The Corners Of Wall And Broad

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The more things change, the French are fond of saying, the more they stay the same. The French have never been exactly renowned for their respect for the free market, but nowhere is their famous proverb more true. The laws of economics that rule the market are immutable, and traders through the ages have employed the same tactics over and over in pursuing their fortunes. Sometimes they have won, sometimes they have lost, but the market, like the Mississippi, “just keeps rollin’ along.”

The most spectacular—and potentially the most remunerative—market tactic has always been the corner. A trader with a corner owns all of a commodity—whether it be corporate shares, gold, or pork bellies—that is available for sale, and thus any potential buyer must buy from him or do without. The reason a corner can be so rewarding is that short sellers, often, can not do without.

A short seller tries to make money by a decline in price. To do this, he sells a commodity he does not own, hoping to buy it later at a lower price and pocket the difference. In a successful corner the short sellers discover—too late—that they have sold to the trader who already owns all there is and who can thus set whatever price he chooses when he demands delivery. When a true corner is achieved, the short sellers, caught in a financial pincers, are said to be squeezed, an exciting, often noisy, sometimes messy event.

But achieving a true corner is very difficult. Somehow all the supply has to be bought up or neutralized, without others finding out and fleeing the trap or sending the price through the roof. Pulling off a successful corner, therefore, calls for luck, skill, courage, and financial resources in large amounts. Through the ages, despite the difficulties, there has been no lack of traders willing to try.

The first corner in New York took place in 1666, when the city was only forty years old and Wall Street was not its financial center but its northern defensive boundary. That was the year Frederick Philipse cornered the wampum market. Philipse had been born in Holland in 1626 and moved with his father to New Amsterdam in 1647. Trained as a carpenter, in 1652 Philipse actually helped build the wall that gave Wall Street its name.

Philipse did not remain a carpenter for long. Capable and ambitious, he soon took one of the royal roads to wealth: he married a rich widow. With his wife’s money behind him, Philipse began to trade with the Indians.

The Indians, the source of the furs that were the mainstay of New York’s economy in the seventeenth century, did not want gold and silver in payment for them. They wanted what they regarded as real money: wampum. Wampum is a tubular bead, usually strung with others in intricate patterns, made from clamshells. In 1650 six white beads or three black beads were worth one stuiver, the Dutch equivalent of a nickel.

Unfortunately wampum inflation set in, and by 1659 it took sixteen white beads to equal a stuiver. This played havoc with the local economy, not only because it drove up the cost of furs but because the settlers as well as the Indians used wampum in day-today transactions. Gov. Peter Stuyvesant tried the usual government remedies (price controls) with the usual results (they were ignored).

Then Frederick Philipse began buying wampum and taking it out of circulation, burying it in hogsheads. He soon controlled the market in wampum and succeeded in raising its price dramatically. By 1666 it took only three white beads to equal a stuiver.

The concept of a central bank did not even exist until the eighteenth century, but Frederick Philipse in the middle of the seventeenth century was, in effect, acting as one, regulating the money supply and doubtless making a tidy profit in the process. He went on to become the colony’s richest citizen, with trading interests as distant as the East Indies and Madagascar.

As Wall Street’s financial markets increased in size and scope, so did the number of corners attempted. By the mid-nineteenth century, it seemed to one ardent speculator of the day that “hardly a week goes by without a recurrence of these singular phenomena.” Commodore Vanderbilt earned Wall Street immortality by cornering Harlem Railroad stock twice and Hudson River Railroad stock once, all in twelve months’ time. Perhaps the most famous corner story in Wall Street history took place in 1869, when Jay Gould and Jim Fisk nearly cornered gold.

But as the size of stock issues increased, the money required to corner one increased too, and the number of corners began to decline. The last one to take place on the New York Stock Exchange was in the early 1920s. Today, with a host of regulations that firmly discourage corners, it is highly unlikely there will ever be another.

But if corners are extinct on the Stock Exchange, they are not altogether gone from Wall Street. Indeed, one of the Street’s greatest attempts occurred only eleven years ago, when Nelson Bunker Hunt and his younger brother William Herbert Hunt tried to corner the silver market in 1980.