ahead -- a deja vu all over again?
Goldman, Sachs, and Company launched Goldman Sachs Trading Corporation (GSTC) on December 4, 1928 with an initial public offering of a million shares at $100 per share, of which 90% were sold to the public at $104 per share.
According to J.K. Galbraith in his book "The Great Crash 1929", control of GSTC remained with the parent company "by virtue of a management contract and the presence of the partners of the company on the board" of GSTC.
GSTC sold more shares to the public only two months after its formation, and "on February 21 it merged with . . . Financial and
Industrial Securities Corporation . . .", doubling the firms' asset
value in less than three months.
In the following months up to the Crash, GSTC would purchase controlling interest in firms and sell them for a profit; buy back its own shares, sell them again at a profit; and repurchase them to do it all over again.
As Galbraith recounts, "Years later, on a gray dawn in Washington, the
colloquy occurred before a committee of the United States Senate.
Senator couzens: Did Goldman, Sachs and Company organize the goldman,
Sachs Trading Corporation?
Mr. Sachs: Yes, sir.
Couzens: And it sold it back to the public?
Sachs: A portion of it. The firm invested originally in 10% of the entire issue for the sum of $100,000,000.
Couzens: And the other 90% was sold to the public?
Sachs: Yes, sir.
Couzens: At what price?
Sachs: At 104. That is the old stock . . . the stock was split two for
one.
Couzens: And what is the price of the stock now?
Sachs: Approximately 1 3/4.
From Galbraigh, The Great Crash of 1929. Thanks to Roger Babson)
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