Hetty Green is remembered as the “world’s greatest miser” and the “Witch of Wall Street," 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’s leading investors. And when the chips were down, when people really needed help, the whaling heiress turned independent investor, business tycoon, and world’s wealthiest woman often used her fortune to save the day.
There’s perhaps no better example of Green’s misunderstood legacy than the knickerbocker crisis. Also known as the panic of 1907, 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.
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’s 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.
It all kicked off when a copper magnate, F. Augustus Heinze, and the “Ice King” (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’t work, they had to default on a number of large loans. This led to problems for a few key banks that typically didn’t hold much cash in reserves during that era, including the Knickerbocker Trust (hence the name of the crisis).
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, was eventually forced to call together a group of Wall Street’s 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.
Why? Her status on Wall Street certainly helped, but she also predicted the whole thing.