Caught short

“On Wall Street, a corner is not just an intersection of two streets. It is also a way to extract huge profits from speculators who had the temerity to sell a stock short.. In a corner, a buyer or group of buyers purchases a lot of stock. As the price goes up, short-sellers appear. They borrow stock - perhaps from the very same group - and sell it, hoping to make a profit when the price declines. Then comes the squeeze. The group, which now owns more shares than exist, demands the return of the borrowed stock. The only way the short-sellers can comply with that request is to purchase shares, and the only one who has shares to sell is the corner group. The group can set its own price and make a fortune. One reason you don't see many corners these days is that they are illegal in most countries. But another is that almost everybody involved tends to lose in the end, with the exception of lucky investors who happened to own the stock before the fun started and can sell into the big run-up in prices. Those who execute corners usually make lots of money from the short-sellers. But they end up owning a company for which they paid too much. The stock is delisted from the stock exchange, since, without enough public shareholders, there is no ready market for the stock. If the group that executed the corner used borrowed money, it may be in big trouble. In the 1920s, the most famous corner in the United States was in stock in Piggly Wiggly, a grocery store chain. The corner was successful, but the man who executed it eventually went broke. But there have been successful corners. Cornelius Vanderbilt once pulled one off, with members of the New York City Council as the victims. They had tried to profit by shorting a railroad company that Vanderbilt controlled, and then revoking the company's principal asset: a license to operate a street railway. Vanderbilt bought shares and kept the price from falling. Owning more shares than there were outstanding, he offered to let the council members cover their short positions with only small losses if they reinstated the license. They did. The big loser in that corner was a legendary speculator, Daniel Drew, who had proposed the idea to the council members. He was forced to purchase shares at very high prices. It is Drew who is credited with the saying, "He who sells what isn't his'n, must buy it back or go to pris'n." - ‘Porsche reinvents the short squeeze’, The New York Times, 30th October 2008.

28 January 2021