Thread by @ReformedTrader

1/ The Richest Woman in America: Hetty Green in the Gilded Age (Janet Wallach)

"I have observed that many a tattered garment hides a package of bonds and that gorgeous clothing does not always cover a millionaire." (p. 118)

amazon.com/Richest-Woman-…

2/ Note: This work is a nice complement to Charles Slack's book, "Hetty: The Genius and Madness of America's First Female Tycoon."

Slack's book is shorter and a good place to start if you can only choose one of these books.

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3/ "New York was celebrating a financial boom. New institutions opened on every corner, filling the canyons of Wall Street with retail banks, commercial banks, insurance companies, and brokerage firms. Investors in mining, real estate, and transportation were flush with funds.

4/ "Eager to spend their new wealth, they were tearing down old buildings and putting up new ones so frequently that Harper's Magazine complained the city was unrecognizable for anyone born forty years before. Walt Whitman called it a 'rabid, feverish itching for change.'

5/ "Newly rich couples filled mansions with fabulous furnishings and installed bathrooms with hot/cold running water on every floor. Society expected them to have a big new house, a country place, a carriage, a box at the opera; to play host to lavish parties and balls." (p. 22)

6/ "While Caroline thrived on New York's social whirl, Hetty sought escape from commotion. While Caroline gushed over the latest fashions and wanted to enhance her social position, Hetty cocked an ear toward the men conversing on finance and focused on expanding her fortune.

7/ "The debutantes' world held little attraction for her: she may have enjoyed dancing, and she may have indulged in gossip, but she had no taste for frothy teas, no craving for fussy clothes, no liking for luxuries that money could buy. Hetty hungered for money itself." (p. 30)

8/ "When Hetty's father asked her why she still had money, she said that with the $1,200 he had given her, she had bought $200 worth of clothes and invested the rest in bonds that had already grown in value. 'That investment turned out so well that I soon made others.' " (p. 31)

9/ "Entrepreneurs willing to build the rail lines prodded the federal government to grant them land along which they could lay the tracks. But though the land was free, they needed money for payrolls and equipment.

10/ "Tempted by the possibility of huge returns from railroads and from the development of the land surrounding them into towns, mining centers, and manufacturing hubs, investors poured money into New York banks.

11/ "A flood of new funds arrived from Boston, New Bedford, Chicago, St. Louis, London, Paris, and Frankfurt. Awash in capital, the banks loaned money at easy interest rates to railroad promoters, mining prospectors, land speculators, merchants, and farmers." (p. 33)

12/ "Eager clients could almost taste their earnings as they bought shares of Crystal Palace (even as its stock was plummeting from 175 to 53), the Reading Railroad, and Pacific mining ventures. 'You can't lose,' stock salesmen promised. Trading in railroad stocks zoomed.

13/ "Manipulators devised instruments enabling them to buy shares with less cash.

"Eerie Railroad stocks started sliding. Investors were agog when the New Haven Railroad announced that its president, a prominent member of New York society, had swindled the company of $2 million.

14/ "But if speculators who had bought on margin were forced to sell their shares to cover their losses, shrewd investors like Commodore Vanderbilt and speculators like Jay Gould swooped up the stocks at low prices. Hetty Robinson would later do the same.

15/ "Railroads fell, but a rush for gold sent mining stocks soaring. Midwestern banks opened branches in New York. Five bank buildings were under construction on Wall Street; the number of banks in the city was on its way to doubling. It seemed like everyone was becoming rich.

16/ "The boom continued for three years. Banks encouraged spending, loaning at low interest. When customers reached their credit limit, instead of cutting off further loans, the bankers urged them to borrow more, and then sold the loans at discounted prices to other institutions.

17/ "With easy money, merchants and manufacturers expanded their businesses. Consumers shopped at a furious pace, importing fancy French furnishings for their oversized mansions.

"The country was drunk on prosperity." (p. 35)

18/ "And then the bubble burst. Toward the end of 1857, the news from the Ohio Life Insurance and Trust Company leaked the first bits of air. Unbeknownst to its Midwestern directors, the manager of its New York branch had embezzled millions of dollars.

