Sunday, July 6, 2014

Daniel Drew: A Victim of His Own Ways

Daniel Drew
In 1868, a war of business tycoons erupted. The price was the lucrative line of Erie, connecting New York to Illinois. In one side, the powerful and influential ferryman turned railroad King, Cornelius Vanderbilt. On the other side, the Erie Ring, composed of men who were highly regarded as cheats and unscrupulous. It was composed of Jim Fisk, Jay Gould, and another unexpected faithful turned roguish speculator, Daniel Drew.

Daniel Drew came from the same background as his fellow Erie Ring members. He was from a poor farming family background. Born in July 23, 1797, Daniel Drew was a son of a humble farmer’s family in Caramel, New York. His mother was a devout Methodist taught them to be one as well. Their poverty prevented Daniel Drew from having a formal education. Much of Drew’s literacy came from his parents or self-taught. And as a boy from rural, he dreamed of being something more. At a young age he began working as a barker in a circus. 

Later on, the Napoleonic War came to the Americas. The United States who were neutral in the war of Europe was dragged into conflict. Great Britain wanted the United States to halt its trade with France. The Americans continued and the War of 1812 broke out. Young men were then called into service to fight the red coats. Drew found out that anyone who would serve in the army would be given a $100. The young Daniel Drew joined for the opportunity to earn. 

After the War, Drew began to search himself in the business world. He entered the cattle and horse business. With his hundred dollars he bought cattle’s and horse and grew them. During those days, prices of cattle were based in their weight. According to rumors, Drew, with a very sharp but immoral mind, found a way to profit hugely from the system.  A day before weighting in and selling his cattle, Drew would thirst his cattle. By the following day, he would then bring them to the river to have a drink until they bloated themselves. Thus, when the weighting in and selling time came, the cattle would appear heavier than the usual because of the drinking. Drew would then receive higher prices. It would be late for the buyer to found out that was ripped off. The tactic became known as the watered stock, a tactic which would Drew also use in the stock market.

Drew became successful in cattle driving. With the help of the brother of the millionaire Jacob Astor, Henry Astor, Drew was able to expand his cattle business to the west. He earned a lot from the expansion and by 1834 he was able to diversify his business.

On the same year, he entered the ferry service. With his earning he bought a steamship, the Water Witch. He operated in the route between New York and Peeksill.

His new business, however, hit a turf owned by other ferry operator. Cornelius Vanderbilt, an established ferry owner was operating in the same route. The arrival of Daniel Drew was deemed a threat by Vanderbilt. A rate war then ensued. Vanderbilt lowered his rate in or to kicked out of business his rival Drew. Drew who only owned one ship could not compete against the formidable Commodore Cornelius Vanderbilt. Within a year, he sold his ship to Vanderbilt. This was first of their series of confrontation.

After a decade from his defeat against Vanderbilt, Drew decided to enter Wall Street. In 1844 He established a brokerage. Named Drew, Robinson, & Co., Drew became notorious in Wall Street, He used ironically, immoral acts of manipulation of stocks. He used the so-handkerchief trick. While walking near an investor, he would drop a handkerchief containing what appeared to be insider information. But on the contrary, the contained information were false and was meant to direct stock prices at Drew’s wishes. He also utilized bribery of journalist in order to mislead investor via articles in newspaper. He also used a tactic bear raid and short selling. Drew would borrow shares from a brokerage. Afterwards, he would sell in the current high prices. Then, would make a move that would drive stock prices down. As a result, he would pay his borrowed stock in a lowered price after he already had sold them in higher prices. It was instant cash.

In 1864, his manipulation skills were tested in the railroad industry. Once again, he met his ferry rival, Cornelius Vanderbilt. Vanderbilt left the ferry business after the Civil War and moved to railroad after seeing its potential.  The two clashed for the control of one of the line that crossed New York from east to west, the New York and Harlem Railroad. 

The clash would give Drew’s tactics a baptism of fire. In 1864, Drew wanted to profit from the New York & Harlem by short trading once again. He connived with the city council of New York. The tactic was using a proposal of a train service in Manhattan. If the proposal of Drew on behalf of the New York & Harlem, stock prices would go up. But if rejected, prices would fall. The proposal was made public and prices then rise. Eventually, Drew sold short. Later on, he asked the city council to reject the proposal. So it meant, the prices would fall, and he would buy his sold stocks in a lower price. However, this did not happened. Vanderbilt bought the stocks. Even though the announcement was made, prices did not went down because Vanderbilt was buying stocks. In the end, Vanderbilt acquired New York & Harlem. Drew, meanwhile, lost money from his failed short selling tactic. But Drew would then find satisfaction few years later.

