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March 24, 2011 9:02 pm

New York’s abiding appetite for risk

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Hustlers in this city haven’t changed all that much over the years, writes Gary Silverman

I did a little reading in preparation for today’s 100th anniversary of the Triangle Shirtwaist Factory fire in New York and it left me thinking that hustlers in this town haven’t changed much over the years.

 The day carries special meaning for locals such as yours truly because the Triangle disaster remains one of the most important things that ever happened in New York. As David Von Drehle put it in the title of his book on the events of March 25 1911 – which served as my guide on the subject – it was “the fire that changed America”. 

Triangle was New York’s biggest maker of shirtwaists, what we now call women’s blouses. Operating from the eighth, ninth and 10th floors of a Manhattan loft building, it employed more than 500 people, mostly young immigrant women, and produced more than 2,000 garments a day. 

The fire – most likely sparked by a match or cigarette butt tossed into a bin for scrap fabric – broke out as the factory was shutting down on a Saturday, still a workday in 1911. It spread quickly and escape proved difficult. A fire escape collapsed; a locked door on the ninth floor blocked the way (management bolted it around closing time so workers would have to file through another exit where a guard checked them for stolen merchandise). In all, 146 people were killed – scores jumping to their deaths.

Reform followed tragedy. New York state passed laws protecting workers and improving building safety as the city’s Democratic party machine, Tammany Hall, embraced the kind of urban progressivism that later flowered nationally under President Franklin Roosevelt’s New Deal. But as I read Mr Von Drehle’s book, there was something eerily familiar about one aspect of the story – the business strategy of the Triangle factory owners, Max Blanck and Isaac Harris.

What struck me was their attitude to risk – in this case, fire. As Mr Von Drehle tells it, the Triangle owners, like many of their garment-making contemporaries in New York, did not see fire as a risk to be avoided at all costs; they saw it as “a risk to be managed” – using financial products such as insurance.

Banx cartoon

At the time of the Triangle disaster, technology existed to mitigate factory fires. By the 1880s, the standard New England cotton mill was equipped with automatic sprinklers, reflecting mill owners’s efforts to band together in a “factory mutual system” in which they all insured themselves against fire.

But New York had a different insurance model and sprinklers were virtually non-existent in its garment factories. Here, the threat of fire was good for the city’s well-connected insurance brokers who made big commissions selling expensive policies. Garment makers, meanwhile, played the game the other way – and factory fires were all-too common at times when unsold inventories were high. 

The Triangle fire does not appear to have been arson, but the lack of safety features reflected what Mr Von Drehle calls the “strange relationship that Blanck and Harris had with fire. They seemed to view it as another manageable aspect of their business, avoidable by day and welcome at night.”

To use Wall Street parlance, the Triangle owners were positioned to go long or short on shirtwaists – with fire insurance serving as their hedge. Before the Triangle disaster, Blanck and Harris collected tens of thousands of dollars on several late-night fires at their facilities. By March 25 1911, they had insured the factory for more than it was worth. Afterwards, they collected insurance payments exceeding proved losses – while also avoiding conviction on manslaughter charges. 

The connection with today is that New York remains a city where the local hustlers, in a sense, still play with fire, and bad things happen because people look for ways to profit from risks rather than doing what they can to reduce them. 

The recent financial crisis was a case in point. In the years leading up to the turmoil, I can’t recall our leading bankers bragging that they had made mortgages easier for consumers to understand or had developed retail financial products that lowered the risk of defaults. Safety wasn’t the big concern; the profits came from churning out risky mortgage products and then helping investors bet against them, without much regard for the social consequences.

When the inevitable disaster occurred, the bodies of the victims were not piled up in mounds in lower Manhattan. But people were harmed, nonetheless.

gary.silverman@ft.com

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