Monday, October 06, 2008

Jesse Livermore

A recent article on the seizing of credit markets reminded me of the Panic of 1907 and Jesse Livermore's recount of the crisis.

On the day when the credit markets seized Livermore had been short the market.  As the day progressed, bids started to disappear until no bids were made.  At that point, Livermore had enough capital to crater the market even further, however he realized at that point that he owned the market and his best solution was to reverse his positions and go long at the very bottom of the market.

I have to believe that what we're seeing is something similar to the banking panic of 1907.  Unfortunately, there are more interventionists right now giving big banks control of massive bailout money.  In return these banks are intentionally holding smaller banks hostage by seizing credit markets.  The prices of these small banks will become incredibly attractive to the big banks, at which point the big banks will take them over.  The same thing happened during the Depression.  JPMorgan bought banks or their assets for pennies because they controlled the credit markets.  Nothing has changed all that much.  JPMorgan is still the most powerful bank and they are using political power to make gobs of investments at low prices.  As much as I do not like political manipulation at the expense of individuals like you and I, you have to admire the skill of Jamie Dimon and his ability to sell politicians, business people, and investors anything that makes JPMorgan a boatload of money.

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