The sixth chapter in Business Adventures by John Brooks is all about leverage and bailouts… in mid-century U.S. exchanges (read my reviews on chapters 1, 2, 3, 4, & 5).
This story had me laughing – it sounded exactly like a retelling of the 2008 financial crisis… except it was half a century earlier and the government stayed out of the situation. The exchange on the other hand, they did quite a bit of foot work pulling all of the governors of the exchange together and painstakingly getting them agree to modifying any loans they had to help enable Ira Haupt & Company to dig themselves out of the over-leveraged position they were in on behalf of their customers in the cotton seed oil market. The collateral they had on hand turned out to be worthless and they were in a serious bind. My favorite part about this story though was that the negotiations between the exchange governors sounded no different back then the the types of negotiations in the 2008 financial crisis.
What is interesting is that by now, chapter six, I’m really seeing an ongoing pattern where every story in this book – though each story takes place decades ago – applies to things that have recently happened or are in the middle of happening in the markets that I’m familiar with. The advantage that an older investor has in having seen these first hand over a younger investor who is unaware of the details is tremendous. At the same time, many older investors ignored the significance of certain aspects and need a refresher from stories like this all the same.