Word Press: Flood
We had what our family is now calling a WATER EVENT in our house. We adopted the “water event language” at the advice of our brother-in-law, Tom McNamara, who happens to be an insurance broker. Tom emphasized that the “F word” must be stricken from our vocabulary. Our water event was caused by a malfunction in our lavatory toilet, which spewed many thousands of gallons of water for three or four days, while we were out of town. Unable to label the water event as a FLOOD, which seemed like the right word to us, we had to resort to euphemisms for the F-word: inundation, saturation, soaking, water damage, pipe bursting event, etc. Now, with the hardwood floors warped, the drywall excavated, the tile torn up, the non F-word event has made a F_ _ _ _ _ _ _ mess. The water and manpower to fix the situation have taken their toll. We have moved out to other house so that we can breathe un-dusty air and have some non-gritty teeth for a while. Thank goodness for home insurance with someone we trust!
There are reasons to use the F-word for this Witness Post, as it was co-inspired by a Yale alumnus who inherited a lot of money from the famed Comstock Lode in Nevada, which occurred just after the California Gold Rush. Having pieced together various versions about the rush of people who emigrated to California in the 1840’s and 1850’s, and the story of the FLOOD family, this is a true story that took place 165 years ago in and around San Francisco …
“Gold in them thar hills!”
James C. Flood (1826 – 1889) was an American business man who grew up on Staten Island, New York. He was from a poor Irish immigrant family and he went to work after the eighth grade. Flood was apprenticed to a carriage maker in New York City. In 1849, with the word of the California Gold Rush spreading, he sailed to San Francisco and immediately bought mining provisions to strike it rich. After some success in the mines of the Sierra Nevada’s, he returned to New York in the early 1850’s and married Mary Emma Leary, who was also an immigrant from Ireland. The Floods returned to San Francisco in 1854; they raised two children, Jennie (born in 1855) and James L. Flood (born in 1857).
James C. Flood
James C. Flood, just after the birth of his son, opened a saloon on Washington Street in San Francisco with a partner, William O’Brien. A year later the two sold the saloon and went into the stock brokerage business. Flood, having had modest success digging in the mountains, fancied himself as a mining expert. Soon after the discovery of silver in Nevada, the duo of O’Brien and Flood started investing in mining stocks. In 1860, the stockbrokers expanded their partnership and brought on two additional partners: James G. Fair, who was a mine superintendent, and John W. Mackay, who was a mining engineer. The new partners had the mining expertise that the two founders lacked, while the one characteristic that all four partners shared in common was their Irish roots.
The chemistry of the four partners was pretty fluid, as were their tempers; however, things started to come together financially, when they decided to buy the operating rights to two claims: the Consolidated Virginia and the California claims. These claims became known as the Comstock Lode. Mackay and Fair had the mining knowledge and management acumen, while O’Brien and Flood had some money raising capabilities. The partners pooled their assets and in early 1873 they gained control of the “Consolidated Virginia Mining Company” with a total capital raise of $100,000. They issued 10,700 shares of common stock which they sold to the public for between $4 and $5 per share.
Overlapping Mining Claims in the Comstock Lode
With the astute work of Fair and Mackay, Consolidated Virginia Mining Company had acquired the rights to “work the claims” in the Sierra Nevada’s across a vast swath of igneous and metamorphic rock. Under those rocks was an ore body that proved to be more than 1,200 feet deep. The discovery of the ore body in March of 1873 has been called the greatest silver bonanza in history. With the price of silver quickly rising and the silver ore samples extracted from the Consolidated Virginia Mine selling for $632 per ton, the Silver Stock Rush was on.
With the news of the bonanza, the stock price of Consolidated Virginia Mining Company zoomed upward. The market prices of silver also kept advancing. As if lifted by the rising news total stock value of the Company shot skyward. James Flood took the sales lead and coordinated the sequence of common stock issues and the sales of shares, and he attempted to control the liquidity to the market. Rather than controlling the flow, however, his additional (secondary) stock offerings added to the fever for all mining stocks that hit the San Francisco Stock Exchange. The appetite for mining stocks caught fire.
The first 10,700 shares of Consolidated Virginia Mining were converted to two offerings of 108,000 shares each. With the richness of the two silver mining claims confirmed by mining assay offices in San Francisco, the silver speculation soared further. By the summer of 1873, investors estimated that the inferred resources in the company were worth close to $1B ($1,000,000,000). The stock of Consolidated Virginia Mining peaked at a price of $710 a share (a 177X for initial investors in the stock). Rumors at the time had swirled from assay offices to saloons about the success of the mining operation: after just six months of full operation, speculators said that the mines were putting out an average of $50,000 a day or $1,500,000 worth of silver every month.
