Securities and Exchange Commission Historical Society

431 Days: Joseph P. Kennedy and the Creation of the SEC (1934-35)

Last Days of the Financial Frontier

The Market in the Twenties

During the 1920s it seemed that anyone could get rich if he would just invest. During the first eight years of the decade, prices on the New York Stock Exchange nearly doubled. Then the "bubble" began: in eighteen months beginning in March 1928, the value of shares nearly doubled again. Joseph P. Kennedy was better suited than most to flourish in this speculative heyday. Never fooled by get-rich-quick schemes, he knew that expertise, hard work, and inside information were the keys to success.

Kennedy began learning about the market in 1919 when he joined the Boston office of the Hayden Stone investment house. In 1926 he moved to New York City where he began to develop in earnest an interest in film. Kennedy produced some features, but more importantly he spurred a wave of consolidation that produced RKO and made him millions. Then Kennedy merged RKO with Pathé and, in a move typical of the era, made more millions while reducing less fortunate investors to penury.

By the mid-1920s Kennedy's financial acumen was legendary, and friend John Hertz, owner of the Yellow Cab Company, asked him to manipulate company shares to fend off a hostile takeover. Kennedy, like his counterparts, used "wash sales"--making sales and purchases from fictitious accounts to create the illusion of genuine activity and lure other investors into a market. He also engaged in "short selling"--making a deal to sell an as-yet-unpurchased stock at market price, buying it cheaper on a falling market, and pocketing the difference.

More sinister were the "pools" in which groups of investors colluded to pull off major market manipulations. Long before the "dot-com" boom, technology stocks seemed like an easy road to riches. One of the most notable scams of the 1920s was the "Radio Pool," in which a group of highly placed Wall Streeters drove up the price of RCA stock, took their gains, and then left the other investors with plunging prices.

The most notorious financial fraud involved an even larger deception. The "holding company" was developed in the late nineteenth century to allow a small group of shareholders to control a vast amount of capital. Holding companies in the public utilities industry let a few people inflate rates to customers and "milk" subsidiaries of their assets, all the while maintaining the appearance of diversified ownership.

During the decade Samuel Insull created an empire of one hundred gas and electric firms controlled by five holding companies. When Insull created two new companies--building higher on the house of cards--he made $24.4 million in one day. In September 1931 the delicate structure toppled and Insull fled the country.

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Related Museum Resources


November 13, 1926
document pdf (Courtesy of the Library of Congress)
April 23, 1932
document pdf (Government Records)


(With permission of the John F. Kennedy Library Foundation )
(Courtesy of the Library of Congress )
(With permission of Corbis )

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