What’s Old is New Again

I’m currently reading The Last of the Imperious Rich: Lehman Brothers, 1844-2008. It’s a very good read, no because it recounts (again) the fall of Lehman Brothers, but talks about the rich and surprising history of the company from when Henry Lehman arrived in New York in 1844 to the present.

For example, I didn’t know the Lehman brothers actually started out in Cotton, of all things, and only later to move into finance in the early 1900s. I also didn’t know that they practically invented the idea of “taking companies public” based on future earnings starting with United Cigar (a noted importer of Cuban cigars), and continuing through names you might recognize like Sears and Roebuck, Macys, Woolworth’s, and Black and Decker.

I was also surprised, but sadly, but the discussion of the great market panic of 1907. It seems that, in 1907 “Trust Companies” were using their depositor’s money to buy stocks on the stock market, and in turn borrowed against the stocks to invest in even more risky investments. As we all learned recently, such a system eventually collapses, taking not only the guilty (the Trust Companies) and the innocent (the people that trusted their money with them) down the drain.

The book goes on to talk about how so called “Bucket Shops” allowed people outside the market to bet on the movement of stocks as if they were horses. If this wasn’t bad enough, there was no regulation to keep actual investors from participating in these “Bucket Shops”, which meant they were ripe for manipulation. Thank goodness Bucket Shops were eliminated after 1907, but it sure as heck sounds a lot like the derivative markets we’re all so familiar with these days.

Finally (and I’m not done with the book yet) I’ve learned that the Lehmans (at least during those times) were actually very fair and civic minded, and actually served with the government in establishing things like a Federal Reserve and the Glass Stengall act, which prohibited banks from using your money to gamble with (many people blame the repeal of Glass Stengall as a major contributor to last crash, which I agree with).

As I said, I’m not done with this one yet, but so far, I’d recommend it. And it makes me wonder even more why we haven’t held Wall Street accountable…

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