(Drivebycuriosity) - America`s rise as a super power was made possible by the construction of the railways, that tie the continent spanning country together. Jay Gould, an investor & speculator, played a defining role in the evolution of America`s railway networks.
Georg Steinmetz`s biography "American Rascal: How Jay Gould Built Wall Street's Biggest Fortune" displays not only the life of Gould, he also delivers a fascinating story of the "Wild West" of Wall Street and the role of "unfettered capitalists" in America`s economic rise ( amazon)
Steinmetz portraits Gould as a kind of Dr Jekyll and Mr Hyde and describes him as a ruthless manipulator but also as an extraordinary problem solver, an unparalleled negotiator, an expert communicator, a lightning-fast thinker, and a masterful tactician with a staggering memory.
Gould amassed a huge fortune on Wall Street by manipulating stock prices, but through his work with railroads he helped to build the country. Railroads changed America in the nineteenth century much as automobiles changed the country in the twentieth century and the internet has changed the twenty-first century.
Gould became immensely rich by manipulating the market, but he reinvested his profits in a way that created more jobs and economic growth. America would have developed without Gould, only not as fast or efficiently.
Gould’s aggressive railway investments lowered freight rates. His success as a railroad investor attracted speculative capital into a vital industry when other sources fled the field.
Gould took advantage that there way too many railways. They were too small and too inefficient, their meager revenues did not cover their costs, they had too high debs. By buying some and closing others, Gould inaugurated the inevitable process of industry consolidation.
Steinmetz`s Gould biography is also an introduction how markets are getting played. He was one of the ubiquitous short sellers who borrow stocks or other assets and sell them immediately. They expect that they are able to buy these assets back for a much lower price, what would create a huge profit. But short selling is very risky. If the price of the shorted asset goes up, the short seller may be forced to buy it back for a much higher price, causing high losses and even bankruptcy.
Often short sellers manipulate stock prices. For instance Gould shorted stocks of a railway, named Central, that belonged to his competitor Vanderbilt. Then, through his brokers, he spread the rumor that Vanderbilt was dead and claimed that a train that a train with Vanderbilt on board had derailed and the Commodore was a casualty. The rumor sent Central stocks south and Gould could buy them back for a fraction of what had he paid.
Sometimes Gould took also the opposite side and used his huge wealth to create a corner. When he knew that rivals had shorted a stock and were in urgent need to buy this stock back, Gould purchased all available stocks, driving their price up. The short sellers were forced to buy from him very expensively to avoid bankruptcy.
But there were other ruthless manipulators. One of them was Daniel Drew, who`s specialty was the bear raid. "He’d sell a company’s stock short, spread lies about the company’s supposedly wretched condition, and close the position at a profit after the stock crashed on rumors of collapse. His talent was stirring up fright. He commemorated this by naming his favorite horse Panic".
Steinmetz`s biography is entertaining and a good introduction into America`s economic rise and the secreds of stock market manipulation
P.S. Jay Gould is long dead. Unfortunately short sellers are still in fashion and are spreading their poison (The Case Against Short Sellers drivebycuriosity ). In 2008 short sellers amplified the crisis. After the bankruptcy of Lehman Brothers, which brought huge gains for short sellers, groups of short sellers tried to repeat their success. They attacked everyone who seemed vulnerable, especially the banks, by massive selling and spreading gloomy rumors. Dallas Fed President Richard Fisher, member of Federal Reserve, described these groups as " big money" that "does organize itself somewhat like feral hogs. If they detect a weakness or a bad scent, they go after it" ( marketwatch).
Late 2008 the massive bets against banks and many other companies - supported by spreading gloomy rumors all over the media - destroyed not only the trust into the attacked firms, the negative bets destroyed the trust into the whole economy. At least one of the short sellers is still celebrated by Hollywood & the media: The Big Short. The evil never dies.
