FoundSF

Historical Essay

by Steven Carey Lassoff, 2014

Palace Hotel, 1870s, Lloyd Tevis sits at center with African-American staff in background. In the 1880s, the black workers were dismissed en masse under pressure from white labor unions.

Photo: OpenSFHistory.org, wnp37.00867

In 1870’s San Francisco, there were more banks and millionaires than Boston and New York combined. The Titans of Commerce, men whose fortunes came from the Comstock Lode in Nevada, met and played poker in cash games for what today would be millions of dollars. Little did the Banking King and the Wheat King know that the King of the Stock Exchange would deal unbelievable hands that would leave them both All In!

After its birth on Mississippi riverboats in mid-19th century America, the game of Poker was played around the campfires of both sides of the Civil War. The game spread across the country and poker became ingrained in the culture of America, permeating all classes from the common laborer to the very rich. The rich gambled millions in risky capital investments during the day and millions in high-stakes games at night. Nowhere were these rich games more prominent than in the West’s premiere boomtown, San Francisco. Famous for the Barbary Coast and gambling palaces like the Bella Union, the city boasted wealthy cash games played with stacks of shiny $20 gold coins for chips and the pots went over $150,000. Back then, a complete steak dinner with champagne cost $2. Gold was $20 an ounce. When you do the math, $150,000 would be $7.5 million in today’s dollars!

San Francisco was the center of capitalist America during and following the Civil War period due to mineral finds in Nevada. When the Gold Rush in the Mother Lode ended, later explorations of the Sierras to the East revealed the Comstock [silver] Lode. Hoping to keep this wealth in the Union, Nevada was one of the only two territories made a state during the Civil War, the other being West Virginia when it broke away from Virginia. How did San Francisco gain control over Nevada’s silver? The day of the lone miner and his mule was over. Once placer deposits ran out, hard-rock and hydraulic mining became necessary and these undertakings required investments, venture capital and stock markets. Investors became big financiers with connections to Eastern and European banks.

Only 500+ mines were profitable in the Comstock but tens of thousands of stocks were issued for mining ventures in the mountains near Virginia City, Nevada. Everyone from mogul to waitress gambled on the mining market, betting on whatever hot tip came their way. At the San Francisco Stock and Exchange Board these stocks were bought and sold, making fortunes for those who knew how to stack the deck. One institution at the center of the dealing was the Bank of California.

William Ralston

William Chapman Ralston is an enigmatic figure in California history. Born in Ohio in 1826, he was a 22-year-old clerk on a paddle-wheeler near New Orleans when the call of ’49 reached him. He ended up in Panama City, Panama, a city on the route to the gold fields and there, first involved himself with banking. One of his failed investments during this period was the financing of soldier-of-fortune William Walker’s attempt to take over Nicaragua. A partner moved to San Francisco to work for Cornelius Vanderbilt and Ralston followed in 1854. Once there, Ralston dreamed of a bank that would stand as the leading financial institution in the development of San Francisco and Northern California. To this end, Ralston created The Bank of California in 1864. California’s leading businessmen bought stock, giving Ralston $2 million to invest as he saw fit.

And what he saw was the Comstock Lode. Ralston found the recently unemployed William Sharon who had traveled to California with his father-in-law in 1849. Ralston turned Sharon loose in the Comstock where he proved to be a swarm of locusts personified. Making loans to ore mills that he knew had bad credit, Sharon soon owned some of the mills and then, by undercutting the prices of his competition, all the mills. Control the mills and you control the ore; control the ore and you control the mines. In short order, Sharon and the Bank of California owned mills, mines, forests, roads, transportation, waterworks, built the only train into and out of the mines, and hired anybody that was needed, including the best Nevada state politicians money could buy. While Sharon controlled the wealth that poured out of Nevada, Ralston worked in San Francisco buying and manipulating the mining stock and making a fortune for himself and the bank.

The floor of the San Francisco Stock and Exchange Board has been compared to sharks and chum by more than one observer. There was no such regulatory organization like the Federal Trade Commission. Rules were practically non-existent. San Francisco banker and future Civil War general William Tecumseh Sherman remarked of the Exchange “…the very nature of the country begats speculation, extravagance, failures and rascality.” At the Exchange, the closest thing to the illusion of honesty was the Caller for the Board, young Benjamin Howard Coit, whose on-the-floor rulings would determine the validity of disputed trades, enforced with the power to fine any broker at will. Always described as a pillar of fairness with a powerful Stentorian voice (needed to be heard above the roar of the market floor), Coit was paid a princely sum to NOT engage in stock trading to insure impartiality. But his position was mere window-dressing, a band-aid on the bullet-hole of ravenous inside-trading and corrupt manipulation that was the San Francisco Stock and Exchange Board.

