Financial History 143 Fall 2022 - Page 16

Ego and Debt : The Deadly Sins of the Speculator
“ One thing , however , has been wrongly attributed to me , and that is speculating . I never speculate . Such stocks as belong to me were purchased simply as an investment , never on a margin .”
— Hetty Green
J . Pierpont Morgan once quipped that “ Nothing so undermines your financial judgement as the sight of your neighbor getting rich .” In other words , ego is often the root cause of reckless financial decisions . Even worse , when investors are in a hurry to inflate their egos , they often use debt to expedite the process . During the Gilded Age , inflated egos and reckless use of margin debt were common .
Hetty Green possessed an uncanny immunity to these deadly sins . Although she aspired to be the richest woman in America , her objectives were always long term , and she cared little for her relative position at any moment . Her humility enabled her to ignore her status relative to others . This , in turn , provided her with the fortitude to shun the use of margin debt to accelerate the growth of her financial empire .
To this day , ego and debt torment even the most brilliant financial minds in America . The collapse of over-extended financial enterprises and implosion of overly acquisitive businesses are often seeded by a deadly combination of inflated egos and excessive use of debt to fuel them .
“ A Cabinet That Can Afford It ” illustration from the July 26 , 1905 issue of Puck magazine . Hetty Green is depicted at the head of the table alongside other turn-of-the-century moguls and financiers including J . P . Morgan , Andrew Carnegie , Russell Sage and John D . Rockefeller .
requested the closure of her accounts , but the bank demanded that she first cover her husband ’ s debt of more than $ 700,000 .
Hetty protested the unethical ( and possibly illegal ) action by the Cisco Bank , but she reluctantly covered Edward ’ s debts and transferred her assets to Chemical Bank . She then banished her husband to the Union Club of New York and reportedly put him on a modest monthly allowance . From that moment forward , the press ceased referring to Hetty as Mrs . Edward Green . Instead , she was known as Mrs . Hetty Green ; occasionally , journalists referred to her husband as Mr . Hetty Green .
The Queen of Wall Street
On April 18 , 1906 , residents of San Francisco were jolted awake by a massive earthquake . Within days , most of the city was reduced to rubble . The earthquake also triggered a financial chain reaction that would shake the entire nation . The problem was the steady outflow of money from New York City banks and trust companies , which coincided with the typical autumn funding requirements associated with the agricultural financing cycle .
The Panic of 1907 began in earnest after a newcomer to Wall Street , Otto Heinze , borrowed heavily in a failed attempt to corner the stock of United Copper . The failed corner bankrupted several brokerages , which , in turn , triggered runs on trust companies and banks . If not for the leadership of J . Pierpont Morgan , the United States would have descended into a depression . Unbeknownst to many , Hetty Green also played an important role in stemming the panic , but her contributions are rarely discussed . Not only did she lend $ 1.1 million to the New York City government at the height of the crisis , but she also provided a loan for $ 4.5 million several months before the panic .
Hetty Green was well-positioned to lend to individuals and institutions in need because she foresaw the financial panic well in advance . Her foresight derived from several decades of experience serving as a lender of last resort . Even today , few investors can match her ability to visualize the ebbs and flows of credit — and this ability is what distinguished her most as a financial grandmaster .
Discreet Generosity
Throughout Hetty Green ’ s life , journalists portrayed her as a cruel miser . Like all people , Hetty was imperfect , but her transgressions paled in comparison to most Gilded Age financiers and stock operators . She made most of her money providing capital at reasonable interest rates . In fact , during many panics , she offered capital at below market rates . Outside of her business dealings , Hetty was
Library of Congress Prints and Photographs Division
14 FINANCIAL HISTORY | Fall 2022 | www . MoAF . org