DON’T BLAME THE SHORTS This page intentionally left blank DON’T BLAME THE SHORTS WHY SHORT SELLERS ARE ALWAYS BLAMED FOR MARKET CRASHES AND HOW HISTORY IS REPEATING ITSELF ROBERT SLOAN New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Copyright © 2010 by Robert Sloan All rights reserved Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher ISBN: 978-0-07-163687-2 MHID: 0-07-163687-0 The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-163686-5, MHID: 0-07-163686-2 All trademarks are trademarks of their respective owners Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark Where such designations appear in this book, they have been printed with initial caps McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs To contact a representative please e-mail us at bulksales@mcgraw-hill.com Articles reprinted from The New York Times, March 4, April 9, 11, and 21 © 1932 The New York Times All rights reserved Used by permission and protected by the Copyright Laws of the United States The printing, copying, redistribution, or retransmission of the Material without express written permission is prohibited TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc (“McGraw-Hill”) and its licensors reserve all rights in and to the work Use of this work is subject to these terms Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior consent You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited Your right to use the work may be terminated if you fail to comply with these terms THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE McGraw-Hill and its licensors not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom McGraw-Hill has no responsibility for the content of any information accessed through the work Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise To my wonderful wife, Elizabeth, and my sister, Suzanne Thank you for your faith in me C ONTENTS Preface ix Acknowledgments Chapter | The Great Debate: 1790–1800 Chapter | Wall Street and Main Street: The Populist Argument Is Born: 1830–1907 Chapter | xix 17 Congress Attacks the Money Trusts: 1907–1920 27 Chapter | The Markets Before and After 1929 39 Chapter | A Lurid Tale of Blackmail, Spies, and Lies: 1932 49 Chapter | Mr Whitney Heads to Washington: 1932 63 Chapter | The First Prime Broker Was Actually the NYSE Chapter | The Senate Tries Again with the Pecora Commission: 1932–1941 Chapter | 85 97 United States v Henry S Morgan: 1947–1953 • vii • 115 viii • Contents Chapter | 10 Yesterday as the Day Before: 1987–Present 123 Epilogue 141 Appendix: New York Times Articles 161 • “Vote Wide Inquiry on Short Selling” March 4, 1932 • “Bears Planned Raid, Senators Were Told” April 9, 1932 • “Bear Raid Inquiry Opens” April 11, 1932 • “List of Shorts on the Stock Exchange on April as Given Out by the Senate” April 21, 1932 163 166 169 177 Glossary 179 Notes 191 References 205 Index 233 PREFACE Well, that was what you were supposed to —Response to the author, as a teenager, from a Wall Street legend who was commenting on Joe Kennedy’s short-selling profits made during the 1929 crash Y ou can make money in a lot of ways and be celebrated Corporate raiders are regularly lionized on the covers of Fortune and BusinessWeek; tech gurus are lauded for their entrepreneurship; media and movie executives are revered for their creative genius; even oil companies are often given favorable treatment In America, you can stick two trinkets together for the first time and sell it, and someone will call it revolutionary However, you short a company’s