IT IS time that someone told Senator Kefauver’s committee that gambling need not necessarily involve corruption of public officials by armed hoodlums. There was a day, not so long past, when people could lose their money in this country quite decorously in urbane surroundings, and with the utmost exercise of their intellectual powers. I refer to the period — ending, alas, with the securities legislation of 1933-1934 — of the bucket shop.
The bucket shop existed on the simple proposition that Americans enjoyed trading in stocks and that sooner or later they would trade themselves out of whatever money they had. On this eminently correct theory, it was unnecessary for the bucket shop to go to all the trouble of actually executing the buy and sell orders that its customers thought up. An order was “confirmed,” usually at the price of the next quoted transaction in that particular stock or commodity, but the order was tossed “into the bucket” instead of becoming a reality on the floor of an exchange.
Bucketing was, I fear, frowned upon by non-bucketing brokers because of its genially low margin requirements. The bucket shop was more interested in how quickly a customer lost money than in how much margin he maintained. The smaller the margin, the faster the action. If the customer was in a hurry, so indeed was the bucket shop. Frank Costello would have lost his shirt with any good bucket shop of the twenties. If a customer seemed to be about to make any money, the bucket shop might austerely bid him take his business elsewhere. But complications on this score were rare, very rare.
Horse and dog track gamblers of today would have been abashed by the toplofty considerations which bucket shop customers discussed so readily and on which they based their trades. The customers’ room buzzed with significant reports from every quarter of the globe: car loadings, building permits, rainfall in the Dakotas (or in the Punjab), call-money rates, and the doings of great personages in Chicago, New York, and London. “Armour is selling the wheat!” the bucket shop’s Morse operator would call out; and after a decent interval of feigned indifference, the customers would furtively sell some wheat, just in case. The Morse wire carried many a nugget of this kind, or at any rate the Morse operator gave the impression that it did, and none of the traders were willing to let Armour, or Morgan, or Livermore make his killing without a bit of company in the coup.
From time to time, prosperous strangers would appear — simply passing through town and anxious to see how their own deals were faring. Quizzing by the local customers would eventually wring from the stranger a tip on a phonograph stock: the company had just invented a new needle. By noon the whole clientele of the bucket shop would have shifted quietly into the phonograph stock. A week later they would be off on their own again, this time in December lard, the locomotive stocks, and bar silver.
Whether these strangers were employed by the bucket shop to stimulate trading or whether they were part of a “jiggle” in the phonograph company stock, I am not sure. (I still assume that even a bucket shop customer could have made a real purchase and emerged with a stock certificate had he been stubborn about it.)
In the year 1920 I happened to be the adolescent proprietor of a 1919 Stutz Bulldog Special; also of a fantastically active margin account in a vast bucket shop with branches all over the United Slates, known as E. W. Wagner & Co. These two facts in combination caused me to keep a shrewd eye on all goings-on in Stutz motors on the N.Y. Stock Exchange and I watched the stock go up five and ten points a day and cross 120. My own feeling was that the investing public was doubtless catching on to the fact that the Stutz was a lot of fun to drive and that its open exhaust made a wonderful noise — great car on dirt corners, too.
But when Stutz got up to around 120, it occurred to me that the investing public — the ignorant small traders of whom I certainly did not count, myself as one — was laying itself open to a bold stroke by me. I thumbed through the little manual which all Wagner customers used in reaching their unhappy decisions and made a quick analysis of the Stutz company. There was certainly nothing in the book to justify such prices. A short position was plainly indicated.
It was only about fifteen minutes before the close of the market. (The time factor was not really important, for I realized months later that the Wagner offices rarely executed any orders anyhow, although everything was solemnly confirmed from Chicago a day later with great punctilio.) My account was worth about 700 dollars, but this was spread paper-thin in a rare medley of long and short transactions, a stray put (that didn’t pay off), and a job or two of July corn. These other trades I could close out if I had to, I reasoned, and I ought to pick up 20 or 30 points on the down side in Stutz in a hurry.
I scribbled an order and handed it to the manager. “Sell 50 Stutz at the market,” I said grandly.
Even the Wagner manager was shocked. I doubt that any other 700dollar account on his books was in and out so many times each day as mine, and although I never made any money, the commissions must have added up to a staggering figure. A one-point profit usually seemed to me the time to unload. I think I expected Stutz to open off 10 or 20 points and thus make it impossible for me to beat myself as I usually did. I stood firm.
The manager called me up at home that evening. He was in something of a state. So was I. I had been reading the evening papers, which contained for the first time news that a cast-iron corner seemed to be making up, from mysterious sources, in Stutz. “We sold your 50 Stutz at 130 1/4,” the manager reported, “but I’m afraid Chicago will be hollering for more margin.” This was somber news indeed, for my entire personal fortune was already on the line at Wagner’s. I walked the floor, went out and skidded a few dirt corners in the Stutz and was charmed as usual by its muscular behavior. Perhaps the 16-valve series was doing better than I had thought. Perhaps the corner was based on some awareness of this by big operators in New York. Perhaps all sorts of things.
I was down at the bucket shop next morning before the doors were unlocked. “Buy me 50 Stutz at the opening,” I told the manager when he arrived. “I am going to cover.”
This shocked the manager even more than my short sale of the day before. The stock might open up 50 points, he pointed out (it did several times later on). But I was fed up, badly scared. It never occurred to me to switch. I probably would have closed up Wagner then and there if I had, but of that circumstance I had no knowledge. “Buy it in at the opening,” I repeated.
The laugh was, an hour later, that Stutz opened at 129 and a fraction and I grossed almost a point on the trade. I was out. But by noon it was flitting around 300, a Page One story that night, and a few days later trading was suspended at 724.
I got a margin call from Chicago shortly afterward on my miscellaneous cats and dogs and closed out the account. It took me about four weeks to wrest from Wagner the 600-odd dollars due me. A month after I got the money, the Wagner Company went bust for about 10 million dollars. Wagner jumped out a window in Chicago, and the liquidation the next day of his own position in wheat — he was apparently just as hopeful a trader as his customers — caused a 14-cent nose-dive in one or two deliveries.
There was a certain dashing quality in the finance and automobile exhausts of that period which one misses today. My 600 dollars looked enormous to me in my own clutch, and I wisely transferred it to poker.