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Hetty Green is remembered as the \u201cworld\u2019s greatest miser\u201d and the \u201cWitch of Wall Street,\u201d but these days, Green would likely be seen as an eccentric investing icon. After all, while she became famous for her frugal nature and gruff exterior, Green pioneered value investing strategies that have made billionaires out of many of today\u2019s leading investors. And when the chips were down, when people really needed help, the whaling heiress turned independent investor, business tycoon, and world\u2019s wealthiest woman often used her fortune to save the day.\u00a0<\/p>\n
There\u2019s perhaps no better example of Green\u2019s misunderstood legacy than the knickerbocker crisis. Also known as the panic of 1907<\/a>, the knickerbocker crisis is now largely forgotten, but the economic nightmare was burned into the memories of those who lived around the turn of the 20th century. It had somewhat complex origins, but the long and short of it is this: Wall Street greed turned ugly, eventually leading to bank runs and a serious recession.\u00a0<\/p>\n Over a three-week period after the panic began on Oct. 22, 1907, the New York Stock Exchange plummeted nearly 50% from its 1906 peak. And a year later, in 1908, Gross National Product (GNP), a measure akin to today\u2019s Gross Domestic Product (GDP), cratered 12%. The problems for the banking system were so severe during the knickerbocker crisis that they spurred the establishment of the Federal Reserve System.\u00a0<\/p>\n It all kicked off when a copper magnate, F. Augustus Heinze, and the \u201cIce King\u201d (who literally sold ice), Charles Morse, tried to artificially inflate the stock price of United Copper, a practice that is now illegal. Heinze and Morse borrowed heavily to invest in United Copper and drive up the stock, but when the ploy didn\u2019t work, they had to default on a number of large loans. This led to problems for a few key banks that typically didn\u2019t hold much cash in reserves during that era, including the Knickerbocker Trust (hence the name of the crisis).\u00a0<\/p>\n The issues for bank and trust companies eventually sparked a widespread panic with bank runs in many parts of the country. As the situation deteriorated, John Pierpont Morgan, the American financier who founded what is now JPMorgan Chase<\/a>, was eventually forced to call together a group of Wall Street\u2019s best and brightest at the Morgan Library to help decide how to prop up the ailing economy and stock market. Hetty Green was the only woman who was invited to attend that meeting during the height of the panic.<\/p>\n Why? Her status on Wall Street certainly helped, but she also predicted the whole thing.<\/p>\n An issue of The Literary Digest<\/em><\/a> in 1916 details an earlier New York Tribune<\/em> article that featured quotes from Green about how she forecast the panic of 1907\u2014and then proceeded to bail out more than her fair share of investors, businesses, and even the city of New York.<\/p>\n \u201cI saw this situation coming,\u201d she said, noting that there were undeniable signs of stress. \u201cSome of the solidest men of the Street came to me and wanted to unload all sorts of things, from palatial residences to automobiles.\u201d<\/p>\n Green said that she then gave The New York Central Railroad company a \u201cbig loan\u201d after they came knocking, and that made her \u201csit up and do some thinking.\u201d She decided to begin gathering as much cash as possible, understanding that a panic could be on the way.<\/p>\n \u00a0\u201cWhen the crash came I had money, and I was one of the very few who really had it. The others had their \u2018securities\u2019 and their \u2018values.\u2019 I had the cash and they had to come to me,\u201d she said.<\/p>\n Green described how men came to New York from all over the country to ask for loans during the panic of 1907. But despite being labeled a \u201cmiser\u201d throughout her life, she didn\u2019t take advantage of the situation.<\/p>\n \u201cThose to whom I loaned money got it at 6%. I might just as easily have secured 40%,\u201d she explained. \u201cNever in my life\u2014no matter what has been said against me\u2014have I practiced usury, and no one knows it better than the wealthy men who have had business dealings with me.\u201d<\/p>\n Usury, or charging excessive interest for a loan, was against Green\u2019s moral code, which was born of her Quaker roots. And she seemed to relish in the idea that some of the world\u2019s most powerful men, businesses, and even local governments came to her when they needed a bailout.<\/p>\n Green would go on to lend the government of New York City $1.1 million at the peak of the 1907 panic, which is equivalent to roughly $33 million in today\u2019s dollars. And it wasn\u2019t the first time she had offered her support, according to the 1930 book titled The Witch of Wall Street: Hetty Green<\/em>. Months before the panic, she gave a $4.5 million loan to the city, worth nearly $150 million today.<\/p>\n \u201cOn more than one occasion, when New York was running low on money, she would lend money to the city,\u201d explained Charles Slack, the author of Green\u2019s biography, Hetty: The Genius and Madness of America\u2019s First Female Tycoon<\/em>. \u201cAnd she always did so at reasonable rates. She didn\u2019t gouge or hold the city over a barrel.\u201d<\/p>\n<\/div>\nSubscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n