Black Friday

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Black Friday: September 24, 1869

The Black Friday scandal (aka Fiske/Gould scandal) was a Wall Street disaster caused by two wealthy industrialists, Jim Fiske and Jay Gould, who concocted a dishonest scheme to corner the gold market.

They established an artificially high price for the gold by convincing then-President Ulysses S. Grant to withdraw the US government from the gold trading business, sending prices soaring from $34 per (troy) ounce to $144 per ounce the day before the market collapsed.

When President Grant and Secretary of the Treasury, Boutwell, finally recognized the problem and sold $4 million in government gold, the price plunged to $35 per ounce, foiling the scheme, but also resulting in the collapse of 50 brokerage houses and the insolvency of more than 150 others. The Gold Exchange remained closed an entire week, until September 30, 1869.

More detail

In June 1869, Fiske, Gould, and the President's brother-in-law, Abel R. Corwin, conspired to convince President Grant to withdraw the government from the gold market and allow the commercial market an opportunity to set a natural price for gold based on demand.

Fiske convinced Grant that it would help the national economy if the government suspended its sale of gold in order to increase its value. Corwin explained the value of the element had to rise to $45 an ounce in order to allow farmers to profit from the transport of grain to buyers overseas (the reasoning is not quite clear).

Fortunately for the industrialists, the government needed a new Assistant Secretary of the Treasury to work with Secretary Boutwell. Gould recruited General Daniel Butterfield as a candidate, and explained their "legitimate" plan for amassing a fortune in the free market. The men then convinced President Grant to appoint Butterfield to the position.

Grant sent a letter to Treasury Secretary Boutwell by way of Butterfield, instructing him not to sell government gold under any circumstances. Fiske, Gould and Corwin next convinced Grant to hide out in Washington, PA, while they worked Wall Street, knowing shrewder business people would see the fallacy "an unnatural premium on gold [being] essential to maintenance of foreign commerce."

On September 2, Gould purchased 1.5 million in gold; on September 16, he purchased another 7-8 million in gold, driving the price into the 80s and 90s, and making it difficult or impossible for honest businessmen to buy gold to operate their businesses. On September 23, the day before Black Friday, the price of gold reached the absurdly high price (for the time) of $144 an ounce, more than $110 an ounce higher than it had been just one month earlier.

On Black Friday, September 24, Treasury Secretary Boutwell finally recognized the danger the overpriced commodity presented to the national economy, and sold $4 million of government gold. The price immediately plummeted from $144 an ounce to $35 an ounce, causing the outright failure of 50 brokerage houses, and leading to the insolvency of more than 150 others. The Gold Exchange did not open its doors again until September 30, 1869.

Due to lack of communication, Fiske and Gould's trader, Albert Speyer, bought gold all day at a price of $60 per ounce as the two industrialists instructed, wiping out much of Fiske's and Gould's profits, but not causing either serious financial distress. Speyer had no idea he was paying $25 per ounce more than the new market rate.

The US economy nearly collapsed when the gold bubble burst -- a feat achieved by the conspiracy of just a few wealthy men. None of the parties involved were prosecuted for their role in Black Friday.