In 1929, the chairman of Chase National Bank bet against his own bank's stock…
He made around $4 million doing so…
What’s even crazier is that what he did was completely legal!
His name was Albert Wiggin. He'd run Chase for years and sat on the boards of more than fifty American corporations.
Yet in the months before the crash, he sold short more than 40,000 shares of Chase.
Wiggin ran the trades through corporations owned by his own family so his name never appeared on them. So when the market broke in October and Chase shareholders were destroyed, his position paid out.
If you’re infuriated by this, just know the chaos doesn’t stop there. Because the bank then voted him a pension of $100,000 a year for life… which he only handed it back once the newspapers got hold of the story.
I’m telling you this because I've been reading Andrew Ross Sorkin's book on 1929 in twenty-minute chunks, mostly at 5am when Ivy decides she wants a cuddle in the big bed.
And what keeps me hooked isn't the drama…. it's the list of things that were completely legal during the run up to the great crash.
Insider trading? Completely legal
A group of people conspiring to manipulate stock prices before dumping them on investors? Completely legal
And my personal favourite…
Public companies deciding that they wanted to keep their financial results a secret? Completely legal
It’s true, because before 1933, publishing your company's financial results was voluntary…
And many large companies simply declined.
Big names of the day like Westinghouse… Singer… Gillette… the New York Central Railroad.
Some published no balance sheet, other published no income statement. Many published neither.
Even margin lending had no federal rule at all until 1934.
Brokers set their own terms… and for much of the boom that meant a customer putting down just 10% of the purchase price of a stock and borrowing the rest.
So by August 1929 there was roughly $8.5 billion out on loan against stock… which was more than every dollar bill in circulation in America at the time.
So when someone puts a chart in front of me showing what stocks cost in September 1929 relative to company profits, laid neatly alongside the same measure today… I just ignore it.
Because it simply was a different time, with different rules.
And you can’t try to compare today’s market to a market with no audited accounts… no disclosure requirement… and legal price-rigging…
I can't tell you what the market does next, and neither can the person waving the chart. But I can say with confidence that the conditions in 1929 looked nothing like the conditions we face today…
Oliver