Ralston’s Bank Crowd was the richest and most powerful group in San Francisco. Ralston was responsible for the founding of many of California’s commercial industries and state institutions. The first: office block, factories, libraries, giant dry docks, university, grand theater and vineyards. He helped get the Transcontinental Railroad off the ground and when he couldn’t control it, fought against it. He built the largest hotel in the world at the time, the Palace Hotel, with 773 rooms, an indoor horse court (so you could step from your carriage into the hotel) and indoor plumbing in all rooms—a first for the 1870s! Ralston and his bank had its hand in every big deal in California. He was the most powerful man in the richest state in the nation and could afford anything including a good poker game with men of similar means.

Grand Victoria and Palace Hotels on either side of New Montgomery Street along south side of Market, c. 1880s.

Photo: provenance unknown, via Facebook

Isaac Freidlander, King of Wheat

Isaac Freidlander was a 6’7” German of Jewish background, born in Oldenburg in 1823. Arriving with other gold-seekers by way of New York and Georgia, Freidlander left the mines realizing his talents lay in the trading of goods and supplying miners’ needs in the ever-expanding market that was Gold Rush San Francisco. Fortune directed him towards the grain business and after successfully cornering the wheat market, Friedlander built California’s first industrial flour mill, the Eureka Mill. He had thoughts of export and saw that to successfully export flour, he must have reliable cargo space and a dependable shipping schedule. The system was haphazard and capricious.

He decided to charter ships based on his own crop estimates made during the sowing season, a risky proposition. It was an all-in bet, guessing the size of the crop before it came in but it paid off big for Freidlander. His system was better, confirmed arrival dates and guaranteed tonnage and quickly supplanted what was in place before it. At first, flour from California went to England. But Freidlander was a visionary and in the fall of 1854, he was the first to export flour to China. It took 100 days to get flour to England but only 30 days to get the same flour to China the dangerous Cape Horn was avoided. The Asian market was also free of competition. There were only human/animal powered grist mills to feed foreign colonies and the ever- growing number of Chinese. Freidlander offered a superior product to what local mills could supply.

It was a winning idea. He became a multimillionaire in an era where beer was 5 cents a glass. At one time, he was in a partnership that owned 500,000 acres of California’s San Joaquin Valley. He had an office building at California and Sansome, right across the street from Ralston’s Bank of California with its impressive facade.

Origins of the Cliff House

Where would two financial giants in the richest city in America go to play cards? Legend has it that the original Cliff House, facing the ocean at San Francisco’s northwestern corner near Seal Rock, was built from a lumber ship that crashed on the rocks below salvaged by the man who started the Gold Rush, Sam Brannan. In reality, in 1863 a rich real estate tycoon got investors (including a state senator) to build the Point Lobos Toll road (now Geary Blvd.) out to ocean and at its end, Cliff House, “a new and elegant hotel”. Before, the trail to the coast involved a trek through sand dunes and was hard to reach by foot or horse. A stable road of crushed red rock was built and one could rent a rig and ride out to watch the ocean and listen to the sea lions barking below while eating fine food in an elegant setting. It was an expensive proposition and not for the average person, rigs renting for up to $10/day. A separate track existed for those who craved speed and wanted to race to the beach as a single rider or in fine carriages with expensive horse teams. The wealthy took advantage of all this.

First Cliff House from Cliff Road.

Photo: OpenSFHistory.org wnp27.198a

Captain Junuis Foster was hired to run the sea-side resort and under his capable managerial hand, Cliff House became a major 19th century San Francisco destination and established a reputation that saw the visit of two presidents and many important dignitaries as guests. Anyone who’s worked in the service industry will tell you when you are lucky enough to have that special combination of mercurial things that makes a joint a success, it’s not to be messed with. But the natural desire to expand and exploit starts up a tinkering process on the original concept that tries to “fix it when it ain’t broke”. In 1868, Foster tripled the size of the building, adding two wings and a long balcony piazza facing the sea. But the place changed. Now it was always too crowded. The clientele went from society elites and prominent names to a racier set, “…gamblers, hard drinkers and secret lovers.” It became a place where politicians met inconspicuously to cut deals, a place where you brought your mistress to enjoy fine dining in elegant rooms behind closable doors. It became a place where rich men met to play cards.