19/ "The bank had borrowed in order to lend to railroad builders and speculators in railroad stocks. But European demand for grain had waned with the end of the Crimean War. With bumper crops around the world, Midwestern farmers received lower prices and shipped less by railroad.

20/ "When the insurance company revealed its $2 million loss from the embezzlement plus $5 million in losses on loans to railroad builders, stocks speculators, and in its own trading accounts, the New York banks demanded the money owed them.

"Ohio Life declared bankruptcy.

21/ "Midwestern banks were forced to borrow more money from New York. The farmers who withdrew their money from their accounts every summer to cover seasonal costs could not replace it in the fall, nor could they repay the merchants who had extended them credit.

22/ "N.H. Wolfe, the oldest flour and grain company in New York, declared bankruptcy. The president of a Michigan railroad announced his resignation. Railroad stocks slid to half their prices of four years earlier.

23/ "Bankers, worried other clients were overextended, called customers for repayment. But Ohio Life was not the only one that had borrowed far beyond its means. Within weeks, other banks and major Wall Street investors, ruined by bad loans, suspended operations or defaulted.

24/ "Rumors raced through the city, growing more exaggerated at every telling. Crowds huddled in the canyons of Wall Street as panicked creditors, worried that their banks would not be able to pay them, withdrew their money.

25/ "Although each bank issued its own version of paper money backed by gold, the notes were not actually at par with the metal. The public demanded the gold. With imports high and confidence low, the banks were forced to pay in gold, but their stores of coins were shrinking.

26/ " 'People look dubious and whisper darkly,' one man wrote, noting that several stock operators suffered serious failures. A few clever men like Russell Sage, a future role model for Hetty, kept substantial cash on hand and used it to buy stocks at rock-bottom prices.

27/ "J.P. Morgan told his son there was a good lesson to be learned from other people's greed & good bargains to be found in the aftermath. In future times, Hetty would keep cash available and use it to buy when everyone else was selling. Later, Warren Buffett would do the same.

28/ "But most people watched their money wash away in the flood; it felt like the crash and depression that had taken place twenty years before." (p. 39)

29/ " 'Extra! Extra!' 'War has begun!' Looming over New York was the threat that the South would lower its import duties to half the northern tariffs, ship cotton to Europe, and open its harbors to household goods and war materiel.

30/ "What would happen if southern cotton no longer flowed to New York? If southern loans were no longer paid to the city's banks? If southern orders for goods were no longer sent to New York?

31/ "With visions of ships rotting in the East River and grass growing in the streets, New York businessmen roused from their neutral slumber. They could no longer afford to rest while another financial panic hit the city. Instead, they rallied to keep the Union intact." (p. 51)

32/ "For every seller, there must be a buyer. The more the public discounted paper money, pushing it down as low as fifty cents on the dollar, the more Hetty bought. This was the start of the contrary investing she followed for the rest of her life.

33/ " 'I buy when things are low and nobody wants them. I keep them until they go up and people are crazy to get them. That is, I believe, the secret of all successful business,' she said.

34/ "Her philosophy reverberates today in the transactions of Warren Buffett. After a tumultuous period in the stock market, he told his shareholders in 2010: 'We've put a lot of money to work. A climate of fear is investors' best friend.' " (p. 71)

35/ "The U.S. government provided vast amounts of tax-free land around the tracks in the West and gave rights to the minerals in the ground. In order to finance the projects, the railroad builders borrowed money using the land as collateral.

36/ "American bankers eagerly loaned them the money for construction, and then, to soften their own risk and increase their profits, they issued bonds. Seeking money for the bonds in London, Paris, and Frankfurt, they were welcomed with open arms.

37/ "The Bank of England paid interest of 3%-6%, while the Americans offered as much as 18%. Pleased to find such an attractive place for their funds, the Europeans quadrupled their investments to over $200 million in railroads and $1 billion in American stocks and bonds." (p.78)

38/ "Against the objections of her husband, who put his money in land, Abigail Adams bought 'State Notes' after the Revolutionary War when there was little confidence in the new government. The bonds increased far more in value than her husband's real estate.