overvalued stock and you are automatically perceived negatively, or worse, seen as unethical, undermining American capitalism When markets turn sour, the public complains about excess and recklessness, greed and iniquity People feel abused and helpless, and they hope Uncle Sam will sort through the mess and figure out whom to vilify Amid the tumult of assigning blame, short sellers are time and again deemed culpable It is just too convenient to blame the investors who bet on falling stocks for stocks actually falling Even at a young age I was predisposed to blame the short seller • ix • Index • 235 Call options, Bank of the United States and, 14 Capitalizing on Change (Buder), 155 Carosso, Vincent, 36 Carrington Laboratories, 128, 131, 133 Carson, Ralph, 122 Chamber of Commerce, 60, 65 Chase National Bank, 31, 102, 103–104, 120 Chase Securities Corp., 102 Chaucer, Geoffrey, 149–150 Chernow, Ron, 3, 41, 120 Chicago Stock Exchange, 56 China, rise of, 23 Church of England, 149–150, 153 Cities Service Co., 54–56, 102 Civil War, 80 Clark, John B., 79 Clayton Antitrust Act, 34, 155 Clinton, Bill, 73 Collateral: in buying securities on margin, 7, 44, 45–46, 66, 82, 88, 94 New York Stock Exchange securities as, 74, 88–89 in securities lending business, 90–93, 127 western land as collateral for war debt, 8–9 Collateralized debt obligations, 42, 103 Columbia Gas & Electric Co., 54 Commerce, Consumer, and Monetary Affairs Subcommittee of the House’s Committee on Government Operations, 125–134 Commodities: prices of farm products, 36, 41–42 short selling, 3–4, 52, 57–58 Condon, Francis Bernard, 67, 68 Congressional investigations (see U.S Congress) Consolidated Gas of New York, 73 Convertible bonds, 92, 95, 136, 151–152 Copper, mining for, 26 Corporations: dislike of short sellers, 157–158 fear of, 109 Federal Trade Commission (FTC) and, 138–139, 155–156 interlocking directorates and, 30–31, 33–34, 102–104 limited liability, 15–16 power of, 25, 31–32 small businesses versus, 159 (See also Money trusts) Court of Appeals of New York, 58 Cox, Christopher, 125–134 Crash of 1929, 37, 41–47 market liquidity and, 75–76, 81–82, 136, 143 period preceding, 41–45 problems caused by, 45–47 236 • Index Crash of 1987, 155 Credit crisis of 2007-2008, 93–94, 135–139, 144–145, 150–151, 157–159 Credit default spread, 150–151 Credit Default Swaps (CDS), 95, 138, 157 Credit risk, prime brokers and, 90–91 Credit Suisse, 153 Currency: gold/silver ratio in coins, 15, 21, 23–24, 25 gold standard and, 21–24, 60–61, 71–72, 75, 105, 136 national, in U.S., 10–11 short selling, Custodians, 93 de la Vega, Joseph, Democracy: agrarianism and, 11–16, 22, 23, 26, 110–111 land and creed of, 22–25 Depository Trust Company, 127 Derivatives, 58–59, 138 Dillon, Read & Co., 102 Distilled Liquor, 82 Doherty, H L., 52, 54–56 Douglas, William O., 114 Downtick, 44, 105, 106 Du Pont, Francis I., 56–57 Duer, William, 13 Dutch East India Company, 4, 107 Eisenhower, Dwight D., 121 Enron, 3, Farmer’s Alliance, 80 Federal Bureau of Investigation (FBI), 52, 107 Federal Commission on Country Life, 35 Federal Reserve, 34 bank lending restrictions and, 69 control over short-sale margins, 106 formation of, 45–46 gold standard and, 71–72, 75 interest rates and, 46–47, 47, 89 margin transactions and, 46–47 Federal Trade Commission (FTC), 138–139, 155–156 First Amendment, 146, 157 First Bank of the United States, 12, 13–16 First Boston, 118 First National City Bank, 31, 34, 42, 102–103, 120 Fischer, L E., 53–54 Flaherty, John, 128–131, 133 Food and Drug Administration (FDA), 133 Ford Motor, 118 France, restrictions on short selling, Frank P Parish Co., 54–55 Free cash, in short transactions, 88 Index • 237 Gearing (see Leverage) General Motors, 118 General Theory of Employment, Interest, and Money (Keynes), 113 Germany, ban on short selling, Glass, Carter, 72, 73, 100 Glass-Steagall Act, 73, 87, 100, 120, 121, 136 Globalization, 23 Gold: gold/silver ratio in coins, 15, 21, 23–24, 25 gold standard and, 21–24, 60–61, 71–72, 75, 105, 136 mining for, 26 speculation in, 41–42 Goldman Sachs, 118 Gould, Leslie, 83 Grange movement, 80 Grant, James, 41 Great Britain: Bank of England model in the U.S and, 11–16 debtors in the U.S., 11 gold standard and, 60–61, 105, 136 restrictions on short selling, 5, 148–153 short selling of British pound, Great Depression, 143–144 credit crisis of 2007-2008 and, 136, 144–145 gold standard and, 71–72 interest rates of Federal Reserve and, 46–47, 47, 89 short selling and, 46–47 Gregory, William Voris, 52–53 H L Doherty and Co., 52, 54–56 Hamilton, Alexander, 3, 65–66, 110–111, 135 assumption and, 8–16 Bank of England model in the U.S and, 11–16 establishment of national currency and, 10–11 First Bank of the United States and, 12, 13–16 Report on the Mint, 15 Hastert, Dennis, 126 Hedge funds: attack on short selling and, 148–154 convertible bonds and, 92, 95, 136, 151–152 impact of restrictions on short selling and, 151–154 liquidity and, 148–154 mutual funds versus, New York Stock Exchange and, 88 rise of, 44–45 risk assumed by, 6, 7, 44–45, 151–152 short selling and, 6, 7, 134 238 • Index Hedging, 58 securities lending and, 92–93 by warrant traders, 106 History of short selling: earliest use, eighteenth century, 4–5 New York Stock Exchange and, 5, 46–47, 56, 60, 66, 75–76, 87–89, 104–105 nineteenth century, 4, origins, seventeenth century, twentieth century, 4–5, Hobbes, Thomas, 10 Hofstadter, Richard, 35–37 Holding companies, 43, 109 Hoover, Herbert: crash of 1929 and, 45–47, 47 investigations of Senate Committee on Banking and Currency, 72 restrictions on short selling, 4–5, 47, 51–52, 57–60, 66, 107–109 Hoover, J Edgar, 52 House of Morgan (Chernow), 120 House of Representatives (see U.S Congress) Hughes, Charles Evans, 79–80 IGI, 128 Index arbitrageurs, 151 India, rise of, 23 Industrialization, 22, 23, 26, 113 Infectious Greed (Partnoy), 6–7 Information: availability of, 36–37 bear raids and, 47, 51–53, 55–58, 62, 65, 73, 75, 99–100, 105, 106–107, 121–122, 126–128 insider, 8–9, 43, 78 role of short sellers and, 5–6, 44, 60–62, 65–77, 145–146, 157–158 U.S capital markets and, 145–146 Insider information: assumption and, 8–9 federal government and, 8–9 trading based on, 43, 78 Interest, dislike for, 11, 19–20 Interest rates: Federal Reserve and, 46–47, 47, 89 New York Stock Exchange and, 88 on short transactions, 88 in the stock loan or securities lending business, 43–44, 62 Interlocking directorates, 30–31, 33–34, 102–104 International Harvester, 34 Investment Banking Association (IBA), 114, 117–118 Investment trusts, 43 Index • 239 J P Morgan, 45 as informal money trust, 31 Pujo Committee and, 30–37 Richard Whitney and Co as principal brokers for, 81–82 Jackson, Andrew: power of banks and corporations, 31–32, 155 rechartering of Second Bank of the United States, 20–21, 155 speculative schemes and, 20 Japan, rise of, 23, 128, 146 Jefferson, Thomas: agrarianism of, 11–16, 22, 23, 26, 110–111 debt owed to Great Britain, 11 gold/silver ratio in coins and, 15 limited liability corporations and, 15–16 power of banks and corporations, 