on November 2008 during the height of the banking collapse I blogged on "Seeking-Alpha" a financial blog site the following:
Did JPMorgan Almost Fail? [View article]
"It’s just about the Centennial of the infamous “Panic of ought eight”. It was a painful moment in American history and a poignant lesson for today.
By 1907 John Pierpont Morgan was the richest and most powerful Oligarch in the world. In the age of the Robber Barons, through J.P. Morgan & Company he had formed the most formidable array of industrial concentration imaginable. He controlled the US Steel Corporation, the largest entity on earth, as well as the American Telephone & Telegraph Company and General Electric Company and United Electric utility, which, together with Rockefeller’s Standard Oil Company and Vanderbilt’s Railroads controlled 95% of the industrial base of the United States.
The Federal Reserve Bank did not yet exist and the currency was directly linked to the gold and silver circulating in the economy. J.P. Morgan & Company was the at the spigot.
By 1907, US Steel was a huge juggernaut of vertically integrated interconnected companies that not only owned and controlled steel production but also vast tracts of natural resources, as well as, a bewildering network of railroads to transport the raw and finished products. With all the resources at its command, it nevertheless, found it necessary to covet the assets of the Tennessee Coal, Iron and Railroad Company, a small, yet strategic, company that would add another nugget to this vast enterprise. The problem was that the stock of this company was controlled by two New York entities who were reluctant to part with the stock.
Now, JP Morgan was a generous Plutocrat. He would ask the seller to name his price and rarely haggled as he stood to make even more millions by adding his percentage mark-up when he marketed securities to raise additional capital. When he asked Andrew Carnegie to name his price for his vast steel empire, Carnegie replied that $700 Million was the magic number and was delighted to find that Morgan promptly issued a check for that exact amount...only to be greatly distressed when Morgan told him that he was prepared to ante $1 Billion.
So, when Morgan approached the principals at Moore and Schley, a small stock brokerage firm that happened to own, together with the owners of the Trust Company of America, a dominating control of the Tennessee Coal Company, he expected to pay a high price. To his chagrin, they both refused to sell to him at any price.
The result was the” Panic of 07". JP Morgan & Company, through his agents, caused a run on the deposits at the Trust Company forcing it out of business. At the same time, he refused to extend credit and created a credit crunch that was particularly aimed at the customers of Moore and Schley forcing that company out business and in the process acquired the shares of Tennessee coal for pennies on a dollar.
Immediately after the fall of his “enemies” J.P. Morgan famously gathered his buddies to announce that the panic was over.
I retell this incident here because I have a strong suspicion that history is repeating itself on the Centennial of that fateful event.
For 75 years the SEC had a rule that prevented runs on companies’ stock by prohibiting the “naked short” sales (selling stock without possessing the borrowed shares) prevalent before the Depression. After the 1987 debacle, the exchanges instituted the up-tick rule (sale price of the target company’s stock must register a rise in its price immediately before the short sale is executed} that made programed short selling harder to execute. These tools were instituted as a safeguard against ruinous bear raids that could decimate viable companies in days.
Early this summer, without any outcry or demand by the public for change, the exchanges quickly and without fanfare eliminated both of these safeguards in a matter-of-fact fashion that barely elicited any comment.
In quick succession Bear Stearns was decimated in just days, and was quickly snapped up by JP Morgan. A few short months later Lehman Brothers was exterminated with great dispatch that lasted just days. And later that same week the Trillion Dollar giant A.I.G. was brought to its knees in just seventy two hours.
Within a week of this epic American tragedy, the “short rules” were re-instated with stringent “no short sale” list covering 1000 companies.
WOW!!!!!
I will patiently wait for JP Morgan Chase, Bank of America, Goldman Sachs & Co., or Warren Buffett to pick up the “nuggets” left behind by Lehman’s demise and the breakup of A.I.G."
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