In 1867, Vanderbilt aimed in dominating the railroad service that had routes across New York. After acquiring New York & Harlem, Vanderbilt turned his attention to the next line, the Erie. Drew already had established his interest on the line for more than a decade. In 1823, he began to acquire Erie stocks. By 1857, he was member of the Board of Directors. When Vanderbilt targeted Erie, Drew find allies in form in his equal form, Jim Fisk and Jay Gould. Both came from poor background. Fisk worked in retail and then moved to stock trading. Gould in the other hand, found his way to the railroad industry by marriage. Together, the Trio was known as the Erie Ring. They would execute the most well-known display of Drew’s classic watered stock tactics.

The clash began in Late 1867. Vanderbilt began a hostile takeover of the Erie Line. He began buying stocks that he could hold. The Ring, however, launched a devastating, cunning, but illegal counter-attack. They began to issue convertible bonds. This bonds would be paid into stocks. Thus, once the bonds were converted, new stocks would appear. The result, as Vanderbilt bought more stock, his position would not change because new fresh stocks were made via the bonds. By 1868, Vanderbilt lost approximately $7 million. 

From the stock market, the battle moved to legal and legislative battle. Vanderbilt ordered his puppet judge to place an injunction on bond conversion of the Erie. The Erie then asked their own puppet judge to counter the injunction made by Vanderbilt’s. Then Vanderbilt took one step further and ordered another pet judge of his to issue an arrest warrant. The trio then escaped to New Jersey. The Trio then used their ally, the corrupt William Tweed to legalize their move. The already aging, about seventy year old, Daniel Drew could not cope with fugitive life. Against his allies’ wishes, Drew forged a peace treaty with Vanderbilt. Out of the agreement, Vanderbilt would drop claims over the Erie Line, in exchange for $5 million. The so-called Erie War ended.

Gould and Fisk did not forgive Drew. The duo then launched an attack against Drew. The evil duo knew Drew’s tricks. And so they took it as part of their advantage. The duo began to issue checks from New York banks amounting to over $20 million. With the checks, banks were force increase interest rate, which would hamper loans for buying stocks. As a result, prices of stocks decrease. Drew then began to sell short once again. When the duo detected Drew’s move, Fisk and Gould then returned $12 million to the banks. Following the move, interest rate were lowered, and gates for loans to buy stocks were opened. Thus, stock prices went up. Drew lost a lot of money. Drew lost over $1 million.  Following lost, another kick to the gut hit Drew. Fisk and Gould took a hold of the Board of Directors and kicked Drew out of the company.

But it was not the end of Drew’s downfall. In 1873, one of the worst economic recession hit the US. The Panic of 1873 caused the bankruptcy of many companies. The economy in the overall was down. Drew lost even more money because of the Panic. Three years later, the situation became worst and he filed for bankruptcy. Three years later, on September 18, 1879, Daniel Drew passed away a poor man.


Although, he was man well-known for his illegal and cut throat strategies in the stock market. Drew made donation into educational institution. While rich, Drew made an endowment of over a million dollars to a New Jersey Seminary School. Later on, the school grew to become the Drew University.

Daniel Drew was a typical Robber Baron. He used clever means to earn profit. He made acts that normal small time investors were ruined. However, Drew was different from other Barons. Others Barons died wealthy, but Drew died tragically. He died a victim of his own corrupt ways.

See also:


Bibliography:
Alef, D. Jay Gould: Ruthless Railroad Tycoon. Titans of Fortune Publishing, 2009. 

Derbyshire, W. Six Tycoons: The Lives of Jacob Astor, Cornelius Vanderbilt, Andrew Carnegie, John D. Rockefeller, Henry Ford, and Joseph Kennedy. London: Spiramus Press Ltd., 2011. 


Geisst, C. Encyclopedia of American Business History. New York: Facts On File, 2006. 

Giroux, G. Business Scandals, Corruption, and Reform: An Encyclopedia. California: ABC-CLIO, 2013. 

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