25, 31–32, 110–111, 135 separation of U.S commercial and political capitals, 12–16 Jersey Lighting, 82 Jones, Charles M., 107 J P Morgan: Pecora Commission investigation and, 100–104, 111, 113, 117, 134, 136, 154–156 “preferred list,” 101–102 U.S Department of Justice investigation and, 117–122, 134 Kelly, Edward Austin, 66 Kennedy, David, 36–37, 114 Kennedy, Joseph, 110–112 Keynes, John Maynard, 113 Knights of Labor, 80 Kozlowski, Dennis, 77 Kuhn, Loeb & Co., 31, 102, 118 LaGuardia, Fiorello, 51, 66, 67–68, 72 Lamont, Thomas, 45 Land: as collateral for debt, 8–9 and creed of democracy, 22–25 speculation in, 41–42, 68 Lehman Brothers, 94, 118, 136, 147–148, 150–151 Leverage: in buying securities on margin, 7, 44, 45–46, 66, 82, 88, 94 credit crisis of 2007-2008 and, 93–94, 135–139, 144–145, 157–159 Great Depression and, 145 loan crowd and, 43–44, 90 in short selling, 90 uses and abuses of, 80–81 Libby-Owens Ford pool, 111–112 Liberty Bonds, 76 Limited liability corporations, 15–16 Lindbergh, Charles, 30 240 • Index Liquidity: convertible bonds and, 92, 95, 136, 151–153 crash of 1929 and, 75–76, 81–82, 136, 143 decline of, post-1929 stock market crash, 44 hedge funds and, 148–154 importance of, 74, 94 methods of creating, 45–46 short selling in creation of, 45–46, 61–62, 68, 90, 108, 148–151 uptick rule and, 44, 95, 105–106, 107, 151 Loan crowd, 43–44, 90 Locate procedures, 106 Maddin, S J., 56 Madison, James: First Bank of the United States and, 14–16 gold/silver ratio in coins and, 15 separation of U.S commercial and political capitals, 13–16 Madoff, Bernie, 93 Manifest destiny, 22–25 Margin: buying securities on, 7, 44, 45–46, 66, 82, 88, 94 decline of, post-1929 stock market crash, 44 restrictions on use of, 44, 66 for short transactions, 88 Richard Whitney and, 82 Market makers, 151 Marquez, Thomas, 131–133 Marshall Plan, 143 McCain, John, 20 McCarthy, Callum, 154 McCrea, Charles, 77 McIntyre Porcupine Mines, 77 Medina, Harold, 117, 120–122 Meeker, J Edward, Mining, 26 Missouri-Kansas Pipeline Co., 52–57, 126 Mitchell, Charles, 103 Money supply, 23–24 Money trusts: defined, 24 fear of, 24–25, 109 monopolistic practices of, 25 in panic of 1907, 29–30 Pujo Committee investigation of, 30–37, 46, 72–73, 78, 100, 117, 134, 154–155 types of, 25, 33–34 Monopoly: of information, 36–37 money trusts and, 25 Morgan, Henry S., 117–122, 125 Morgan, John Pierpont, 26, 29–37, 45, 46 Morgan, John Pierpont, Jr., 117 Morgan Stanley, 117–122 Index • 241 Morris, Robert, Mutual funds, 7, 43 Muys van Holy, Nicholas, Naked short selling, 4, 126–131 Napoleon, ban on short selling, National City Bank, 31, 34, 42, 102–103, 120 National City Company, 102–103 National Monetary Commission, 155 Necessary and proper clause, 13–14 Net settlement basis, 127 New Deal, 109, 112, 113–114, 143 New York: ban on short selling in 1812, as commercial capital of the U.S., 12–16, 20–25, 45 Court of Appeals, 58 distrust between Main Street and Wall Street, 13, 20–25, 30–31, 34–37, 45–47, 78–81, 101–102, 104–105, 112–114, 117–122, 135, 138–139, 147–159 First Bank of the United States and, 12, 13–16 regulation of New York Stock Exchange, 59 New York Central, 34 New York Stock Exchange: bank lending restrictions and, 69–70 closure of, 61 collateral security listed on, 74, 88–89 history of short selling and, 5, 46–47, 56, 60, 66, 75–76, 87–89, 104–105 loan crowd, 43–44, 90 offshore speculation and, 44–45, 137 in panic of 1907, 29–30 Pecora Commission investigation and, 100–104, 111, 113, 117, 134, 136, 154–156 as prime broker, 88–95 