February 7, 2012

Soapy Smith's swindles: the bucket shop

The Bucket Shop
1892




One of the more complex in-store confidence swindles Soapy invested his time in, and that I have not really went into great detail here on this blog is the fake stock exchange, known commonly as the bucket shop. In the 1890s it was known by con men as the store or up and down. In his writings Soapy referred to it as the exchange, and according to one of his gangsters the establishment was so popular that steerers, to bring people into the place, were not needed.

There are several theories why the term "bucket shop" is used. Some definitions state that the name derives from the bucket used to catch the incoming ticker tape, as shown in a photograph below. John Philip Quinn has a different theory in his book, Fools of Fortune published in 1890. Explaining a bucket shop in a few words is no easy task Quinn's book includes one of the best, although long, descriptions I've read that thoroughly illustrates what the bucket shops were all about and they operated.

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These institutions are peculiar to American cities. The more phlegmatic temperament of the denizens of the old world does not lead him into the vagaries of the citizen of the “great Republic," where wealth fixes caste, and gold is too often worshiped in the place of God. In the United States, more than in any other country, activity, mental as well as physical, is regarded as the chief end of man. In fact, a rocking chair under full swing, would be no inappropriate heraldic national emblem. It is true, as a German paper says of us, that we “chew more tobacco and burst more steam engines than any other nation on earth." With us, life is restless, and we can find recreation only in excitement. It is this feature of our national character that inclines us to gaming and to speculation in a far higher degree than any other people. Could it be eliminated from our nature the “bucket shop," like Othello, would find its occupation gone.

Yet the reader, the lines of whose quiet life are cast outside the whirl and turmoil of a great city, may not understand the signification of the term. A "bucket shop" is an establishment where those whose inclinations prompt them to speculate in stocks or produce, but the scantiness of whose means forbids their operating on an extensive scale, may gratify their tastes by risking (and losing) the few dollars which they can ill afford to spare. The epithet" bucket" is a term of derision, having been originally applied to such an institution to imply that a customer might buy or sell a “bucketful" of any commodity which he might select.

These concerns differ only in respect of size and appointment. They are all conducted on one and the same principle. The visitor, on entering, finds himself within a large room, sometimes handsomely, sometimes meanly furnished. Rows of chairs are arranged for the convenience of customers and chance-comers, facing a blackboard. The latter is the indispensible [sic] requisite, the sine qua non, without which the transaction of business would be practically impossible. In these chairs are seated men of every age and of nearly all grades of social distinction. Clerks, artisans, merchants and men about town mingle in a sort of temporary companionship, truly democratic. Beardless youths sit side by side with men whose heads have grown bald and whose step has become feeble in a vain chase after a phantom, a chimera, a will-of-the-wisp, always just, within the grasp, yet ever eluding the clutch. Here may be met the confidential clerk, who sees nothing wrong in following, at a respectable distance, the example of his employer, who ventures his thousands upon the floor of 'Change. Here one jostles against the decrepit old man, once a millionaire, but who having sunk his fortune in the maelstrom of some great Board of Trade, now passes his waking hours before these blackboards, reckoning that a red-letter day upon which he wins five dollars. And here, too, may be encountered the successful business man, keen of eye, quick of step, alert of perception, who has been drawn hither partly through a desire for speedy wealth, partly through an inordinate craving for the excitement which is not to be found in the legitimate walks of trade. The eyes of all are turned toward the immense board on which, chalk in hand, some attache of the establishment momentarily records some change in quotations of stocks or grain. and which seems to have for them all the fascination of the candle for the moth.

Bucket shop of
Clement, Parker and Co.
Note the "buckets" catching the ticker tape on the far left
(courtesy of The JetSetRnv8r)


Far different is the scene here presented from that witnessed on the floor of the great Exchange. There all was clamor and apparent confusion; here quiet and decorum reign supreme. The silence is unbroken, save by the sharp tick of the telegraphic instrument and the droning monotone of the blackboard marker. Yet there is one point of resemblance between the habitues of the" bucket shop." the dealers upon 'Change and the patrons of the gaming hell; one and all, they win without displaying exultation and lose without manifesting regret. In the" bucket shops," however, the attentive observer may sometimes hear the heavy sigh of dispair from the young man who has been tempted to risk his employer's money, as he perceives the last dollar of his margin swept away by an unlucky turn of prices; or witness a senile smile of satisfaction momentarily gleam upon the face of the feeble old man who sees himself about to be provided with the means of keeping soul and body together for another day. 0, wretched picture of sordid greed, of fallacious hopes, of blank despair! 0, sad illustration of the sadder truth that in the contact for the mastery of the heart of man, the evil too often outstrips the good!

But let us examine into the business methods of the proprietors of these resorts where gambling is made easy, and ruin is placed within reach of the humblest. As an illustration, let us suppose that the customer wishes to speculate in some stock, say Missouri, Kansas and Texas. The blackboard shows the fluctuations in quotations as they occur on the New York Stock Exchange. The margin which he is called upon to advance, is one dollar per share, and he may limit his transactions to five shares, if he sees fit. It is a matter of indifference to the proprietor whether he elects to buy or sell; that obliging individual will accommodate himself to his wishes, whatever they may be. Suppose that he buys five shares of the stock in question, at a moment when it is quoted at 16-1/4. If it rises to 17-1/4 he may, if he chooses, close his deal, receiving back the five dollars which he advanced as margin, together with another five dollars, the latter representing his profit. If, on the other hand, it drops to 15-1/4, he loses his margin. It is easy to see that such a transaction as this is nothing but a bet, pure and simple.