39/ "With Edward's knowledge of railroads and banking, with American industry booming, and with inflation soaring, Hetty increased her share of railroad stocks and U.S. Treasury bonds. The bonds would prove to be an outstanding investment." (p. 79)

40/ "Opportunists in London bought greenbacks from local merchants (English businessmen who were paid by American customers but could not exchange the greenbacks at British banks). Promissory notes, cosigned by prestigious bankers, were being sold at discounts as high as 60%.

41/ "Marcus Goldman, an immigrant from Germany, set up an office on Pine Street to buy and sell this commercial paper. Later he would team with his son-in-law Samuel Sachs, forming the company Goldman Sachs, to raise capital for American companies.

42/ "When the American government agreed to pay par value for greenbacks, making the paper money almost equal to gold, arbitrageurs like Goldman and the Lazard Brothers, based in California and London, made a fortune." (p. 79)

43/ "New York was flooded with an endless stream of funds from Europe, ready credit from the banks for mortgages, 10% margin accounts on Wall Street, junk bonds and other newly devised railroad debentures, and other instruments for trading stocks, such as puts and calls.

44/ "The money encouraged a 500% increase in railroad building since the end of the Civil War, gaining land grants for the builders but resulting in tracks that sometimes wandered aimlessly. Along with the boom came massive real estate speculation and a rash of consumer spending.

45/ "Everybody seemed to be making money; nobody suspected he was living in a fool's paradise. Chicago had plans to erect buildings that would make it the most modern city in the country. In New York, patrons dined on oysters and champagne at Delmonico's new restaurant." (p. 86)

46/ "Central European banks and London financial institutions made money available for speculation in railroads and real estate. Developers in Paris, Berlin, and Vienna erected elaborate public buildings and homes using the promise of future houses as collateral on mortgages.

47/ "The rampant rush to buy more land at low interest rates sent property prices soaring. Yet even as the costs rose, real estate opportunists continued to borrow until they reached a point where buyers could not afford the land.

48/ "The speculators were unable to pay back the interest on their loans. When the worthless mortgages caused a few European banks to collapse in the spring of 1873, the British institutions, wary of more shaky mortgages held by the rest of the banks, raised their lending rates.

49/ "The bubble burst on the Continent.

"Moody's magazine observed a few years later: 'The world as a whole was money mad... All the great European cities seem to have had booms at this time. Vienna and Berlin were the most frenzied.

50/ " 'The prices of sites went to fictitious figures. The speculator bought property on credit he did not expect to use with the expectation of forestalling the deferred payments by a sale at an advance. Europe poured the oil of its money on the flames of American speculation.

51/ " 'Suddenly something snapped. A Vienna banking house broke under the weight of too heavy a load of Missouri, Kansas and Texas securities, followed by another carrying too much Canada Southern. The financial organism winced like a leviathan with a harpoon in his vitals.'

52/ "As the spasms spread from stock exchanges to banks, and from banks to investors, from Istanbul to Stockholm and from Edinburgh to Alexandria, the world crouched in pain. The wounds had come from speculation, but, said Moody's, 'No war ever made more misery.' " (p. 88)

53/ "The scarcity of funds triggered disaster: merchants defaulted because they could not find money to run their businesses; farmers went bankrupt because they could not borrow to plant their crops; railroads lost income because of the smaller shipments of food.

54/ "The railroads were already suffering from the Eering Ring outrage with its worthless stock and corrupt activities in Washington; the Union Pacific scandal, which also uncovered stolen profits and bribed politicians; and a general loss of confidence in railroad management.

55/ "The Northern Pacific Railroad, which had been running at a loss and spending money to lay track faster than it was acquiring funds, announced on September 18, 1873, that it could no longer afford to pay bondholders the 8.5% dividend. The railroad folded in default.

56/ "The highly reputable banking house of Jay Cooke & Co., which earlier had raised hundreds of millions of dollars in bond sales to finance the Civil War, had loaned to Northern Pacific. Now the railroad was unable to repay, and the prominent firm was forced to close." (p. 89)

57/ "Men looked as though they had aged ten years in one day. Brokers, vigorous the day before, walked with their backs bent. Bankers, confident yesterday, leaned on their canes.