restrictions on short selling and, 107–110 roles of, 88 Temporary National Economic Committee (TNEC) and, 112–114, 117, 118, 143 Whitney as advocate of short selling, 47, 60–62, 65–77, 87–89, 99, 104–105, 109–110, 132, 134–135, 136, 138 Whitney as head of, 81, 90, 109–110, 138 New York Yacht Club, 81, 82 Norbeck, Peter, 72, 100 North American Light and Power Co., 53, 54 Northern States Pipelines Co., 54 242 • Index Obama, Barack, 137–138, 147, 155 Oil: exploration and, 25–26 money trusts and, 25 short selling, 3–4 whaling and, 25–26 Oliver, Frank, 66 Options, 92 Ordway, Samuel H., 79 OTC Newsletter, 128 Page, Edward D., 79 Panhandle Eastern Pipe Line, 54 Panic of 1907, 29–30, 35, 45–46, 79 Pari-mutuel betting, 6–7 Parish, Frank P., 47, 52–57, 65, 126, 128, 134 Partnoy, Frank, 6–7 Patriotism, assumption of war debt IOUs and, 10–11 Payne, Christy, 53–54, 56 Pecora, Ferdinand, 42, 100–104, 111 Pecora Commission, 100–104, 111, 113, 117, 134, 136, 154–156 Pools, 43, 78, 111–112 Populist movement, 19–25 Frederick Jackson Turner and, 22–25, 109 William Jennings Bryan and, 19, 21–22, 24, 109 credit crisis of 2007-2008 and, 135–139 distrust between Main Street and Wall Street, 13, 20–25, 30–31, 34–37, 45–47, 78–81, 101–102, 104–105, 112–114, 117–122, 135, 138–139, 147–159 Federal Committee on Country Life and, 35 and Panic of 1907, 29–30, 35 Pujo Committee and, 30–37 Prepublication trading, 128–130 Prime brokers: crisis of 2007-2008 and, 93–94, 136–137, 150–151 defined, 88, 90 nature of, 88 New York Stock Exchange as, 88–95 origins of, 90 rise of, 44–45 roles of, 88, 90–93 Private partnerships, 16 Profits: from assumption of war debt IOUs, 8–16 prime brokers and, 90–92 short selling and, 4, 5, 107 Progressive agenda, 34 Prohibition, 82 Public Service of New Jersey, 73 Pujo, Arsène, 30–37 Pujo Committee, 30–37, 72–73, 100, 117, 134, 154–155 Index • 243 goal of, 34 John Pierpont Morgan and, 31–34, 46 progressive agenda and, 34 William Rockefeller and, 32–33, 78 Rabble, 14 Railroads, money trusts and, 25, 26 Reagan, Ronald, 155 Regulation: of short selling, 4–5, 46–47, 51–57, 74–75, 104–114 of stock loans and securities lending, 44 threat of, 74–75 Revolutionary War, assumption of IOUs caused by, 8–16 Risk: hedge funds and, 6, 7, 44–45, 151–152 negative attitudes toward taking, 7–8 in pari-mutuel betting, 6–7 prime brokers and, 90–93 in short selling, 5–6 Rockefeller, John D., 32 Rockefeller, Percy, 77–79 Rockefeller, William, 32–33, 78 Roosevelt, Franklin Delano, 99, 101, 104–105, 110–114, 118, 143 Roosevelt, Theodore, 35 Rothbard, Murray, 47 Rumors: in bear raids, 47, 51–53, 55–58, 62, 65, 73, 75, 99–100, 105, 106–107, 121–122, 126–128 Congressional investigations and, 72–73, 107, 110 credit crisis of 2007-2008 and, 157 naked short selling and, 4, 126–131 prepublication trading and, 128–130 short selling and, 7, 154 Russia, rise of, 23 Sabath, Adolph, 66 Sandler O’Neill, 153 Scrip, 14 Scrippomania, 14 Second Bank of the United States, 20–21, 155 Securities and Exchange Commission (SEC), 110–114 bear raids and, 106–107 Christopher Cox as head of, 126 creation of, 44, 106, 110 investigation of short selling, 134–139, 154 Joseph Kennedy as head of, 110–112 regulation of stock markets, 87 short selling and, 132–133, 149 uptick rule, 106 244 • Index Securities Exchange Act of 1934, 106 Securities Investment Protection Corporation (SIPC), 93 Security of transfer, concept of, 10 Senate (see U.S Congress) Sherman Antitrust Act, 114, 117–118 Short selling: as American activity, 8–12 analogy for, 6–7 blaming for