The Growth of Speculation.pptVIP

The Growth of Speculation Last week we learned about: The Federal Reserve Act of 1913 and how Woodrow Wilson, Carter Glass and Henry Parker Willis sought do decentralize the system of credit and prevent the banks from gaining control over the new system, although the banks would have to pay for it. The Growth of Speculation General statement: Whilst the Federal Reserve system did well at fighting inflation during and after WWI, it did have significant weaknesses… …the chief of which was that the Federal Reserve Board had no control over activities on the stock exchange… …except as the speculative activities might be connected to the facilities of the Federal Reserve Banks The Growth of Speculation During the 1920’s, there was an explosion in speculative activity in which fortunes were won and lost. The most infamous speculator to emerge was a prominent banker called Charles E. Mitchell of National City Bank, 1921–1929 (President), 1929-1933 (Chairman) He was responsible a catalogue of outrageous investment scams. Let’s have a look! The Growth of Speculation Although commercial banks were banned from dealing securities, the National City Bank along with all its rivals opened separate arms to deal in them. Mitchell proved to be an outstanding salesman selling junk bonds and worthless shares. For example… The Growth of Speculation For example… … in 1928 he sold a load of bonds for a Brazilian state, Minas Gerais, despite a report Highlighting the hopelessness of the state officials. …In another case, NCC sold around $100 million in bonds from Brazil, Peru and Chile, even as it heard that the governments would have a difficult time meeting the interest payments… What is the significance of these statements? The Growth of Speculation Mitchell was also involved in pushing dodgy stocks. For example, the issue of Anaconda Copper shares, where NCC sold its inflated shares in a pump and dump scam, which saw the shares dive from $125 to $4 in just a few months.