Wall Street stories

THE BREAK IN TURPENTINE

In the beginning of the beginning the distillers of turpentine carried competition to the quarrelling point. Then they carried the quarrel to the point of silence, which was most to be feared, for it meant that no time was to be wasted in words. All were losing money; but each hoped that the others were losing more, proportionately, and therefore would go under all the sooner. The survivors thought they could manage to keep on surviving, for on what twelve would starve four could feast.

It is seen periodically in the United States: an industry apparently suffering from suicidal mania. It is incomprehensible, inexplicable, though mediocrities mutter: "Over-production!" and shake their heads complacently, proud of having diagnosed the trouble. Here was the turpentine business, once great and lucrative, now ruin-producing; formerly affording a comfortable livelihood to many thousands and now giving ever-diminishing wages to ever-diminishing numbers.

It was Mr. Alfred Neustadt, a banker in a famous turpentine district, who first called his brother-in-law's attention to the pitiable sight. Mr. Jacob Greenbaum's soul thrilled during Neustadt's recital. He perceived golden possibilities that dazzled him: He decided to form a Turpentine Trust.

First he bought for a song all the bankrupt stills; seven of them. Later on, in his scheme of trust creation, these self-same distilleries would be turned over to the "octopus," at nice fat figures, as Greenbaum put it, self-admiringly, to his brother-in-law. Then he secured options on nine others, the tired-unto-death plants. In this way he was able to control "a large productive capacity" at an expenditure positively marvellous-it was so small. It was also in his brother-in-law's name. Then the banking house of Greenbaum, Lazarus & Co. stepped in, interested accomplices, duped or coerced into selling enough other distillers to assure success, cajoled the more stubborn, wheedled the more credulous, gave way gracefully to the shrewder and gathered them all into the fold. The American Turpentine Company was formed, with a capital stock of $30,000,000 or 300,000 shares at $100 each. The cash needed, to pay Mr. Greenbaum, Neustadt and others who sold their plants for "part cash and part stock," was provided by an issue of $25,000,000 of 6 per cent bonds, underwritten by a syndicate composed of Greenbaum, Lazarus & Co., I. & S. Wechsler, Morris Steinfelder's Sons, Reis & Stern, Kohn, Fischel & Co., Silberman & Lindheim, Rosenthal, Shaffran & Co. and Zeman Bros.

They were men who never "speculated"; sometimes they "conducted financial operations." They had shears, not fleeces.

The prospectus of the "Trust" was a masterpiece of persuasiveness and vagueness, of slim statistics and alluring generalities. In due course of time the public subscribed for the greater part of the $25,000,000 of bonds, and both bonds and stock were "listed" on the New York Stock Exchange-that is, they were placed on the list of securities which members may buy or sell on the "floor" of the Exchange.

Tabularly expressed, the syndicate's operations were as follows:

Paid to owners for 41 distilleries representing 90 per cent of the turpentine production (and 121 per cent of the consumption!) of the United States:

These figures were not for publication. They told the exact truth.

The public knew nothing of the company's earning capacity, save a few tentative figures from the prospectus, which was a sort of financial gospel according to Greenbaum, but which did not create fanatical devotees among investors. The stock, unlike the Kipling ship, had not found itself. It was not market-proven, not seasoned; no one knew how much dependence to put on it; wherefore the banks would not take it as collateral security on loans and wherefore the "speculative community" (as the newspapers call the stock gamblers) would not touch it, since in a pinch it might prove utterly unvendible. It remained for the syndicate to make a "market" for it, to develop such a condition of affairs that anyone at any time could, without overmuch difficulty and without causing over-great fluctuations, sell readily American Turpentine Company stock. The syndicate would have to earn its commission.

All the manufacturers who had received stock in part payment were told most impressively by Mr. Greenbaum not to sell their holdings under any circumstances at any price below $75 a share. Not knowing Mr. Greenbaum, they readily and solemnly promised to obey him. They even permitted themselves to think, after talking to him, that they would some day receive $80 per share for all their holdings. This precluded any untimely "unloading" by the only people outside the syndicate that held any Turpentine stock at all.

Mr. Greenbaum took charge of the market conduct of "Turp," as the tape called the stock of the American Turpentine Company. At first, the price was marked up by means of "matched" orders-preconcerted and therefore not bona fide transactions. Mr. Greenbaum told one of his brokers to sell 1,000 shares of "Turp" to another of his brokers and shortly afterwards the second broker sold the same 1,000 shares to a third, by pre-arrangement-this being the matching process-with the result that the tape recorded transactions of 2,000 shares. After the "matching" had gone on for some time, readers of the tape were supposed to imagine that the stock was legitimately active and strong-two facts which in turn were supposed to whet the buying appetite. It was against the rule of the Exchange to "match" orders, but how could convictions be secured?

"Turp" began at 25 and as the syndicate had all the stock in the market, it was easily manipulated upward to 35. Every day, many thousands of shares, according to the Stock Exchange's official records, "changed hands"-from Greenbaum's right to his left and back again-and the price rose steadily. But something was absent. The manipulation was not convincing. It did not make the general public nibble. The only buyers were the "room traders," that is, the professional stock gamblers who were members of the Exchange and speculated for themselves exclusively; and those customers of the commission houses who, because they were bound to speculate daily or die and because they studied the ticker-ribbon so assiduously, were known by the generic name of "tape-worms." These gentry, in and out of the Exchange, provided the tape in its curious language foretold a rise, would buy anything-from capitalized impudence, as in the case of Back Bay Gas, whose property was actually worth nil and its capital stock was $100,000,000, up to Government bonds.

Now, the room traders and the tape-worms reasoned not illogically that the "Greenbaum gang" had all the stock and that perforce the "gang" had to find a market for it; and the only way to do this was by a nice "bull" or upward movement. When a stock rises and rises and rises the newspapers are full of pleasant stories about it and the lambs read but do not run away; they buy on the assumption that, as the stock has already risen ten points it may rise ten more. This explains why they make so much money in Wall Street-for the natives.

Greenbaum and his associates were exceptionally shrewd business men, thoroughly familiar with Wall Street and its methods, cautious yet bold, far-seeing yet eminently of the day. They were practical financiers. They marked up the price of "Turp" ten points; but they could not arouse public interest in it so that people would buy it. Indeed, at the end of three weeks, during which the "Street" had been flooded with impressive advice, printed and spoken, to buy because the price was going higher, all they had for their trouble was more stock--6,000 shares from Ira D. Keep, a distiller, who sold out at 38 because he needed the money; and they also were obliged to buy back from the "room traders" at 35 and 36 and higher, the same stock the "gang" had sold at 30 and 31 and 32 and 34. Then the manipulators had to "support" the stock at the higher level, that is, they had to keep it from declining, which could be done only by continuous buying. By doing this the public might imagine there was considerable merit in a stock which was in such good demand from intelligent people as to remain firm, notwithstanding its previous substantial rise. And if somebody wanted "Turp" why shouldn't the public want it? The public generally asks itself that question. It...