economic problems, 52–57, 104–105, 134 British attack on, 148–151 buyback mechanism, 59, 68, 136 of commodities versus stocks, 3–4, 52, 57–58 Cox as advocate for, 125–134 crash of 1929 and, 45–47, 75–76 downtick rule, 44, 105, 106 earliest use of, as economic royalism, 112 history of (see History of short selling) investigations of, 42, 51–57, 65–80, 110, 125–134 leverage and, 90 as misunderstood, 3–4, naked, 4, 126–131 nature of, nature of shorts, 109 as personal attack, 3, 78 post-1929 stock market crash, 44, 46–47 pre-1929 stock market crash, 43–44 public distrust of, 7, 46, 78–81, 89–90, 95, 103–104 regulation of, 4–5, 46–47, 51–57, 74–75, 104–114 restrictions on, 4–5, 9, 46–47, 51–52, 57–60, 66, 74, 87–89, 107–110, 148–154 role in markets, 5–6, 44, 45–46, 60–62, 65–77, 90, 108, 145–146, 148–151, 157–158 rumors and, suspensions on, 105–106 taxes on, uptick rule, 44, 95, 105–106, 107, 151 Whitney as advocate of, 47, 60–62, 65–77, 87–89, 99, 104–105, 109–110, 126–127, 132, 134–135, 136, 138 written-authorization regulation, 62, 66, 106, 108 Short squeeze, 61 Significance of the Frontier in American History, The (Turner), 22 Silver: gold/silver ratio in coins, 15, 21, 23–24, 25 mining for, 26 Index • 245 Sixteenth Amendment, 34 Skilling, Jeffrey, Slavery, debt owed to Great Britain and, 11, 19–20 Smoot-Hawley tariffs, 145 Soros, George, Special Purpose Acquisition Companies, 43 Speculation: in assumption of war debt IOUs, 8–16 compensation associated with, 7–8 First Bank of the United States and, 12, 13–16 hedge funds and, 6, in land, 41–42, 68 offshore, 44–45, 137 pre-1929 market crash, 1–44 results of speculative schemes, 20 Spira, Robert, 128, 130 Standard Oil, 126 Standard Oil Company of New Jersey, 52, 53–54, 56 States’ rights, 12, 138 Steel, money trusts and, 25 Steinbrück, Peer, 148 Steiwer, Robert, 74 Stock loan or securities lending business: arbitrage and, 92 daily interest rate charges, 43–44 Hoover’s attack on, 47 loan crowd, 43–44, 90 opponents of, 62, 65–77 prime brokers and, 91–93 regulation of, 44 in short selling process, written-authorization regulation, 62, 66, 106, 108 Struc, John, 133 Taxes: centralized, in the U.S., 10–11 prohibition on Christians collecting taxes from Christians, 19–20 on short sales, Temporary National Economic Committee (TNEC), 112–114, 117, 118, 143 13d filings, 130 Truman, Harry, 118, 121 Trusts: investment (mutual funds), 7, 43 money (see Money trusts) voting, 33–34 Turner, Frederick Jackson, 22–25, 109 Tyco, 77 Underwriting syndicates, 117–122 United Kingdom (see Great Britain) 246 • Index United States: assumption of Revolutionary War IOUs, 8–16 Bank of England model and, 11–16 centralized taxation in, 10–11 Constitution of (see U.S Constitution) debt of federal government, 8–16 distrust between Main Street and Wall Street, 13, 20–25, 30–31, 34–37, 45–47, 78–81, 101–102, 104–105, 112–114, 117–122, 135, 138–139, 147–159 establishment of national currency, 10–11 Federal Commission on Country Life, 35 legislative branch (see U.S Congress) in panic of 1907, 29–30, 35, 45–46, 79 paranoid style of American politics (Hofstadter) and, 35–37 patriotism and, 10, 57–58 restrictions on short selling, 4–5, 9, 47, 51–52, 57–60, 151–154 separation of commercial and political capitals in, 12–16, 31–32, 45 United States v Henry S Morgan et al., 114, 117–122 United States Steel, 73, 81–82, 107 U.S Congress: Commerce, Consumer, and Monetary Affairs Subcommittee of the House’s Committee on Government Operations, 125–134 House Committee on Banking and Currency, 30–37, 72–73, 