"In every case, financial crises follow a period of rampant and extravagant speculation." (p. 90)

58/ " 'When I see a good thing going for cheap because nobody wants it, I buy a lot and tuck it away.' For Hetty, the decline in the market was an opportunity. She had a pile of cash when others were scouring for pennies and the colossal courage to push against the crowd.

59/ "It was far easier to lose money than to make it. Vanderbilt bought his stocks for cash. His followers, on 10% margin, had to cover losses. 'If you had bought a hundred shares instead of a thousand, you could have held on. Never be in too great a hurry to get rich.' " (p. 94)

60/ "While government officials and Congress argued over whether to allow deflation or encourage inflation, farmers and even small businessmen resorted to methods of barter. In 1874, a conservative Congress passed a bill to devalue the dollar by printing more money.

61/ "The following year, after the economy failed to improve, Congress legislated to strengthen the system by backing U.S. dollars with gold. Those like Hetty, who had held on to their discounted greenbacks bought after the Civil War, were now flush with wealth." (p. 95)

62/ "When her cleaning lady gave birth to a son, Hetty gave her a gold piece. 'Keep it in the bank until he is twenty-one.' Instead of understanding the lesson, the woman scorned her for not spending.

" 'Watch your pennies, and the dollars will take care of themselves.' " (p.99)

63/ "Mrs. Green is believed to be the richest woman in America, a title earned by her business sagacity, energy, and watchfulness. She has lived a frugal life and exercised extraordinary keenness in her investments. She has more than quintupled her heritage." (p. 116)

64/ "When she had read, interrogated, and investigated enough, when she had studied costs, analyzed assets, and dug through the debts, when she was satisfied that basic values were sound and assets strong, that the downside risk was low and the upside high, then she invested.

65/ "She much preferred common people to the stuffy socialites of the upper class." (p. 121)

"While their wives and daughters, wearing Parisian gowns (after a 50% import tax), partied with idle males till 2 a.m., the men who made the money supped early and went to sleep.

66/ "Jay Gould, James Lenox, and William Vanderbilt, recoiling at the word 'cotillion,' retreated to their private clubs. Henry James understood: 'The highest luxury of all, the supremely expensive thing, is constituted privacy.' " (p. 123)

67/ "When others were failing, Hetty often stepped in and saved them by buying their mortgages. She loved a bargain, and having money on hand to pick up distressed assets gave her an advantage. Then, when the banks allowed foreclosure on her mortgages, Hetty assumed the property.

68/ "In 1873, Hetty had loaned $150,000 for a mortgage, and after three years of nonpayment, the bank foreclosed; she bought the property at a bargain price. By 1890, its value had grown to $1 million." (p. 140)

69/ "You should never marry a society man with my consent. I want to see you happily married and in a home of your own, but marry a poor young man of good principles who is making an honest fight for success. I don't care whether he's got $100, provided he has the right stuff.

70/ "You will have more money than you'll ever need; it isn't necessary to look for a young man with money. Now you know my wish, and I hope I won't hear anything more about your young man in Newport who knows just enough to part his hair and spend his father's money." (p. 147)

71/ "The rich needed to spend in order to improve their social position; the newer their money, the more they spent. They spread dollars abroad, buying clothes, jewels, furnishings, food, and wines from Europe, creating a demand for payments in gold from American banks." (p. 155)

72/ "Companies whose stocks had skyrocketed, whose dividends defied gravity, collapsed when their lack of capital was revealed. Money became so tight that short-term interest rates soared as high as 75%.

73/ "The National Cordage Company, one of the most heavily traded stocks on the exchange, could not get credit and declared insolvency. The market plunged. Investors panicked. The Gilded Age, like other eras of avarice, opulence, and easy credit, burst from gluttony." (p. 156)

74/ "Perceptions of Hetty were as varied as those of the Wizard of Oz. 'I've been reading of Hetty Green. I think she must be crazy....' 'Why, she's worth 40 millions....' 'Then she can't be crazy. She's only eccentric.' " (p. 165)

75/ "The case against the trustees of Edward Robinson's estate was first brought about by the sale of property in Cicero, near Chicago, in 1888. The executors had insisted on selling the vacant land for $650,000, although they had been offered $800,000 for the same acreage.

