"I am thinking that all of these ponzi schemes,etc went on for years and no one knew about them due to the lack of communication."
Mrs. LIVERMORE: In the 20s and 30s, one of the big features of the stock market is the fact that it wasn't controlled and that operators could do a lot of things that are not permitted today.
NARRATOR: One of the most common tactics was to manipulate the price of a particular stock, a stock like Radio Corporation of America.
Mr. NESBITT: RCA was, in the 20s, what Xerox was in the 60s, what was a great growth stock. The stock went from -- I can't remember the exact numbers, but from something like 20 to 400, split many times and made many people, including my grandfather, very wealthy. It was one of the stocks that was manipulated by a pool.
NARRATOR: Wealthy investors would pool their money in a secret agreement to buy a stock, inflate its price and then sell it to an unsuspecting public. Most stocks in the 1920s were regularly manipulated by insiders like RCA specialist Michael Meehan.
Mr. NESBITT: In those days, that was legal and it was quite common practice for a group of Wall Streeters to take a stock in hand. And they would acquire a position in the stock early on and then, they would see to it that there was good press on the stock, a lot of publicity.
Mr. SOBEL: I would say that practically all the financial journals were on the take. This includes reporters for The Wall Street Journal, The New York Times, The Herald-Tribune, you name it. So if you were a pool operator, you'd call your friend at The Times and say, "Look, Charlie, there's an envelope waiting for you here and we think that perhaps you should write something nice about RCA." And Charlie would write something nice about RCA. A publicity man called A. Newton Plummer had canceled checks from practically every major journalist in New York City.
Mr. NESBITT: Then, they would begin to -- what was called "painting the tape" and they would make the stock look exciting. They would trade among themselves and you'd see these big prints on RCA and people will say, "Oh, it looks as though that stock is being accumulated.
Mr. SOBEL: Now, if they are behind it, you want to join them, so you go out and you buy stock also. Now, what's happening is the stock goes from 10 to 15 to 20 and now, it's at 20 and you start buying, other people start buying at 30, 40. The original group, the pool, they've stopped buying. They're selling you the stock. It's now 50 and they're out of it. And what happens, of course, is the stock collapses.
NARRATOR: On March 8, 1929, Michael Meehan began one of the most successful pools on Wall Street. From the 8th to the 17th, Meehan and the pool pushed up the value of RCA almost 50 percent. On March 18th, they sold and divided up their profits. In today's money, they had made $100 million for one week's work.
Mr. NESBITT: The pools were a little like musical chairs. When the music stopped, somebody owned the stocks and those were the sufferers.
NARRATOR: If small investors suffered, they would soon be back for more. They knew the game was rigged, but maybe next time, they could beat the system. Wall Street had its critics, among them economist Roger Babson. He questioned the boom and was accused of lack of patriotism, of selling America short.
Mr. GALBRAITH: Roger Babson warned of the speculation and said, "There's going to be a crash and the aftermath is going to be quite terrible." And people jumped on Babson from all around for saying such a thing, so that people who were cautious about their personal reputation, who did not want to call down on themselves a lot of calumny, kept quiet.
NARRATOR: Mobster Al Capone was not a cautious man. From his Chicago headquarters, he condemned the wild speculation on Wall Street. "It's a racket," he said, "Those stock market guys are crooked." Capone invested his money in a $100-million bootleg liquor business. Business was good. On Valentine's Day, 1929, he had just eliminated the competition.
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