CHAPTER XXIV.
HENRY N. SMITH.
HOW MR. SMITH STARTED IN LIFE AND BECAME A SUCCESSFUL OPERATOR.—HIS
CONNECTION WITH THE TWEED “RING,” AND HOW HE AND THE FAMOUS “BOSS”
MADE LUCKY SPECULATIONS, THROUGH THE USE OF THE CITY FUNDS, IN
MAKING A TIGHT MONEY MARKET.—ON THE VERGE OF RUIN IN A POOL WITH W.
K. VANDERBILT.—HE IS CONVERTED TO THE BEAR SIDE BY WOERISHOFFER, AND
AGAIN MAKES MONEY, BUT BY PERSISTENCE IN HIS BEARISH POLICY RUINS
HIMSELF AND DRAGS WM. HEATH & CO. DOWN ALSO.
I have already had occasion to speak of Henry N. Smith, who was a member
of the firm of Smith, Gould & Martin, but I consider him of sufficient
importance, speculatively speaking, for a separate biographical sketch.
pi This gentleman is a native of Buffalo, and had been in the mercantile
business there before coming to Wall Street. He was familiarly known as
the young man from Buffalo. He had then a decidedly Hebrew aspect; was a
strawberry blonde, with full beard of auburn hue, sharp, piercing eyes,
and an air of self-confidence. He had made some money in Buffalo, and
was lucky in his first ventures in Wall Street, being one of the few who
emerged from the panic of 1864 on the winning side. Smith became a bold
operator, and accumulated considerable money. He was invariably
successful in his transactions whenever he was governed by his own
judgment. The first disaster overtook him in the panic of 1873.
Immediately prior to that he had been under the influence of Commodore
Vanderbilt, who put him into Western Union, and the loss which he
sustained by its terrible fall in that year almost ruined him. He lost
all his ready money, being left without anything but his New York
residence and a stock farm.
He did not lose courage, however, by this speculative blow, but picked
himself up again and soon became quite a power in the Street, and in
spite of the ups and downs of speculation and the various panics, Smith
kept clearly ahead of the market for many years, and became a successful
and comparatively wealthy operator.
He always managed to ingratiate himself with wealthy connections in his
various operations, and was able to command an enormous amount of credit
in comparison with his actual means.
A few years ago, on his return from Europe, he met W. K. Vanderbilt, and
they began to discuss the probable future of the market. Vanderbilt had
been a bull for some time previously. They entered into an agreement to
operate on the bull side together. The result was that Vanderbilt lost
several millions, and came pretty near running the risk of exhausting a
large part of his then anticipated share of his father’s estate. The
deal was disastrous to Smith also.
Soon after this discomfiture, one day, on his way to Long Branch, Mr.
Smith met the late Mr. Woerishoffer, who was the great bear on the
market, while Smith and Vanderbilt were still then the leading bulls.
Woerishoffer succeeded in convincing Smith that his position on the
market was wrong—that he had better make a clean sweep of it in selling
out the stocks which he held, and join hands with him on the bear side.
Smith was impressed with Woerishoffer’s advice, earnestness and
personality.
The great bear was also in a position to back up his theory by examples
of his success, the best and most convincing argument that could
possibly be employed, especially by a Wall Street speculator. As the
result of this bearish counsel, Smith soon recuperated from the effect
of his former losses, and, in consequence, got bearish notions so badly
on the brain that he was prepared to swear by Woerishoffer’s judgment,
and considered his own equally infallible. He could see nothing but
disaster ahead any more than his general, and was recklessly prepared to
follow wherever the champion bear should lead in the destruction of
values.
Smith seemed to have the same abiding faith in Woerishoffer that
Ignatius Loyola reposed in the Pope of his day. “If the Holy Father,”
said that eminent Jesuit, “should command me to row several leagues into
the ocean in an open boat, in the midst of a terrific gale, I should
straightway obey his mandate without asking why or wherefore.”
Such is hardly an exaggerated illustration of the thorough appreciation
which Smith entertained of the perfection of Woerishoffer’s bearish
discipline, and the exact certitude of his judgment in all matters of a
speculative character. It is almost impossible for a man who has had no
experience in Wall Street matters to estimate the extremes of fanaticism
in speculation to which a man is prepared to go when he is seized with a
monomania either on the bull or the bear side, but especially on the
latter.
The evidence of his senses counts for nothing, and the evidence of other
people’s senses, if possible, goes for less. He is a consistent bull or
bear, as the case may be, and that settles it. He is Sir Oracle on the
stock market and when he speaks let no dog bark.
This inveterate combination of egotism and fanaticism has ruined many
hundreds, to my own knowledge. The disease is contagious, and Smith had
a very obstinate form of it. His symptoms were even worse than those of
Woerishoffer, by whom he was smitten, a peculiarity that very often
occurs in the recipient of this financial malady.
