Jay Cooke built the most powerful investment bank in America by selling the Union’s war debt to ordinary citizens — hundreds of millions of dollars in bonds moved through a network of 2,500 agents and a torrent of newspaper advertising, machinery that created the modern retail bond market. After the war he pointed that machine at the Northern Pacific Railway, a line meant to run from Lake Superior to Puget Sound through territory with almost no one in it, and committed to raising $100 million for it.
European investors were skeptical, and after 1872 domestic demand dried up. The firm was left holding vast unsold inventories of Northern Pacific bonds when depositors caught wind of the strain and began pulling their money. On 18 September 1873 the Philadelphia office closed without warning. The New York Stock Exchange shut for ten days — the first closure in its history — and within weeks 101 banks and some 5,000 businesses had failed. The depression that followed lasted until 1879 and was known at the time as the Great Depression. The bank that had financed a nation’s war could not finance a railroad to nowhere.
Worth remembering
- Cooke sold hundreds of millions of dollars in Union war bonds through a national network of 2,500 sub-agents and newspaper advertising — techniques that effectively invented the mass retail bond market in America.
- By 1870 the firm was the Northern Pacific Railroad's exclusive bond agent and ended up owning about 75% of the railroad, turning a brokerage house into a de facto railway holding company.
Sources
- Founded in 1861, Jay Cooke & Company suspended payments on 18 September 1873 while overloaded with Northern Pacific Railway bonds; its failure triggered the Panic of 1873 and the failure of 101 banks Wikipedia
- The firm was tasked with raising $100 million in Northern Pacific bonds, and its collapse 'signaled the arrival of the Panic of 1873 to American shores' The Tontine Coffee-House
A graveyard tradition: leave a stone to show you came, and remembered.