would have no control over market prices
for these assets prior to and during the
Panic, but the lack of portfolio diversifica-
tion evidenced a careless attitude on his
behalf regarding investment selection. Simi-
lar railroad equities and debt instruments
held by Ohio Life Insurance and Trust
would perform in a similar fashion, leaving
little equity on its balance sheet and cents
on the dollar for its bond holdings.
Aside from purposely compromising his
fiduciary responsibilities, Ludlow, presum-
ably done for maintaining sufficient liquid-
ity, continuously yielded to the ill-advised
practices of the company trustees. For
instance, a director of Ohio Life, acting on
behalf of the trustees, suggested in Decem-
ber of 1856 that Ludlow “coax” several New
York banks into underwriting short-term
loans up to $200,000. In turn, the Ohio
branch utilized the proceeds for specula-
tion; Ludlow, perhaps reluctantly, com-
plied. Still, he displayed absolute complic-
ity when faced with another liquidity crisis.
In what a state investigating committee
would describe as a “kiting operation” in
1856, Ludlow admitted complicity with the
trustees to purchase Ohio municipal bonds
at a discount to par. The discount went
undisclosed prior to their resale (presum-
ably at a price greater than the discount
received) to New York investors. Not only
was the transaction duplicitous, but by
keeping the remaining bonds as inventory,
Ohio Life employed illegitimate collateral
for the purpose of falsifying its liquidity.
Given that its creditors were now aware
of substantial mismanagement and illi-
quidity issues plaguing the company, by
early 1857, attempts at maintaining ade-
quate capital reserves seemed beyond the
reach of Ohio Life. What’s more, the stock
price traded on relatively low volume early
to mid-year, consistently staying below
$100 per share—a level considered risky to
Ohio’s equity position. Ludlow, again will-
ing to adopt a “go at it alone” approach in
hopes of benefiting Ohio Life, commenced
a stock purchase scheme to increase its
price. Although volume picked up and
the stock traded as high as $99, investors
—sensing an overvaluation in the stock
—commenced a “bear attack,” or short
selling. In essence, they sold borrowed
shares of stock in the hopes of repurchas-
ing them at a lower price. Adding to this
unintended consequence, Ludlow discov-
ered one of Ohio’s New York trustees had
shorted 400 shares of company stock!
Undeterred and presumably still hop-
ing to alleviate further problems, Ludlow,
consistent in his non-fiduciary approach
to his duties, originated loans (Ohio Life’s
stock serving as collateral) to investors and
himself amounting to $282,193. He further
engaged in “off balance sheet” activities,
whereby he personally borrowed money
and incurred debt not reported as assets
or liabilities on Ohio Life’s balance sheet.
Such a practice further deteriorated the
company’s equity position and increased
indebtedness. Ludlow also refused to sub-
mit financial statements for internal audit
purposes.
Two days prior to Ohio Life’s collapse,
on August 22, Ludlow solicited emergency
funding from members of New York City’s
banks. By this time, most lenders had either
heard of the firm’s incessant liquidity prob-
lems or were creditors of what would soon
become the defaulted obligations of the
company. Predictably, lines of credit were
non-existent since Ohio Life had lost the
faith of New York City’s banking commu-
nity because of mismanagement, fraud and
the sullied reputation of its head cashier.
Facing no other alternative, Charles Stet-
son, Ohio Life’s president, announced on
August 24 that the company had suspended
payment on all its obligations. Essentially,
the New York offices and headquarters of
Ohio Life Insurance and Trust closed their
doors, permanently.
After his arrest, for the purposes of
settling outstanding financial claims due
to his embezzlements, Ludlow agreed he
would deliver personally held railroad
stocks and bonds into the possession of
Ohio Life’s creditors and the trustees.
Though many were, in fact, of diminished
value and failed to satisfy the financial
needs of creditors, he faced no jail time.
Ludlow would win back some degree
of respectability in the not-too-distant
future; Abraham Lincoln nominated him
as captain and assistant quartermaster of
volunteers in New York City in 1862. He
later became a lieutenant colonel by the
end of the Civil War.
Although major banks in New York
City had begun limiting the amount of
loan originations (particularly to rail-
roads for reasons mentioned earlier) early
in 1857, their efforts had little impact
on the economy. That is until Ohio Life
and Trust’s collapse. Writer J.S. Gibbons,
whose work entitled The Banks of New
York, Their Dealers, The Clearing House,
and the Panic of 1857 was published in
1864, commented that the impact of its
closure “struck on the public mind like a
cannon shot.” The failure, while not caus-
ing the panic, produced a major sell off
on Wall Street with a 3–7% decrease in
stock valuations in the aftermath. When
those New Yorkers marching from Tom-
kins Square in fall of 1857 for public relief
also descended upon Wall Street demand-
ing banks release funds, their appeals fell
upon deaf ears. A lending paralysis had
gripped New York’s banking community,
the effects of which would last into 1859.
Ramon Vasconcellos is a history professor
and lecturer in Accounting and Econom-
ics at Barstow Community College in
Barstow, CA. He has published numer-
ous biographical and topical articles
on the history of the West, particularly
related to finance. Ramon has also taught
economics and history at the University
of London.
Sources
Calomiris, Charles W. and Larry Schweikart.
“The Panic of 1857: Origins, Transmission,
and Containment.” The Journal of Economic
History. Vol. 51, No. 4. December 1991.
Fishlow, Albert. American Railroads and the
Transformation of the Antebellum Economy.
Cambridge, Massachusetts: Harvard Uni-
versity Press. 1965.
Hammond, Bray. Banks and Politics in Amer-
ica From the Revolution to the Civil War.
Princeton University Press. 1957.
Huston, James L. The Panic of 1857 and the
Coming of the Civil War. Baton Rouge and
London: Louisiana University Press. 1987.
Riddiough, Timothy J. and Howard E. Thomp-
son. “When Prosperity Merges into Crisis:
The Decline and Fall of Ohio Life, Politi-
cal Economy of Bank Suspension, and the
Panic of 1857.” December 21, 2016. https://
ssrn.com/abstract=2888689
Spiegelman, Mortimer. “The Failure of the
Ohio Life Insurance and Trust Company,
1857.” Ohio State Archeological and Histori-
cal Quarterly, LVII. 1948.
Stampp, Kenneth. America in 1857: A Nation
on The Brink. New York, Oxford: Oxford
University Press. 1990.
Van Vleck, George W. The Panic of 1857: An
Analytical Study. New York: Columbia Uni-
versity Press. 1943.
www.MoAF.org | Fall 2019 | FINANCIAL HISTORY 25