Devil Take The Hindmost by Edward Chancellor

Author:Edward Chancellor
Language: eng
Format: epub
Publisher: Farrar, Straus and Giroux
Published: 1999-06-03T16:00:00+00:00

THE GILDED A GE • 180

words, the value of one of the world's great railroads derived solely from its attraction as a Wall Street "fancy."

Although the markets are far better regulated today than in the nineteenth century, the speculator s propensity for manipulation has not diminished with time. In May 1991, a bond trader at Salomon Brothers was discovered attempting to corner the market in two-year U.S. Treasury notes. Attracted by rising stock prices during the 1990s bull market, the American Mafia became involved in several "pump & dump" schemes for penny stocks. In the on-line investment world, manipulation and false rumours abound. One of the most spectacular examples of stock ramping in history occurred in the spring of 1996, when the share price of Comparator (a failed manufacturer of fingerprint identification technology with net assets of less than $2 million and cumulative trading losses of around $20 million) soared from 3 cents to $1.75—at which price the company's market capitalisation exceeded a billion dollars. On 9 May 1996, 177 million Comparator shares were traded on the Nasdaq Exchange, a record figure for an individual company. Belatedly, the Securities and Exchange Commission intervened and suspended trading in the stock.

Less than a year later, in the early spring of 1997, the share price of Bre-X, a Canadian gold mining operation quoted on the Vancouver Exchange, soared from a few cents to C$280, valuing the company at nearly seven billion Canadian dollars. The company purported to have discovered two hundred million ounces of gold on its Indonesian mining concession. Tragically in late March, the company's deputy geologist fell to his death from a helicopter over the Borneo jungle. Bre-X's own demise followed shortly after when its auditors released a report condemning what they called a "fraud without precedent in the history of mining anywhere in the world." By this date, however, the company's chief executive had cashed in his profits and was enjoying an extended holiday on some sunny island beyond the reach of the law. Such are the tales of a modern Gilded Age.

Believers in efficient markets claim that speculators help to "discover" values and that stock prices move randomly because they reflect all information relevant to their value. In the nineteenth-century American market, however, intrinsic values were actually

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