Patrick Tracy Jackson, Philadelphia & Reading

Versions: Hardcover: premium color. Paperback: premium color; standard color; black & white. After the Panic of 1837, the Locks & Canals machine shop had little work; it was to be sold or converted to a twist mill. The L&C treasurer, Patrick Tracy Jackson, strove to keep the shop busy pending sale or conversion. An 1841 plea to Jackson from Elihu Chauncey, president of the Philadelphia & Reading seemed salvation. The P&R was to begin operating in 1842 although its infrastructure was incomplete and it had minimal rolling stock. It urgently needed coal cars and locomotives. But its financial situation was dire, its debt in default, its assets being seized by sheriffs. It struggled to borrow. Its bridges suffered arson; its trains were derailed. Despite the risks, L&C built the P&R’s first cars and engines and created a financing structure whose core elements survive still in equipment finance. It went badly. Neither Jackson nor the P&R anticipated new heavy iron coal cars or Baldwin’s flexible beam truck: they rendered small L&C engines inadequate. Builders of large engines were paid; L&C received little. Payment defaults were continuous (for years), diminishing L&C’s ability to sell the machine shop. This is a story of desperation, debt, and default: of balancing on the brink of bankruptcy. To induce payment (suasion and threats having failed), L&C bought P&R stock and bonds, aligned with English bondholders, and initiated one of the first audits of U.S. managerial custodianship. Bondholders obtained voting rights with stockholders. Secret purchases of P&R stock were made from the Bank of the United States. The P&R engaged in securities arbitrage across the pond. Equipment builders began providing credit and financing. Financial intermediation was invoked. A shadow banking system was used. All to no avail; L&C was not paid. Exasperated, Jackson took independent action in 1845. With the Philadelphia lawyer Horace Binney, he devised a plan, forcing P&R capitulation within a day. Within two months, L&C took control of the remedies relating to the P&R debt from the trustees, neutralized the P&R, and forced a P&R financial restructuring. Its value enhanced, L&C rid itself of the P&R debt. But more was needed.