[Music] foreign if you follow the stock market you're likely familiar with short squeezes Tesla in 2020 GameStop and AMC theaters in 2021 among many others long before the age of the internet social media and meme stocks the Panic of 1901 Illustrated the inherent risks of Short Selling and provides a perfect example of the two underlying forces that drive the stock market greed and fear for the average broker the week of May 6 1901 started like any other within days however a grand battle for railroad Supremacy fought between two of the country's most powerful financiers and their armies of Bankers would consume the market Wall Street wipe out thousands of small investors and awaken the fury of the United States justice department the stock market Panic of 1901 was triggered by the attempted corner of Northern Pacific shares by railroad magnet Edward Henry Harriman in a retaliatory move against rival Tycoon JP Morgan yet it was only a single strand in the most epic business battle and short squeeze of the new century at the heart of the Second Industrial Revolution was a massive expansion of railroads the era saw major breakthroughs in chemical science Pharmaceuticals industrial machinery steel production and communication technology [Music] Rail lines sprawled outward from hubs in major cities and ports like arteries transporting people goods and wealth at a pace never before seen drastically increasing strides in innovation in westward expansion the Civil War era American economy was fraught with volatility political tension Civil War and a Loosely regulated market led to near-constant financial panics and crises [Music] Edward Henry Harriman a skilled stock Speculator and railroad consolidator seized control of the Union Pacific the railroad expanded rapidly through a string of Acquisitions soon harryman's rail Empire dominated the territory west of Omaha across the original Transcontinental Railroad before splitting South to San Francisco and California and North to Oregon and Washington Harryman chose the Investment Bank Loeb and Company to secure the financing at the Helm of the bank was the brilliant Banker Jacob Schiff [Music] played an important role in the industrialization of the U.S economy by securing funds from European Bankers for building U.S railroads mines and other industrial manufacturing facilities together Harryman and Schiff formed a syndicate with capital backing from The Rockefellers the Vanderbilts and the golds John Pierpont Morgan was one of the most powerful and influential figures in American Finance at the time in 1895 he played a key role in Saving the country's gold standard by orchestrating the exchange of 62 million dollars of gold for highly lucrative government bonds Morgan also had his sights on a railroad Monopoly that would provide him with the means of moving his steel and other goods between the Southern and northern states and then to the coasts for international export to the north lay railroad magnet and businessman James J Hills Great Northern Railroad known as the Empire Builder Hilton expanded the Great Northern all the way to Seattle in 1893. with financial backing from JP Morgan the pair purchased the nearly bankrupt Northern Pacific railroad Hills only Regional competitor with that acquisition the pair now dominated Transportation through Wisconsin Minnesota The Dakotas Montana Wyoming Oregon and Washington the battle between Harryman and Morgan along with their proxies had been brewing for years as their competing railroad networks wrestled for Supremacy in the states west of the Mississippi River the first key real fight that led to the Panic of 1901 was over the Chicago Burlington and Quincy Railroad which provided an entrance to Chicago and access to a theater network of Railways throughout the fertile Mississippi plain if one wanted to control the shipment of American crops across the Pacific in the transshipment of Asian Goods across America's Heartland the Burlington was a critical asset its president Charles Perkins had made the line the most efficient of the midwestern railroads and was nearing retirement everyone knew that Burlington had to be sold Harriman moved first he believed the Union Pacific and the Burlington should combine and wonder if Perkins would be interested Perkins told Harriman that the Burlington was not for sale but if it were the price would be two hundred dollars a share that was too rich for harriman's taste next it was Morgan's turn his Ally James Hill was dispatched in February 1901 to propose a merger between the Great Northern and the Burlington through a stock swap Perkins again maintained that the price was 200 a share in cash at the same time Hills Associates had been accumulating Burlington stock in a meeting on February 24th Perkins and his top advisors decided that Morgan's Northern Pacific would be a stronger and safer place for us to land unaware of Perkins preference and with Rising suspicion as the Burlington stock sword Harry Min and Schiff paid a visit to Hill to ask if he was trying to gain control of the Burlington Schiff and Hill were old friends both having served as directors on the board of the Great Northern so when Hill replied that he was not buying and had no interest Schiff believed him Hale quickly set off for Boston to meet with Perkins to set terms for the sale of the Burlington to the Northern Pacific reporters spotted the two meeting and the News went public Harriman fumed but it was too late that Burlington was divided between the Great Northern and the Northern Pacific with its shareholders tendering shares in exchange for 200 a sharing bonds for the two Morgan Hill roads with the Burlington locked into the Great Northern and the Northern Pacific Network Harryman attacked Morgan with a daring raid he bought Northern Pacific shares on the open market the plan was bold if he were to succeed harryman's Union Pacific would control two-thirds of the nation's Railways and would relegate the Morgan Hill system to a thin strip of land just under the Canadian border ordinary investors had been worked into a frenzy with the widespread promotion of shares of J.P Morgan's U.S