Special Feature
Panic of 1901 The Panic of 1901 originated from a fight to control the U.S. railroads between E.H. Harriman and James J. Hill. Harriman was in control of Union Pacific while Hill was in control of Northern Pacific Railway. To dominate the rail roads of Chicago, Burlington and Quincy, Harriman tried to gain control of Northern Pacific Railway by quietly buying up its shares. Just when he almost achieved his goal, Hill learned of Harriman’s activities and contacted J.P. Morgan who ordered his men to buy every share that they could get their hands on. As a result, Northern Pacific shares rose exponentially and the short sellers faced ruin, having to buy to cover at much inflated prices. In the end, neither Hill nor Harriman were able to accomplish their respective goals and eventually they decided to form a trust — Northern Securities — a company that was prosecuted and convicted under antitrust laws, and finally dissolved in 1904. As a direct consequence of the fight between these two stubborn men, many fortunes of lesser men were ruined in the panic that ensued in the stock market in the wake of the prosecution.
Panic of 1907 (also known as the 1907 Banker’s Panic) In October 1907, a financial crisis occurred as a consequence of a failed attempt to corner the market of United Copper Company. The failed attempt led to a major failure in the banking system, a run on banks and almost a collapse of the whole banking system (sound familiar?!). The crisis has a name — the Otto Heinze Crisis — a man whose failed attempt to push a single stock price higher almost left the country’s banking system facing bankruptcy. In what was arguably the era of Mr J.P. Morgan — a name that still bestrides global markets today — this venerable banker’s actions allowed the market to avoid meltdown. Otto Heinze implemented a scheme to drive the price of United Copper Corporation artificially higher. He planned to buy shares and put the short sellers in a situation where they had no other chance to cover their losses other than repurchasing shares at a much higher price (such events seem entirely legal today as the hedge funds who shorted Volkswagen shares in recent years found to their cost!).
8 | www.financial-spread-betting.com | December 2012