Black Friday History: The Stock Market Crash
On September 24, 1869, also known as Black Friday, a financial panic erupted that caused the collapse of the U.S. gold market. Two speculators used deception and bribery to control the gold market, bringing ruin to firms and businesspeople in the process.
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Fisk-Gould Scandal
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Prior to 1900 and the establishment of the gold standard backing for currency, the price of gold was subject to manipulation by the New York Stock Exchange. Two financial speculators who took advantage of this in a big way, James Fisk and Jay Gould, attempted to corner the gold market for themselves and brought about Black Friday in the process.
Government and the Gold Supply
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The government did have some control over the gold market by holding or releasing its gold reserves. In The New Encyclopedia of American Scandal, George Childs Kohn writes that Gould held almost half of the gold in circulation in 1869. To make certain the government did not release its holdings, thereby driving the price down, he bribed President Grant's brother-in-law, Abel Corbin, who was capable of convincing Grant not to release the gold.
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Deception
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Because of Corbin, Fisk and Gould were able to get close to Grant, and Gould made gold investments in the names of Corbin as well as Mrs. Grant and Mrs. Corbin. Grant's assistant Secretary of the Treasury, Daniel Butterfield (a friend of Corbin's), even agreed to notify Gould of the Treasury's plans to release gold in exchange for a percentage of their profits. On September 22, 1869, Corbin admitted to Gould that Grant was considering the release of some gold by the Treasury Department, and Gould began to sell his gold holdings.
Market Manipulation
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Because Fisk and Gould controlled so much of the gold supply, they were able to drive the price from $140 to $163.5 per ounce in one day. Since the price of gold was rising so rapidly, the value of paper money had declined, and some firms were forced into bankruptcy. The Treasury Department then released $5 million in gold, causing the price to fall rapidly to $133.
Sad Conclusion
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While others were ruined by the panic that ensued from such a fluctuating commodities market, Fisk and Gould made about $11 million. A congressional investigation found that no law could punish Fisk and Gould for using their right to speculate. Gould went on to an even bigger deception of Western Union in 1881.
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References
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