Panic of 1901
The panic of 1901, often called “the rich man's panic,” occurred in the midst of an economic expansion and industrial growth. The Panic of 1901 was due to to the fight for the control of the Northern Pacific Railway. John Pierpont Morgan financed the robber barons and rescued the country from the panic of 1901, while amassing a huge personal art collection.
US banks and other financial institutions were major players in the commodities markets during the 19th century. National banks were expressly permitted to trade in gold, silver and other precious metals commodities. Many of the major U.S. merchant banks of the 19th century started as dry goods and commodity traders, which expanded into banking in somewhat similar ways and for somewhat similar reasons as their Lombard predecessors from centuries earlier. These commodity traders turned bankers include Lazard Brothers and Brown Brothers. The private banking partnership of J. Pierpont Morgan, Sr. engaged in wholesale or merchant banking, which included the buying and selling of physical commodities and related facilities.
To take just one famous example, a trust controlled by J.P. Morgan purchased Andrew Carnegie's steel company in 1901 and combined it with other steel companies to form U.S. Steel. Pig iron and steel were the most important commodities of the day. J. P. Morgan sailed to Furope—he was there at the time of the May panic — it being generally understood at the time that he went abroad for the purpose of facilitating the floating of the United States Steel Corporation.
A great number of very heavy “deals” were under way in the United States; such, for instance, as the purchase of the Southern Pacific by the Union Pacific, the purchase of the Chicago, Burlington & Quincy by the Northern Pacific, the financing of the United States Steel Corporation, the race to buy control of the Northern Pacific, to say nothing of various other episodes like the saddling of the Pennsylvania Coal Company upon the Erie.
Theoretically, such a succession of deals of this magnitude should have made such de"mands on the American money market as to have reduced it to great straits long before now. Nothing has excited tnote astonishment in thoughtful minds than the ease with which our money market has appeared to take care of this long list of fabulously capitalized enterprises.
The mystery began to unravel itself, and the people of the United States came to see that the widely-heralded strength of the “great financiers” was derived from loans which they had quietly placed in Europe. It was a sharp move on their part: in the first place, it kept the investing public in this country in almost complete ignorance of the real methods which the manipulators of the stock market were employing in order to eventually unload several billions of securities on the credulous portion of humanity; and in the second place, it of course had the effect of not seriously disturbing money rates in the United States, as would otherwise have been the case, and this of course must have been a leading consideration in the minds of people who were so obviously interested in making conditions as favorable as possible for a boom in the stock market.
Harriman came into direct opposition to his greatest raifroad opponents, James J. Hill and J. P. Morgan. Harriman wanted the Chicago, Burlington & Quincy to allow his Union Pacific a direct connection into Chicago. Before he could complete his plans, however, James J. Hill purchased control of the road for the Northern Pacific and declined to consider Mr. Harriman in the deal. To a man of Harriman's temperament, this meant war, and in the open market Harriman sought to secure enough of the North( n Pacific stock to force Hill and Merge. . to make terms. He had purchased about $65,000,000 worth of Northern Pacific stock out of a total of $155,000,000, when he took the certificate to Morgan and demanded a share in the Burlington purchase. But the demand was refused. By purchasing $15,000,000 in additional common stock Morgan had $43,000,000, which added to the stock owned by his associates, gave a total holding of $80,000,000 of the common stock. The Harriman contingent held $78,000,000, but of the total capitalization $75,000,000 was in preferred stock and could be retired at par.
Then began a conflict between these giant forces for the purchase of the control of Northern Pacific, which culminated in the most spectacular day in Wall Street ever known in the history of American finance. The conflict brought on the panic of May 9, 1901, when Northern Pacific rose to $1,000 a share. In this fight, in which Harriman again used the funds of the Union Pacific and not his own, the situation became so threatening that a truce had to be called.
It of course took a great deal of money for the Union Pacific to buy the Southern Pacific, and for the Northern Pacific to buy the Chicago, Burlington & Quincy, and for the Hill and Harriman factions to engage in the mad purchase of Northern Pacific stock that culminated in the panic of May 9, and for Mr. Morgan to swing his very unique steel trust, to say nothing of other, and somewhat lesser, deals, in which the great factions in Wall street were interested.
But stock market conditions, largely as a resuolt of their own recklessness, took a turn for the worse, and completely upset all their plans for marketing this huge mass of Northern Pacific securities.
After the May panic, Harriman's record is filled with quarrels. He had made Hill and Morgan his enemies; he had embittered Horace G. Burt by ousting hira from the presidency of the Union Pacific, and had enraged the Moore Brothers, who had just acquired the Rock Island. During this period his financial intimates were James Stillman, Henry H. Rogers, Henry C. Frick, William Rockefeller and W. K. Vanderbilt. In 1903 he had trouble with James R. Keene. Keene had a big "pool" in Southern Pacific stock and insisted that Harriman should declare a dividend. Keene went to law about it and was defeated.
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