One night in the early 1870’s, Ralston, Freidlander, Foster, Coit and another man named Frank Ladd met at Cliff House for a game of Five Card Draw. All had arrived except for Coit who dropped by late. After a few hands, Coit mentioned he had been detained by what sounded like a grounded ship out near Seal Rock, barely discernable through the dark nasty weather. The others looked at each other, dropped their cards and went through the French doors to the balcony to have a look. It was Coit’s deal and he began to complain about the interruption. When the men sat back down and picked up their hands, Ralston casually threw his cards down and put in a solitary chip. Friedlander was not so fast but he went two better. Ladd just saw it as did Coit. Then Coit gave Ralston one card. Friedlander took two and Ladd three. Coit took three, looked at them and dropped out, saying he was going to check on the distressed vessel. Freidlander bet $100. Ladd folded. Ralston raised. Freidlander re-raised. And now the action gets furious and mythical, depending on the telling and the teller.

The Wheat King Freidlander and the Banking King Ralston went at it, raising and re-raising until the pot was $50,000, $75,000, some say $100,000, millions in 2010 dollars. Finally the action stopped. The men looked at each other, looking at their opponents unexposed cards, almost panting. The Moment of Truth. Ralston overturned his cards. Freidlander threw his down. Ralston blinked and his mouth opened a little. Friedlander gasped and his eyes went wide. They both had…FOUR KINGS! They looked at each other for a second, trying to figure out what happened. “Coit!” gulped Ralston. Junius Foster started laughing and pointed out the window where Coit was seen, also laughing, riding back to San Francisco…in Ralston’s carriage and team! Imagine something like that happening on WPT or WSOP or some other million dollar pot! I’m sure once the shock wore off and their bets were returned, the two tycoons appreciated Coit’s practical joke, pulled with a salted deck. These men were used to risky deals and deceitful manipulations. They took it as the good stunt it was. No one was hurt. What a story they would have! They could afford to be gracious now.

Within five years, Fate would deal them much harsher hands than this. Like all over-inflated fringe markets, the Pacific mining frenzy came to a crashing halt in the financial Panic of 1875. Two Irish-American San Francisco saloon keepers who catered to the Exchange crowd purposely to garner stock tips, partnered up with two Irish-American Virginia City mining superintendents who had kept secret a recent discovery: a large silver deposit in the Consolidated Virginia mine. After the four bought up the controlling share of the mine’s stock, the claim was revealed and it was so big, it staggered the imagination. They had already cut a chamber of silver 20 feet high, 50 feet wide and 140 feet long that assayed out at up to $632 a ton. It would total out to be a $190,000,000 bonanza ($8-10 billion today), an unbelievable sum and the four—James G. Fair, James C. Flood, William S. O’Brien and John W. Mackay—became the Silver Kings. The Bank of California’s stranglehold on the Comstock was over.

When the new kings started the Bank of Nevada, the writing was on the wall for Ralston. But Ralston’s downfall was all Sharon. Sharon resented Ralston for stopping Sharon’s bid to be US senator from Nevada as a conflict of interest for the bank. Scheming for revenge, Sharon touted Ralston on to what he promised would be the next big bonanza, the Ophir mine. Sharon, who owned a large block of the stock, knew it was worthless but told Ralston it was the next Consolidated Virginia. Ralston was hoping to bolster his flagging fortunes, depleted after pouring millions into the Palace Hotel project which still needed millions more to complete. Ralston started buying huge blocks of Ophir stock, causing the price to rise. On the morning of August 26, 1875, Sharon dumped his shares of Ophir stock at its highest point. The stock collapsed, other stocks went with it and the entire market crashed, ruining the paper fortunes of thousands, wiping out businesses and causing mass unemployment. Ralston was left holding millions of shares of mining stock that had gone from $55 to $18 in one afternoon.

Within hours, there was a run on the Bank of California. Crowds of fear-driven depositors emptied its vaults and coin-racks. The bank lost $1.4 million in one day and was forced to shut its big iron doors before the close of business for the first time in its history. The next morning, August 27, 1875, a post-mortem by the bank’s board of directors revealed grave discrepancies, $9 million worth of discrepancies. Unauthorized issuance of bank stock, monies paid missing. Stocks left in trusteeship, missing. Gold left in deposit, missing. There was a failed attempt to buy up San Francisco’s water supply and sell it to the city of San Francisco for $15 million. After a newspaper exposé and a public outcry, the supervisors voted it down. The bank’s board of directors decided that Ralston should step down and hand over his keys—even though he had made every one of them rich. This was a foregone conclusion as Sharon had gone behind Ralston’s back and bought up a majority share of bank stock and therefore controlled the vote. Ralston reluctantly turned the keys over.

