrowing done to increase the
size and potential profits of their invest-
ments—and made it look foolish and self-
serving. Laws were passed (e.g., The Dodd-
Frank Wall Street Reform and Consumer
Protection Act) mandating risk reduc-
tion and aggregating to the government
increased oversight of the surviving firms.
In passing laws and in more closely
monitoring these firms, the law-making
class acted on the assumption that the
world could be controlled by a series of
prohibitions and penalties. Wall Street,
however, is governed by the profit motive,
so these prohibitions represent barriers to
be hurdled in a never-ending steeplechase
16 FINANCIAL HISTORY | Spring 2019 | www.MoAF.org
race, not guidelines, not lodestars.
Mandating fiscal prudence on Wall
Street may be difficult without some tan-
gible payoff for such behavior. A Federal
Reserve that manages short-term rates to
encourage growth and employment and
therefore often keeps such rates below
the rate of inflation does not reward pru-
dence. The shrewd, liquid, conservative
management of funds practiced profit-
ably by those wealthy characters of 1907,
one that grants the possibility there may
someday be a rainy day when prudence
is profitable, is perhaps as archaic as their
buggy whips.
Dan Munson is a student of financial
and scientific history. His writings have
appeared in Barron’s Financial Weekly
and many other publications.
Sources
Ackman, Dan. “The Ownership Society.”
Forbes. September 3, 2004.
Bagehot, Walter. Lombard Street: A Descrip-
tion of the Money Market. New York: Henry
S. King & Co. 1873.
Bruner, R.F. and Carr, S.D. The Panic of 1907.
John Wiley and Sons. 2007.
Cannon, J.G. Clearing House Loan Certificates
and Substitutes for Money Used During the
Panic of 1907. 1910.
Ford, Carol. “Hetty Green: A Character Study.”
National Magazine. 1905.
Grant, James. Bernard Baruch: The Adventures
of a Wall Street Legend. New York: Axios
Press. 1983.
Grant, James. Money of the Mind. Farrar,
Straus, and Giroux. 1992.
Krugman, Paul. The Return of Depression Eco-
nomics and the Crisis of 2008. New York:
W.W. Norton. 2009.
Lefevre, Edwin. Reminiscences of a Stock Oper-
ator. New York. 1923.
Madigan, J.F. “Bagehot’s Dictum in Practice:
Formulating and Implementing Policies to
Combat the Financial Crisis.” federalre-
serve.org. August 21, 2009.
Moen, J.R. and E.W. Tallman. “The Panic of
1907.” federalreservehistory.org. December
4, 2015.
The New York Times, October 24–25, 1907; July
4, 1916.
White, W.E. Baruch: Portrait of a Citizen. New
York: Harcourt Brace. 1950.