Comstock Lode Plaque, Six Mile Canyon, Virginia City, NE
Compared to more mature exchanges, like the New York Stock Exchange, or Philadelphia Exchange, the San Francisco Stock Exchange must have seemed a backward exchange of speculators and gun slingers, but there was a strong local swell of believers. In 1873 the value of each seat on the Board of the San Francisco Stock Exchange jumped five fold to $25,000, as a result of the silver bonanza. More speculators were soon entering the markets than could be contained in the mining issues and things began to swirl out of control. With many parties representing varied interests seeking stock control of the richest properties, the financial stability of the market began to teeter. As seen in many markets of this type, a crash was inevitable and with it came financial winners and losers.
Flood, O’Brien, Mackay and Fair, were some of the winners. The four partners sold much of their stock and were believed to be fanning the flames as the shares were bought by the next great fool. In reality Flood and O’Brien did not seem like crooks. They had deep civic aspirations and wished to become true leaders of finance in their community; but due to the taint of stock manipulation, history has marked them as the two least respected among the “Bonanza Kings.”
The back story is that a fierce personal battle had erupted in the small town of San Francisco between Flood and O’Brien and William Sharon and William Ralston, the founders and owners of the Bank of California. As highly respected men in the upper-crust of San Francisco society, Sharon and Ralston were the primary beneficiaries of the original ’49 California gold rush of the decades before. Flood and O’Brien, having been personally shunned by the Bank of California, started their own competitor bank, called the Bank of Nevada. Although individual owners of Consolidated Virginia Mines stock could use margin to buy more shares of the mining company and other mining concerns through the Bank of California, Flood & O’Brien could not.
A great enmity swirled between the cross-border banks of California and Nevada and feelings could not be mended. There was a continual flow of new mining issues, but the assays were spotty, management was incompetent, and the production results were poor. Within a short time things began to spiral out of control. The other shoe dropped as the silver speculators realized that they were left holding a basket of stocks in an overlapping labyrinth of insolvent companies. The confusion, terror, and mismanagement impacted all mining concerns, even those with real assets.
In late 1875, after producing $133,471,000 worth of silver in its short life, the Consolidated Virginia and California Mines could not be operated profitably. Soon enough things began to unravel: money started to flow out of the Bank of California and into the competitor bank in Nevada. With the huge swings in liquidity, the market stability of the financial system was challenged. Bank of California began to wobble.
Speculators of the mining stocks suddenly noticed that they were “building scaffolding to the sky.” When they looked down, it was, “Look-out-below!” With the falling price of silver and the rising costs of operations, even companies like Consolidated Virginia Mining collapsed into bankruptcy, taking with them the remaining investors and the Bank of California. As the saying goes, “The only thing that goes up in a financial crisis is the correlation of the losers.”
Victory Laps Are Tough
James C. Flood had bought his way to prominence in San Francisco, building a grand mansion at the top of Nob Hill. The Flood home remains today as one of the prime examples of the excesses of the Comstock Lode from the nouveau riche.
The Flood Mansion, now The Pacific Union, Nob Hill, San Francisco
After the collapse of his former holdings, Flood poured much of his ill-gotten gains into real estate, leaving enough outside of mining and real estate to speculate in other commodities. (Flood is well known for attempting to corner the world wheat market in 1887, and failing. His firm was stung for many millions of dollars of losses from the ensuing transactions.)
James L. Flood
James L. Flood, the son of James C. Flood, was a Yale graduate and he was able to live comfortably on his families fortune, long after his mother and father died.
The Flood Building, located at Powell and Market, is a monument to his family, as is the Pacific Union Club, 1000 California Street, which was once the Flood family’s “city home.”
The Floods had another family mansion in Menlo Park, California, which was torn down in 1937. Jim offered the Campaign for Yale and attractive, rent-free proposition, for our West Coast presence, when I worked for the Campaign. Although I never had the pleasure of meeting Jim Flood, I heard some glowing remarks about his generosity, philanthropy, and love of his native San Francisco.
 While some of the Comstock Lode stories are part of urban legend, most of the research for this post comes from Wikipedia and its authors about the Flood Family and San Francisco.