Jay Cooke & Company was a U.S. bank that operated from 1861 to 1873. Headquartered in Philadelphia, Pennsylvania, with branches in New York City and Washington, D.C., [1] the bank helped underwrite the Union Civil War effort. It was the first "wire" brokerage house, pioneering the use of telegraph messages to confirm securities transactions with clients. [2] The bank became overextended in the building of the Northern Pacific Railway and failed, contributing to the Panic of 1873.
Jay Cooke founded the bank in 1861 with William E. C. Moorhead, the ownership split two-thirds to one-third. Later partners included Cooke's brothers, Henry and Pitt, then H. C. Fahnestock and Edward Dodge, who held the bank's seat on the New York Stock Exchange after 1870. [3]
During the Civil War, Cooke & Company sold hundreds of millions of dollars in Union government bonds. Its reputation among investors around the world enabled the bank to sell these bonds when other brokerages could not. [4] Secretary of the Treasury Salmon Chase asked Cooke to try to sell the government's new $500 million issue of 5–20 bonds. These paid six percent interest (in gold) and matured in 20 years, but were callable in five years. Cooke used numerous agents from a variety of professions—small bankers, insurance agents, and real estate professionals—to sell these bonds to support the Union war effort. Cooke & Company's innovative use of the telegraph to confirm sales allowed selling throughout the country to be coordinated in Philadelphia. [5]
After the war, Cooke & Company continued to fund its investments through the sale of US treasuries. After the Black Friday scare, however, it became apparent that Cooke & Company would have to find other sources of capital. The firm turned to investing in railroads. In 1870, the Northern Pacific Railroad made Cooke & Company its exclusive bond agent. But Cooke had difficulty marketing the bonds to investors, wound up owning 75 percent of the company, and overextended his bank. As this liability became public, investors began withdrawing money from Cooke & Company. [6]
Cooke & Company wrote liabilities against expected returns from the sale of its Northern Pacific Railroad bonds, but ultimately could not sell enough bonds to meet its obligations. A run on the bank ensued, and its operations were suspended. When the New York Stock Exchange heard the announcement, equities plummeted, causing a chain reaction of bank runs and failures throughout the United States that signaled the arrival of the Panic of 1873 to American shores. [7]
Bankruptcy commenced soon after the collapse. Many of the junior partners at Cooke did not suffer when the bank collapsed because they anticipated the failure and had divested from assets that would crumble if Cooke became insolvent. The government seized most of Cooke's larger estates while Cooke moved to one of his smaller properties. Many of Cooke's allies in the banking business soon collapsed, including Livermore, Clews & Co. and Fisk & Hatch. [8]
In 1880, a former executive of Jay Cooke refused to testify before Congress and was found in contempt and detained. The U.S. Supreme Court declined to release him in Kilbourn v. Thompson .
The Specie Payment Resumption Act of January 14, 1875 was a law in the United States that restored the nation to the gold standard through the redemption of previously-unbacked United States Notes and reversed inflationary government policies promoted directly after the American Civil War. The decision further contracted the nation's money supply and was seen by critics as an exacerbating factor of the so-called Long Depression, which struck in 1873.
Jay Cooke was an American financier who helped finance the Union war effort during the American Civil War and the postwar development of railroads in the northwestern United States. He is generally acknowledged as the first major investment banker in the United States and creator of the first wire house firm.
The Panic of 1873 was a financial crisis that triggered an economic depression in Europe and North America that lasted from 1873 to 1877 or 1879 in France and in Britain. In Britain, the Panic started two decades of stagnation known as the "Long Depression" that weakened the country's economic leadership. In the United States, the Panic was known as the "Great Depression" until the events of 1929 and the early 1930s set a new standard.
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The Northern Pacific Railway was a transcontinental railroad that operated across the northern tier of the western United States, from Minnesota to the Pacific Northwest. It was approved by Congress in 1864 and given nearly 40 million acres of land grants, which it used to raise money in Europe for construction.
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Philadelphia financier Jay Cooke established the first modern American investment bank during the Civil War era. However, private banks had been providing investment banking functions since the beginning of the 19th century and many of these evolved into investment banks in the post-bellum era. However, the evolution of firms into investment banks did not follow a single trajectory. For example, some currency brokers such as Prime, Ward & King and John E. Thayer and Brother moved from foreign exchange operations to become private banks, taking on some investment bank functions. Other investment banks evolved from mercantile firms such as Thomas Biddle and Co. and Alexander Brothers.
Samuel Jaudon was a 19th-century American banker and businessman who was best known for his work as cashier and agent of the Bank of the United States from 1832 to 1837. During the Panic of 1837, Jaudon secured large loans for the bank and engaged in commodity speculation, particularly cotton, which failed to secure the bank's own credit and caused it to go bankrupt.
The Grandin Brothers; John Livingston Grandin, William James Grandin and Elijah Bishop Grandin were a sibling trio of American entrepreneurs who were among the first to begin business ventures in commercial oil prospecting in the United States, and who later became involved in banking and Bonanza wheat farming. They eventually became titans of the wheat industry, operating the largest corporate wheat farm in the Dakota Territory in the late 19th century.
Harris Charles Fahnestock was an American investment banker.
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