The illustration given above is drawn from the smallest description of business done. Yet, as has been said, these dens of iniquity are patronized by the wealthy merchant, as well as by the poor mechanic and clerk. It is on the poorer class of customers that the proprietors depend for their steady income; it is from the wealthier customers that they obtain sums of money which they denominate "plums."

The manner in which such traders are fleeced by the unscrupulous scoundrels who conduct these institutions may be illustrated as follows: One of them will inform a confiding patron that he has received information from a source which he regards as trustworthy, that some inactive stock-perhaps Denver & Rio Grande-then selling at 9, is about to rise. At his suggestion his customer purchases, let us say, 15,000 shares on a margin of one dollar per share. This done, the proprietor of the "bucket shop" telegraphs to a broker to "sell 3,000 D. & R. G.-quick, quick," in blocks from 8U to 8. The broker who receives the dispatch, either alone or with assistance, offers the stock; the offer is promptly accepted by another broker, to whom the wily manager has telegraphed instructions to buy the stock at the price named. The final quotation, 8, fixes the price, and the sale is promptly reported to the bucket shop by telegraph. The result is that the too trustful customer's $15,000 advanced as margin, is swept into the coffers of the daring rascal who has perpetrated the fraud, and whose only outlay is the payment of one-fourth of a cent commission on the fictitious sale and, purchase.


Bucket shop of
Haight and Freese, New York
(courtesy of Financial Spread Betting)


Let us take another illustration, drawn from a suppositious transaction in wheat. The speculator perceives from the quotations on the blackboard that some future delivery of wheat opened at 86-1/8. Every minute or two new quotations are shown on the board, the apparent tendency of the market being upward. He also sees that during the preceding hour the price has been as high as 86-5/8, and as low as 86. When it touches 86 again he concludes to buy, guessing that it is likely to rise. Accordingly he purchases 1,000 bushels at that price, advancing ten dollars as a margin. Perhaps the next change is an advance to 86-1/8. He might now sell out without loss, as the 7/8 in his favor amounts to exactly the commission charged by the shop. The next quotation is, say 86, and the following one 85-7/8. If it should continue to fall until 85-1/8 is touched, he is said to be "frozen out," inasmuch as the decline of 7/8 added to the 7/8 brokerage charged by the proprietor, equals the ten dollars which he has advanced. Perhaps he concludes to "re•margin," in which case he will put up ten dollars more. Possibly the market may now take an upward turn and rise until 86-1/8 is again reached. It is now within his power to close the transaction without loss other than that involved in the payment of the commissions. Let us suppose that he does so. It is quite probable that it will now occur to him that the market is likely again to recede, and he accordingly sells 1,000 bushels at 86-1/8, once more advancing ten dollars as a margin. If the price continues to rise until 87 is reached, our venturesome speculator is again frozen out, and is ten dollars lighter in pocket.

The above supposed cases are fair illustrations of the average bucket shop trading. A majority of the patrons of these establishments are “scalpers," satisfied if they can win five, ten, or twenty dollars, and close observers say that fully seven out of ten guess the market wrong. The shop always makes its regular commission, no matter what may be the result of the transaction. " Puts," "calls" and "straddles" are also sold at these places, although, of course on a far smaller scale than by members of the regular exchanges.

But bucket shops have other and darker sides. It is by no means uncommon for a manager so to manipulate quotations as to wipe out speculators margins at his own pleasure. Thus, if it is for his interest that a certain stock or commodity should decline, the quotations which he posts upon his blackboard show a fall, without reference to the actual course of the market at the regular exchanges.

Jeff's Bucket Shop?
(Actually this is a Karaoke place)


Another, and favorite, device of the gentry, by which large sums are often realized, is to "fail." A considerable amount of money-say $50,000 or $60,000--having been received as margins, and being carried by the house, a plan is formed by which it may be absorbed by the proprietor with but little chance of detection. In order to accomplish this he has resort to the aid of some reputable (?) firm of brokers, who are members in good standing, of some regular exchange. He arranges with them to enter in their books, records of fictitious transactions with him of such a character and to such an amount that he may appear to have lost the money in speculating, for the benefit of his customers, upon ‘Change. The obliging firm of brokers receive, for rendering this valuable service, the regular commission of one-eighth of one cent per bushel upon the transactions thus fraudulently entered. It is, in itself, a striking commentary upon the methods and morals of the average, commercial exchange of the last quarter of the nineteenth century, that brokers can be found, who, while claiming to be upright, honorable business men, are willing, for so paltry a consideration to outrage integrity, and drag honor in the dust.
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Jan. 07, 2009










Bucket shop: pages 71, 109-10.




Jeff Smith









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1 comment:

  1. Great job on the bucket shops story. Congress in 2000 in its infinite wisdom, again actually made bucket shops legal again... this time they were also in the form of credit default swaps...

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