Music History #21: "Black Friday"
Written by Donald Fagen and Walter Becker (1975)
Performed by Steely Dan
With songs about everything from flashy drug czars to downtrodden jazz musicians, Steely Dan have always cast their lyrical net far from the usual romantic fare of pop music. On one of the standout tracks from their 1975 album Katy Lied, they dug back to the 19th century to write about an infamous financial disaster. Not that it was straight history. Songwriters Donald Fagen and Walter Becker, true to their left-of-center muse, imagined a savvy investor who cashes out just before the crash and escapes to Australia to walk barefoot on the beach and watch the kangaroos.
“Black Friday” reached #37 on the charts. It also marked the debut of Michael McDonald as Steely Dan's background vocalist of choice. McDonald, who went on to fame with the Doobie Brothers and as a solo artist, would lend his distinctive voice to many more Dan tunes, including “Kid Charlemagne,” “I Got The News” and “Peg.”
Today, we associate the term Black Friday with the day after Thanksgiving, and all its pre-Christmas shopping madness. But the original Black Friday was about something more dire and disastrous.
During the Civil War, both the Union and Confederate governments financed their military operations with “greenback” currency—that is, money not backed by gold or silver reserves. After the Union won, the government, under President Ulysses S. Grant, continued to pour huge amounts of greenbacks into reconstruction projects. The greenbacks were basically promissory notes. Backed by the “full faith” of the government, they would one day be redeemable for precious metal-backed currency. But by 1869, the value of the greenbacks had fallen to the point where people started to panic over the true worth of their savings and investments.
We're In The Money
Enter Jay Gould and James Fisk. Gould was a railroad tycoon and a financial speculator. Fisk, known as “Diamond Jim,” was a stockbroker and ruthless businessman. In 1868, the pair had used stock fraud and bribery to prevent Cornelius Vanderbilt from taking control of the Erie Railroad, which they owned. Now they set out to corner the gold market and cheat investors. They saw how the U.S. Treasury had been increasing the supply of gold to the market to regulate its price. Gould and Fisk figured they could buy massive quantities of gold, drive up its value and then sell it off for a huge profit.
To ensure their scheme didn't go awry, Gould and Fisk recruited another financier, Abel Corbin, who happened to be married to Virginia Grant, the President's sister. This allowed Gould and Fisk to meet Grant on several social occasions, which they used to argue against the sale of government gold. Grant listened politely, but didn't take them seriously. Corbin further exercised his insider status to influence Grant to appoint former Union army general Daniel Butterfield as assistant Treasurer. It would be Butterfield's job to manage the government's buying and selling of gold. With Corbin's help, Gould and Fisk bribed Butterfield to provide advance notice of any large government sell-off of gold.
As Gould and Fisk's scam continued, gold prices rose and stocks fell. By September 1869, the premium on gold was 30 percent higher than when Grant took office. Soon, bank runs were breaking out across the country, with depositors demanding gold on their greenbacks and threatening to hang bank managers if they didn't get it. In some cases, the army had to be called in to suppress violence. Grant had become increasingly suspicious of Corbin's interest in the gold market, but when he discovered a letter from his sister to his wife that mentioned the gold market, he realized he was being conned. He ordered the Treasury to immediately release large amounts of gold from the reserves.
Initially, it was announced that $4 million worth of gold reserves would be sold. But the government didn't actually have that much. Later, the Treasury Secretary claimed that he meant to say $400,000, but added an extra zero by accident.
On September 24, 1869, later dubbed “Black Friday,” the gold hit the market. Within minutes, the value of gold plummeted. Desperate investors scrambled to sell their holdings and many, including Abel Corbin, were ruined. The fall in gold prices led to a huge dip in the market, which then rippled its ill effects into the national economy.
There was a congressional investigation into the scandal, and Butterfield resigned. Although Grant was not involved, his personal association with Gould and Fisk tainted his reputation.
As for Gould and Fisk, they managed to sell their gold before the bottom dropped out. Gould continued his financial power plays, eventually gaining control of the Union Pacific Railroad and Western Union Telegraph Company. Fisk was shot and killed by a fellow financier a few years later, after an argument over the affections of a Broadway showgirl.