78 House Judiciary subcommittee investigation, 65–70 Pecora Commission, 100–104, 111, 113, 117, 134, 136, 154–156 Pujo Committee and, 30–37, 46, 72–73, 78, 100, 117, 134, 154–155 Senate Committee on Banking and Currency, 42, 51–57, 70–81, 82, 99, 100–104, 111–112, 147–148 U.S Constitution: federal government versus financial system, 135 First Amendment, 146, 157 First and Second Banks of the United States and, 12, 13–16, 20–21, 155 necessary and proper clause, 13–14 Sixteenth Amendment, 34 states’ rights and, 12, 138 Index • 247 Wall Street versus government powers and, 137–139, 147–159 U.S Department of Justice, 55, 117–122, 134 U.S Treasury Department, in panic of 1907, 29–30 Untermyer, Samuel, 31, 33, 46 Uptick rule, 44, 95, 105–106, 107, 151 Urbanization, 22, 23, 36 Vietnam War, 144–145 Voting trusts, 33–34 Wadsworth, James, Walcott, Frederick, 71–72, 73, 100 Walker, Elyse, 56 Warrants, 106, 151 Washington, D.C., as political capital of the U.S., 12–16, 45 Wealth: of early Hamiltonians, 13 short selling in redefining, West: frontier as creed of democracy, 22–25 land and creed of democracy, 22–25 land as collateral for war debts, 8–9 manifest destiny and, 22–25 Frederick Jackson Turner and, 22 Whaling, 25–26 Wheat, short selling, 3–4 White, Horace, 79 White-collar crime, 114 Whitney, Richard, 44–45 as advocate of short selling, 47, 60–62, 65–77, 87–89, 99, 104–105, 109–110, 126–127, 132, 134–135, 136, 138 background of, 81–82 bankruptcy of, 82 Chamber of Commerce address, 60, 65 embezzlement charges, 82–83, 114, 134–135 as head of New York Stock Exchange, 81, 90, 109–110, 138 imprisonment in Sing Sing prison, 83 testimony before House Judiciary subcommittee, 65–70 testimony before Senate Committee on Banking and Currency, 70–77, 82, 99, 156 Wiggin, Albert, 103–104 Wilson, Woodrow, 30 Woodin, William, 101 World War I, 144–145 World War II, 143–144 Yeoman farmer ideals, 22, 23 This page intentionally left blank ABOUT THE AUTHOR Robert Sloan is the managing partner of S3 Partners, LLC, a New York and London-based balance sheet manager for top hedge funds globally, which he founded in 2003 In addition, Bob serves as a member of the board for MF Global Ltd., the world’s largest exchange-traded derivatives broker Prior to S3 Partners, Bob was a managing director, the global head of prime brokerage, equity finance and delta one products, and a member of both the securities division operating committee and the product managers committee at Credit Suisse First Boston In 1998, Bob founded and chaired the CSFB/Tremont Hedge Fund Index This was the first investable benchmark index for alternative investments From 1989 until 1996, he worked at Lehman Brothers in the equity derivatives and central funding unit Prior to his career on Wall Street, Bob was a speech writer and translator for the Ministry of International Trade and Industry (MITI), Tokyo, Japan Bob holds a Bachelor of Arts degree from Washington & Lee University ...DON’T BLAME THE SHORTS This page intentionally left blank DON’T BLAME THE SHORTS WHY SHORT SELLERS ARE ALWAYS BLAMED FOR MARKET CRASHES AND HOW HISTORY IS REPEATING ITSELF ROBERT SLOAN New... CEOs blamed short sellers for spreading rumors about their firms and demanded their arrest CFOs blamed short sellers for distorting their conference calls and the market valuations of • DON’T BLAME. .. that short in their proprietary trading (and profit from the liquidity and fat profit margins from executing and clearing short trades for their clients) blamed the shorts for their ills in the