Serious Money

[robinlandseadel at comcast.net]

Serious Money
excerpted from the book Wealth and Democracy
a political history of the American rich
by Kevin Phillips

Broadway Books, 2002, paper

p61
Corporate restructuring through mergers and holding company for 
nations, sometimes good for productivity, also helped investment 
bankers and promoters to price up assets and stock offerings. In 
1919, 89 mergers had involved 527 concerns; in 1928, 201 
mergers repackaged 1,259. So many family businesses were 
pulled into the corporate orbit that nearly 20 percent of U.S. 
national wealth shifted from private to corporate hands. So enlarged, 
the corporate share of national wealth rose to about 30 percent, 
and the largest 100 corporations came to command about half of 
the total U.S. industrial net income. Holding companies were 
another highlight of twenties restructuring. According to the New 
York Stock Exchange, of the 573 companies whose stock was 
traded actively in 1928, 395 were both holding companies and 
operating companies, and 92 did nothing but hold other 
companies' securities.

In retrospect, of course, the blaze of opportunity was turning into 
a speculative conflagration. Paper entrepreneurialism helped 
make the boom of the twenties much more stock market-driven 
than even the booms of 1898-1901 and 1904 to 1907, which 
had also accompanied re structurings-the rise of the great trusts 
and the Morgan-orchestrated rationalization of industry after 
industry. As a greater share of the national economy came 
under the corporate umbrella, more of its components and 
transactions were also being financialized-pulled within the 
(rapidly expanding) purview of bank loans, securities, or 
financial markets.

The mania for common stock was also telltale. Until the 
twenties, the preferred stock of corporations had been just 
that-senior securities preferred by investors over common 
stock because of their cash dividends. Trading volume in 
common stock was constrained accordingly. Then, in 1920, 
the U.S. Supreme Court ruled that corporate dividends paid 
in stock were not taxable. Thereafter, the twin psychologies 
of sidestepping ordinary income tax rates and speculating 
for capital gains instead of seeking cash dividends pushed 
common stock to the forefront. New offerings grew from 
$30 million a month in 1926 to $800 million a month in 
early 1929 and a billion dollars a month by late summer.


p61
Stockowner ranks expanded from under one million in 1914 to 
a plausible estimate of six to nine million individuals and some 
five to six million households (out of 29 million households in 
the nation) in 1929. "Ma Bell" alone-the American Telephone 
and Telegraph Corporation-had 139,000 shareholders in 
1920 and 567,000 in 1930. This influx helps explain both the 
editorials about the new "democracy" of share ownership and 
the Dow-boosting expansion of annual volume on the New 
York Stock Exchange from 143 million shares in 1918 to 
1.125 billion in 1929.

p65
The Dow-Jones Industrial Average, after spending the first part 
of 1929 in a range slightly above 300, put on a summer sprint 
to September's peak of 381. Over the next three years, and 
predicted by hardly anyone, the Dow tumbled 340 points, 
bottoming in July 1932 at 41.

The term "Crash" is also a bit of a misnomer. Despite unfolding 
into the biggest economic downturn in U.S. history and a grim 
reaper of net worth from Bangor to San Diego, the events of 
1929-30, unlike previous panics, caused no major investment 
firm to fail during that time. Pynchon & Co. was the first in 1931.
 From September 1929 to August 1932 the market averages 
took almost three years to fall the distance climbed in the 
previous eight. After a winter rally following the brutal first 
autumn, there was no new precipice, just a long downhill slope.

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