steel railroad stocks were Rising fast on various rumors of Insider accumulations and mergers Clues wrote of a Restless sea of Reckless stock speculation that swept the American people into its Vortex with all its Razzle Dazzle extravagance in this hyped up environment airman's attempt to retaliate against Morgan for grabbing the Burlington acted like a spark igniting a pool of gasoline the resultant jump in prices then Panic caused intense excitement demoralization and confusion that convulsed the stock market in a way that alarmed money lenders destroyed confidence and caused a general rush to sell stocks which brought them down with a crash involving many millions in ruinous losses the market boiled as Harryman and his allies accumulated the majority of Northern Pacific preferred and forty thousand shares or so short of the common shares Harriman wanted to leave nothing to chance so he decided that final 40 000 shares should be purchased during the shortened Saturday session on May 4th to eliminate any weakness in his plan fortunately for Harriman when he telephoned Lo for his order Schiff was out of the office after much delay shiv was informed of harriman's request but he thought it unnecessary and ignored it thank you [Music] on Monday Northern Pacific stock opened with a burst of activity as the Hill Morgan Brokers led by renowned stock operator James Kane fanned Across The Exchange floor bidding for all the Northern Pacific Common shares to be had as the price Rose from 110 dollars a share to 133. newspapers spoke of wild scenes on the floor as the day's action was in some respects the most remarkable of any That Wall Street had seen yet on Tuesday Morgan's men ran Northern Pacific shares up to nearly 150 dollars as they continued to buy heavily other stocks fell away as short sellers who were questioning the legitimacy of the rise in Northern Pacific and dumped other Holdings to cover mounting losses by the close of trading Morgan and Hill had the shares they needed to maintain control the beginning of the end started Wednesday afternoon as Northern Pacific zoomed from 143 to 200 a share and squeeze short sellers noted broker and Statesman Bernard baroch observed the scene one look inside the Waldorf that night was enough to bring home the truth of how little we differ from animals after all from a palace the Waldorf had been transformed into the den of frightened men at Bay on Thursday it became apparent that a corner was on as more Northern Pacific had been short sold and contracted for delivery then could be bought or borrowed Panic ensued when the price of Northern Pacific Rose to a thousand dollars amid frantic attempts to cover shorts the two big holders Harryman and Morgan were not interested in selling other stocks plummeted as the interest rate on short-term call loans went to 60 percent for a few hours based on the day's lows a good part of Wall Street was technically insolvent again baroch observed the chaos when one broker walked into the crowd other Traders thinking he might have some Northern Pacific stock charged him bang him against the railing let me go he roared I haven't a share of the damn stock do you think I carry it in my clothes then through the desperate crowds Strode Al stern of hurts field and Stern a young and vigorous broker he'd come as an emissary of Kuhn loben company which was handling herriman's purchases of Northern Pacific Stern blithely inquired who wants to borrow Northern Pacific I've got a block to land the first response was a deafening shout one broker leaned over and snatched Stern's hat with which he beat a tattoo on Stern's head to gain attention put my hat back street Stern don't make such a confounded excitement and maybe I can do better by you but the Traders continued to push and fight and nearly climbed over one another's backs to get to stern soon Stern had learned the last of his stock his face was white and his clothes disheveled he managed to break away realizing the gravity of the situation Harriman and Morgan joined forces to prevent catastrophe Morgan is still in Europe rushed to the Paris office of Morgan Hodges and Company as news of the panic reached him reporters swarmed as he frantically issued orders to New York cursing the reporters as idiots and Rascals and even threatening one with murder Morgan famously stated when asked if some statements were not due to the public quote I owe the public nothing Stern returned to the floor a few minutes before the 2 15 PM deadline for short sellers through delivered stock certificates mounting a chair and shouting to be heard he announced his firm would not demand delivery of Northern Pacific shares sold short stern was followed by Eddie Norton representing the Morgan forces who also announced that his firm would not force delivery immediately Northern Pacific sold off and close to 325. the crisis was over [Music] when the dust settled Hill Morgan Schiff and Harriman agreed to cooperate in the formation of the Northern Securities company the Northern Securities company tied together the Northern Pacific Great Northern and Burlington railroads effectively controlling all railroads from Chicago to the Pacific Northwest however it immediately drew the ire of the public who were becoming increasingly hostile against monopolies in the robber barons who ran them it became an early Target for president Theodore Roosevelt who had recently taken office after the assassination of his predecessor William McKinley in February of 1902 the doj announced plans to file a suit against the company under the Sherman Antitrust Act the case made it all the way to the Supreme Court where the justices ruled five to four in favor of the federal government Hill was ordered to dissolve the holding company and run each railroad independently this stood as a great victory for Roosevelt who was given the nickname the trustbuster and helped in his re-election campaign in 1904. on Thursday May 9 1901 the Northern Pacific Panic struck the market what started as a rivalry between two railroad Titans vying for control of a key rail line turned into the biggest short squeeze Wall Street had ever seen [Music]