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Wall Street History
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08/25/2000
Joseph Kennedy, Part II
Joe Kennedy made his mark on Wall Street during the 1920s.
In his book, "Freedom From Fear," author David Kennedy
describes the Wall Street environment of this era.
"(It) was a strikingly information-starved environment. Many
firms whose securities were publicly traded published no regular
reports or issued reports whose data were so arbitrarily selected
and capriciously audited as to be worse than useless. It was this
circumstance that had conferred such awesome power on a
handful of investment bankers like J.P. Morgan, because they
commanded a virtual monopoly of the information necessary for
making sound financial decisions. Especially in the secondary
markets, where reliable information was all but impossible for
the average investor to come by, opportunities abounded for
insider manipulation and wildcat speculation."
It was against this backdrop that Kennedy thrived. He became
part of a group of Irish-American speculators; including Charles
Mitchell, Mike Meehan, and Bernard "Sell ''em" Smith.
The Irish had been mostly born into poverty and excluded from
the East Coast financial elite, due in large part to their religion.
Partly because of this, they seemed determined to take great risks
for the purposes of establishing themselves. Author Edward
Chancellor, in his book "Devil Take the Hindmost," quotes an
18th century financial writer, Thomas Mortimer, for the purposes
of describing the times.
"He who values not his neck, because he is conscious it is worth
nothing, may take the boldest leap."
And as was alluded to in the above quote from "Freedom From
Fear," the 20s were also an era of rampant insider trading. Joe
Kennedy became a master at the game and it can be safely
assumed that each of his big "scores" had some "inside"
knowledge behind it. And often, the information came from
those who ran the companies themselves.
Kennedy''s first major speculation was in the stock of Yellow
Cab Company, an outfit that had been a victim of a bear raid.
The company was connected to his father-in-law, the former
Boston Mayor "Honeyfitz" Fitzgerald. Kennedy positioned
himself in a suite at the Waldorf-Astoria and proceeded to
manipulate the share price.
"I woke up one morning, exhausted," Kennedy recalled, "and I
remembered that I hadn''t been out of that hotel room in 7 weeks.
My baby, Pat, had been born and was almost a month old, and I
hadn''t even seen her." [Source: John Steele Gordon]
Kennedy became part of the infamous "pool operations." Taking
advantage of their own inside information, and the public''s lack
thereof, a pool operator would bribe journalists on various
newspapers to plant stories. The stocks would then soar, or fall,
based on the objectives of the pool.
"It''s easy to make money in this market," said Kennedy,
famously, to an associate. "We''d better get in before they pass a
law against it." By the mid-1920s, he had a net worth of $2
million; considerable for those times.
And it was during this period that Joe Kennedy was developing a
real reputation for stabbing his friends in the back. Author
Martin Fridson relates that one Wall Street "wit" once
commented, "I don''t know why Joe Kennedy turned on me - I
never did anything to help him."
In 1928, Kennedy''s trading reputation really soared; for it was
during this year that he cashed out, well ahead of the Great Crash
of 1929. And then, as the market crashed, he vigorously shifted
gears, shorting stocks as it fell further. [Supposedly, he cleared
at least $1 million playing the other side.]
Kennedy is also responsible for the famous shoeshine story; one
that was told many times in the past year as our own markets
soared into the spring. Said Joe, "When the time comes that a
shoeshine boy knows as much as I do about what is going on in
the stock market.it''s time for me to get out."
Kennedy claimed that the man responsible for his shoes seemed
to have as much inside information as he did. But as Fridson
relates, the shoeshine "speculator" was one Patrick Bologna, a
fellow who operated a stand in the financial district. From this
strategic position, he gathered up some genuinely valuable tips
from some of the great pool operators of the era, including
William Durant (the founder of General Motors) and Sell ''Em
Ben Smith.
But it wasn''t Bologna who supplied Kennedy with his shorting
ideas, rather, it was Joe''s mentor, a Boston attorney by the name
of Guy Currier.
According to Kennedy biographer Ronald Kessler, Kennedy
would wait until Currier was on vacation, then he''d rifle through
his files looking for sensitive information he could trade on. And
it was through this inside knowledge that Kennedy was also able
to engineer the purchase of a major motion picture studio.
Currier had been double-crossed.and stabbed in the back.
Next time we will continue the Joseph Kennedy story and detail
his ascent to the chairmanship of the SEC.
Brian Trumbore
Sources:
"Freedom From Fear," David M. Kennedy
"The Great Bull Market," Robert Sobel
"The Great Game," John Steele Gordon
"Devil Take the Hindmost," Edward Chancellor
"Wall Street: A History," Charles Geisst
"It Was a Very Good Year," Martin Fridson
**Wall Street History will return on September 8. The editor is
taking a brief vacation.
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