By Ramon Vasconcellos
A mass gathering of unemployed New
Yorkers swelled the ranks of Tompkins
Square on November 6, 1857. Speakers
rallied in support of Mayor Fernando
Wood’s proposal for a considerable public
works program, the adoption of which
could mitigate the plight of the unem-
ployed due to the recent national business
downturn. From the square, a “disorderly,
fierce, and noisy” crowd marched on Wall
Street, one marcher stating that working-
men should not starve while 20 million in
specie (gold and silver coin) sat unused
in the city’s banks. While the crowd did
not cause any ruckus on Wall Street that
afternoon, the city’s financial condition
had worsened since the summer; Wall
Street bankers had little appetite for lend-
ing, allowing specie deposits to increase
by 46.7% during August alone. Further,
consumer deposits in the city’s banks had
dwindled from $94.5 million to $75.8 mil-
lion that summer. Exacerbating the credit
crisis even more and contributing to a
major correction on the Street, a substan-
tial creditor and holding company in New
York City, Ohio Life Insurance and Trust
Company, collapsed on August 24, 1857.
Ohio Life Insurance and Trust Com-
pany, organized and incorporated in Cin-
cinnati in 1834, functioned as a life insurer,
trustee, mortgage holder and financial
intermediary for Ohio banks operating
on Wall Street. Its founders consisted
of a “who’s who” in Ohio politics: for-
mer US Senator Jacob Burnet of Ohio,
US District Judge Benjamin Tappan and
Ohio Supreme Court judge Alvin Peace,
to name a few. In accordance with its
charter, the firm had a total capitaliza-
tion at the time of $2 million comprised
of bonds and interest-bearing notes.
The charter allowed the firm to establish
branches without banking powers and
required that profits be invested in federal,
state, municipal and corporate securities.
Ohio Life could also issue bills and prom-
issory notes equal to twice the amount of
Painting depicting the Panic of 1857,
entitled “Wall Street, Half Past Two O’Clock,
October 13, 1857,” by James H. Cafferty
and Charles G. Rosenberg.
funds deposited for less than a year, but
greater than one half its paid-in-capital.
Revocation of Ohio’s charter would result
from the suspension of specie payment, or
if it charged interest greater than 7% on
transactions.
Though such policies seemed prudent,
the founders were often at odds with the
Ohio Life trustees over lending practices.
Furthermore, the company sometimes vio-
lated its state charter. For example, during
the 1830s, management ignored restric-
tions on the non-extension of loans beyond
maturity and, in violation of its charter,
issued “accommodation” paper requiring
no security deposit other than the bor-
rower’s reputation for the purposes of land
and commodity speculation. Even debtors
obliged to short-term instruments might
have their notes extended beyond 100 days.
One particular founder and New York
financier, Arthur Bronson, whose father
had co-founded the New York Mercantile
Bank with Alexander Hamilton, recog-
nized the imprudence of such measures
and resigned from the Board of Trustees in
1837. The trustees’ cavalier, throw caution
to the wind attitude of fiscal management
would only set the course of Ohio Life’s
demise. The harbinger of the company’s
doom on the eve of the Panic of 1857 would
partially rest with its New York manager,
Edwin G. Ludlow, an embezzler and to
some extent, pawn, of the Ohio trustees,
employed with the firm since 1842.
Not long after opening in Cincinnati,
the company established offices in New
York City. Abstaining from insurance
underwriting, Ohio Life’s New York offices
operated primarily as depositors for bank
funds. The branches served both as bank
holding companies and for the purpose
of attracting capital for western indus-
tries, particularly railroads, which, by the
early 1850s, required substantial amounts
of credit for land purchases and track con-
struction. For such purposes, bank drafts
originating from loans undertaken by Ohio
Life through the New York money markets
were sold out West. In turn, New York
banks served as Ohio Life’s creditors for
both loans made directly to the company
and for drafts sent by Western companies
due for reimbursement.
As described by one historian, Ohio
Life acted more as a bank of function
because it was “not a bank of issue” when
it came to originating bills backed by
specie. Day-to-day operations of the New
York offices consisted of holding bills
of exchange, accepting deposits, paying
drafts and engaging in collections. Having
general oversight of these tasks fell to the
head cashier who also served as the Trans-
fer Agent of Ohio. As the state’s agent, he
followed the advice of both the company’s
executives and state government officials
regarding the proper investment selection
of surplus funds. Unlike the contempo-
rary duties of a manager supervising tell-
ers (cashiers) employed by a bank in 2019,
the head cashier of Ohio Life acted as the
lead financial officer and manager of the
New York branch offices. In February of
1855, Edwin Ludlow, the aforementioned
pawn who would prove central to Ohio
Life’s downfall, became head cashier.
Before Ludlow’s tenure and sometimes
purposeful malfeasance, Ohio Life’s trust-
ees, as briefly described earlier, exposed
the firm to fiscal mismanagement decades
before the events of 1857. An example of
this is the Panic of 1837. As opposed to
foreclosing on delinquent non-performing
loans resulting from the crisis, the trustees
granted borrowers a two-year grace period
on their obligations. Though presumably
altruistic in light of the degree of economic
dislocation caused by the slump, it was
arguably fiscally unwise given that the firm
had obligations due its creditors.
Overdrafts, too, involving the New
York operation prompted one financially
savvy cashier, George Coe, to inform Ohio
Life’s president that “your paper [used as
collateral for call loans by the New York
branch] is not of the available and No. 1
character that the banks here most seek.”
Coe further expressed his concern about
the suitability of railroad securities held
by the home office, commenting “that
railroad securities must, from excessive
creation, by and by, meet the same fate of
similar securities in England.” His alarm
referenced a financial crisis inflicting
England in 1847. Coe’s presence as head
cashier until his resignation 1853 instilled
a brief period of fiscal stability at Ohio
Life; his successor, Charles Rockwell, dis-
played similar talents. Yet cashiers like
Coe and Rockwell would unfortunately
prove anomalies, and a cash strapped state
government in Ohio would only com-
pound the company’s troubles.
Periodic fiscal instability in Ohio dur-
ing the 1830s and into the 1850s found the
legislature adding to the tax burden of its
businesses. Since Ohio Life’s inception,
www.MoAF.org | Fall 2019 | FINANCIAL HISTORY 23