Like Woerishoffer, Smith fought the market with desperation on every
advance. He adhered steadily to the policy of attacking prices on every
rally during the summer of 1885, while values were constantly advancing,
with occasional healthy reactions. When his own money was exhausted he
began to incur cumulative liabilities with the house of Wm. Heath & Co.,
until that famous firm had become almost depleted of its available
resources in replacing margins as fast as they were wiped out by the
persistent tide of advancing prices in speculation.
Thus Mr. Smith proceeded, in obedience to the spirit of bearish
fanaticism, until his loss became so great that he not only had to pay
out all his own money, but was in debt to the firm of Wm. Heath & Co. in
a million dollars, which was the cause of their failure, and which
crippled or caused to collapse several smaller houses.
When Mr. Smith appeared before the Governing Committee of the Stock
Exchange to make application for the extension of time on his seat, he
made the following extraordinary statement: “On January 1, 1885, I was
worth $1,400,000. I had $1,100,000 in money, and the balance, $300,000,
in good real estate. On the following January I had lost the whole
amount, and was $1,200,000 in debt, a million of which I owed to Wm.
Heath & Co.”
Many people were surprised that Mr. Smith was enabled to obtain such an
enormous and unlimited amount of credit in one house. I took the ground
at the time, and I am still of the same opinion, that the animal
magnetism or psychologic power of Henry N. Smith over the elder Heath
was the real cause of all the trouble.
Mr. Heath had been in bad health for some time, consequently he left the
general management of the business to Mr. McCanless, the head clerk and
general manager of the firm, through whom the orders of Mr. Heath were
strictly executed.
Mr. Heath being weak in both body and mind, yielded his opinions to
those of Mr. Smith, by virtue of the superior mental force of the
latter.
In conducting a large Wall Street business it is necessary that a man
should have the mental stamina to say “no” firmly, and stand to it. In
order to be able to do this he must be backed up by a vigorous, healthy
physique.
The power to utter a negative in a determined manner requires,
generally, a fair degree of physical force, and it is absolutely
necessary to the success of a Wall Street broker that he should be able
to do it when occasion requires. A deficiency either in will power or
physical force to pronounce this small negative distinctly and firmly
may result in financial ruin, as it did in the case of Wm. Heath & Co.
Henry Nelson Smith made many successful turns in speculation during the
Tweed regime, owing to the facilities which the municipal bankers
belonging to that famous coterie afforded him for manipulating the money
market.
There were great fluctuations in stocks while William Marcy Tweed was
the power behind the throne in the government of the city of New York.
Mr. Tweed contributed largely towards these fluctuations. He and his
trusty companions pulled the wires at the City Hall while the puppets in
several of the brokers’ offices in the vicinity of Wall Street danced to
the sweet will of the managers in the municipal building.
One of Tweed’s three famous maxims was, “The way to have power is to
take it.” The other two were, “He is human,” and “What are you going to
do about it?” In conformity with the first maxim, Mr. Tweed took control
of the city funds, besides a number of the city savings banks, and other
financial institutions, which he had organized through special charters
from the Legislature, which he also owned during the period of his
Boss-ship.
These funds were so managed that a very tight squeeze could, at almost
any time, be effected in the money market. The city funds on hand were,
at that time, usually about from six to eight millions of dollars, and
were deposited in the banking institutions of the “Boss.” They were
ostensibly under the control of the City Chamberlain, who was under the
control of Tweed.
Henry N. Smith and a few other favorite members of the syndicate would
draw their balances from these banks, making money scarce to the general
public, and the money market would suffer a sudden squeeze, and
consequently the stock market would break, sometimes with such rapidity
as to produce disastrous results to a number of brokers, business houses
and other financial concerns outside the Tweed Ring.
On one of these occasions Mr. Smith drove up to the Tenth National Bank,
the Black Friday ring institution, in a cab, and drew his balance
therefrom, amounting to $4,100,000. He took it home and kept it there
several days under lock and key. In the meantime Mr. Tweed and his
companions withdrew from circulation the greater portion of the amount
under their immediate control, making a tie-up, on the whole, of nearly
twenty millions of dollars. At that time this was an amount sufficient
to make a very stringent money market, and cause Wall Street operators
to feel very uncomfortable. It was then a mighty power to be wielded by
a few unscrupulous men. At that time Mr. Smith considered himself worth
at least five million dollars. He lost most of this in the panic of
1873, largely in Western Union stock, as above stated, into which
Commodore Vanderbilt had kindly put him.
I have referred to the prominent part which Mr. Smith played in the
great speculative drama of Black Friday, in the scenes and incidents of
my chapter on that ever-to-be-remembered day in Wall Street
I shall, in another chapter, briefly review some of the methods to which
the Tweed Ring resorted to make speculation and politics play into each
other’s hands, and show how a bold attempt was made to add the control
of the National Treasury to that of New York.
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