Just imagine what they could have done with blockchains -- a proto-SPAC repost

Michael Hiltzik writing for the LA Times:

Someone on Wall Street ought to erect a statue to Henry Villard.

Villard made the discovery that if you don’t tell investors how you’re going to spend their money, they get more eager, not less.

Seeking to raise several millions of dollars in capital to take over a company but unwilling to reveal his target for fear of driving its price beyond his reach, Villard sent out a prospectus for a “blind pool,” stating that he would reveal “the exact nature” of his plans 90 days hence.

Rather to his surprise, his pool was sold out within 24 hours; indeed, investors bid for twice what he was asking. “All wanted more,” he recalled.

The year was 1881. Villard’s quarry was the Northern Pacific Railroad, with which he hoped to build a railroad network to the Pacific Northwest.

But what makes his scheme relevant is that the same principle of raising money via a blank check has become the latest craze sweeping Wall Street.

 ...

All would be well-advised to consider the ultimate fate of Henry Villard. As he neared the apogee of success, he built a landmark residence on New York’s Madison Avenue, designed by Stanford White, that is still remembered as the Villard Houses.

One night after he moved in, he was visited by a delegation of investors and auditors who informed him he was bankrupt. He and his family vacated the residence, which was sold to Whitelaw Reid, publisher of the New York Tribune.

Much later it served as the facade of the 55-story Helmsley Palace Hotel, where the society figure Leona Helmsley reigned until her conviction for tax evasion in 1989. The hotel passed into the ownership of the Sultan of Brunei, who eventually sold it to a South Korean resort firm that operates it today.

Villard had one more brush with greatness. In 1887 he was invited to resume the presidency of the Northern Pacific but drove it into receivership by loading it with extortionate loans to himself.

But with all due respect to Villard, he was by no means the first.

Wednesday, July 26, 2017

"A company for carrying on an undertaking of great advantage, but nobody to know what it is."

Another excerpt from Charles Mackay's  Extraordinary Popular Delusions and the Madness of Crowds. I believe "a company for carrying on an undertaking of great advantage, but nobody to know what it is" was an initial business plan for Groupon.

Some of these schemes were plausible enough, and, had they been undertaken at a time when the public mind was unexcited, might have been pursued with advantage to all concerned. But they were established merely with the view of raising the shares in the market. The projectors took the first opportunity of a rise to sell out, and next morning the scheme was at an end. Maitland, in his History of London, gravely informs us, that one of the projects which received great encouragement, was for the establishment of a company "to make deal-boards out of saw-dust." This is, no doubt, intended as a joke; but there is abundance of evidence to show that dozens of schemes hardly a whir more reasonable, lived their little day, ruining hundreds ere they fell. One of them was for a wheel for perpetual motion—capital, one million; another was "for encouraging the breed of horses in England, and improving of glebe and church lands, and repairing and rebuilding parsonage and vicarage houses." Why the clergy, who were so mainly interested in the latter clause, should have taken so much interest in the first, is only to be explained on the supposition that the scheme was projected by a knot of the foxhunting parsons, once so common in England. The shares of this company were rapidly subscribed for. But the most absurd and preposterous of all, and which showed, more completely than any other, the utter madness of the people, was one, started by an unknown adventurer, entitled "company for carrying on an undertaking of great advantage, but nobody to know what it is." Were not the fact stated by scores of credible witnesses, it would be impossible to believe that any person could have been duped by such a project. The man of genius who essayed this bold and successful inroad upon public credulity, merely stated in his prospectus that the required capital was half a million, in five thousand shares of 100 pounds each, deposit 2 pounds per share. Each subscriber, paying his deposit, would be entitled to 100 pounds per annum per share. How this immense profit was to be obtained, he did not condescend to inform them at that time, but promised, that in a month full particulars should be duly announced, and a call made for the remaining 98 pounds of the subscription. Next morning, at nine o'clock, this great man opened an office in Cornhill. Crowds of people beset his door, and when he shut up at three o'clock, he found that no less than one thousand shares had been subscribed for, and the deposits paid. He was thus, in five hours, the winner of 2,000 pounds. He was philosopher enough to be contented with his venture, and set off the same evening for the Continent. He was never heard of again