Ralston swam in the San Francisco Bay everyday, no matter what and personal disaster would not keep him from his daily habit. Daily habits were about all he had left. The day after the market crash and the run on the bank and the same day as his dismissal, Ralston went out for a swim in San Francisco Bay—and drowned, leaving behind a wife and children. Heart attack? Suicide? Murder? Broken heart? The coroner’s report pointed to “apoplectic stroke”. The city that shunned his water scheme turned out for his funeral in the tens of thousands, one of the city’s biggest, lauding his praises. They repeated the stories like when the bank was funding the founding of a town at a new railroad juncture in California’s central valley. Someone suggested “Ralstonville” or “Ralstontown”. “No,” Ralston insisted. “Not after me, please.” A Spanish- speaking resident commented, “Muy modesto.” And so the town took that as its name, Modesto.

Friedlander wasn’t spared the effects of the Panic of ’75 either. His fortunes were firmly tied to the fate of the Bank of California and the Exchange so when they fell, his empire fell as well. Others took over in the flour export business and he disappeared from the financial scene, dying of a heart attack in 1878. Before he died in May, 1885, Coit had a lively old time married to Lillie Hitchcock Coit, a darling daughter of San Francisco stock, rough and tumble and a smoker of cigars. She rode along with the volunteer fire departments to watch them battle blazes when such organizations were followed like ball teams and worshipped by hoards of fans. Lillie left the city her “special” monuments: the statue of brawny volunteer firemen “manning their hoses” in Washington Square Park and Arthur Brown Jr/Henry Howard’s art deco Coit Tower, at the top of Telegraph Hill. Freudians have your field-day!

Sharon screwed Ralston as completely as possible. He bought up Ralston’s assets for pennies on the dollar including his showplace estate, Belmont, one of the first in the country to have an air conditioning system, located just south of San Francisco in the town that now bears its name. He evicted Ralston’s widow and even tried to seize the life insurance left to her before Ralston’s friends dissuaded him. Sharon took credit for reorganizing and saving the Bank of California, was finally elected Nevada state senator and when the Palace Hotel was completed, Sharon’s name was seen everywhere, Ralston’s nowhere. Perhaps it’s fitting that at this hotel Sharon met his downfall entangled in the charms and legal embraces of a beautiful young woman—but that’s another article.

Cliff House is still there today and it still offers beautiful views. After Foster’s tenure, it went through another transformation when bought by ex-SF mayor Adolph Sutro (of Mt. Sutro fame), who added Sutro Baths, the world’s largest indoor bath at the time. Sutro got rich when he had the crazy idea of drilling a seven mile tunnel from below the Comstock to drain off the scalding hot waters that block mining, another idea originally funded by Ralston that he turned against when it was clear the bank couldn’t control it.

The Bank of California exists today as Union Bank of California. The vaults of its main branch were spared the destruction of the 1906 Earthquake and Fire. Its historic contents, including many Ralston artifacts, are on display in the Bank of California museum at 400 California Street on the lower floor, open during banking hours. The Silver King’s Bank of Nevada was finally bought up by a Los Angeles bank in 1905 along with another San Francisco pioneer business that was separating its banking and express services, Wells Fargo thus Wells Fargo Bank was born. While researching a screenplay, I came across this story in an undated 1910-20’s SAN FRANCISCO CALL newspaper clipping by Walter J. Thompson in a column THOUGHTS AND COMMENTS. Many “in-the-good-old-days” articles, covering 1850’s-1900’s, are attributed to Thompson. It is in this piece he dedicates paragraphs to the poker story. Like many great tales of the West, I could not substantiate any part of it. None. There’s no identity for whoever told the story to Thompson. Thompson left no notes. The named characters and locations are real enough but with no dates to tie it down to journal entries or diaries, I have not been able to find real evidence to verify this story. Did the poker game happen? It sounds plausible and real enough from the telling. It falls in that wonderful category the history of the West finds itself oh so frequently: the Legend. And that reminds me of one the great ending to John Ford’s The Man Who Shot Liberty Valance. A reporter is speaking with Sen. Ransom Stoddard (Jimmy Stewart) who just finished setting the record straight about the shooting that started his career. The reporter makes the statement: “In the West, when the legend becomes fact, print the legend.” Amen to that, brother. So be it.