76/ "Hetty's accused them of investing her father's money with their own interests in mind. Fees seemed excessive and included payments to their own relatives. Money they paid to officials 'for improving the morals of the city' went toward improvements on the trustees' property.

77/ "Improvements had no effect on her land but enhanced their own. Claims were made for repairs, but no vouchers were produced. No accounting of the trust had been made in more than a decade. When Hetty asked to see the papers, they balked at bringing them forth." (p. 166)

78/ "Instead of giving her money away lavishly, she handed it out meagerly, providing jobs, not welfare, avoiding the publicity that led to more requests. 'Hetty Green has, in secret, done a vast deal more of philanthropy than the public gives her credit for.' " (p. 170)

79/ "To live content with small means; To seek elegance rather than luxury, And refinement rather than fashion; To be worthy, not respectable, and wealthy, not rich." (p. 176)

80/ "With money readily available, investors and manipulators borrowed from the banks to buy stocks. The buying sent prices zooming: men whispered hot tips in one another's ears; rumors roiled of companies going sour; stories spread of huge amounts of money being made overnight.

81/ "Hetty watched from the sidelines as America swirled in another carnival of speculation; rich and poor rushed to the carousel and reached for the brass ring. Corporate leaders and clerks bought and bought shares being offered to bankroll the purchases of worthless firms.

82/ "The irresponsible borrowing echoed the past: 'I wasn't worth a cent two years ago, and now I owe two million dollars,' mocked Mark Twain in The Gilded Age. It also foreshadowed the dot-com bubble and the frenzy for IPOs at the turn of the twenty-first century.

83/ "Everyone but Hetty seemed to be buying. 'When good things are so low that no one wants them, I buy them and lay them away in a safe; when owing to some new development, they go up and my shares are so needed that men will pay well for them, I am ready to sell.'

84/ "She watched for bargains but never bought to be in style. In the frantic heat of the market, it took restraint to keep from buying while others swooped up stocks during a boom; it took courage to remain calm while the crowd dumped their shares in a wave of panic." (p. 191-2)

85/ "She believed that a knowledge of business would make a woman a better wife. One who understood the pressures on her husband would be a more sympathetic spouse.

"Despite her strong words, she had little support for women's suffrage and no desire to see a woman president.

86/ " 'I should hope not. I don't believe in so-called women's rights. I am willing to leave politics to the men.' Indeed, she had never taken office at any corporate board, nor had she been the public face of any company; she those positions to her husband and son.

87/ "Nonetheless, she wished women had more rights in the world of commerce. 'I could have succeeded much easier had I been a man. I find men will take advantage of women in business that they would not attempt with men.' " (pp. 195-6)

88/ "As the boom continued, more and more Americans borrow to buy stocks at prices that soared like out-of-control hot-air balloons.

"At the same time, the cost of land skyrocketed around the country, as people raced to buy up real estate in cities, towns, and rural communities.

89/ "The cost of borrowing rose precipitously. 'I saw the handwriting on the wall. Every real estate deal which I could possibly close up was converted into cash.'

"In 1905, the heavy requests pushed interest rates up, causing many people to owe the banks far more than they had.

90/ "Many debtors had little choice but to divest their holdings. Hetty watched as rich men arrived at the Chemical; doffing their top hats, drawing out their expensive engraved cards, and handing them to the clerk at the door, they sought her out to sell off their possessions.

91/ "As rates rose, more and more of 'the solidest men in Wall Street... financials to legitimate businessmen,' came to call, begging to unload everything from palatial mansions to automobiles." (p. 199)

92/ "If you try to do too much, you can never get anywhere. As I was made for work, I just as naturally wasn't made for a fashion plate. I have never bothered about what to wear. I like to see what other people are wearing. It does me good sometimes and gives me a laugh." (p.221)

93/ "She had enough of courage to live as she chose and to be as thrifty as she pleased, and she observed such of the world's conventions as seemed to her right and useful, coldly and calmly ignoring all the others." (p. 227)

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