The Panic of 1907, 2nd Edition

Chapter 6The Corner and the Squeeze

Never has there been such wild scenes on the Curb, so say the oldest veterans of the outside market.

—Wall Street Journal, October 17, 1907

In early October 1907, Arthur Heinze, who was monitoring the activity in the Heinze‐Morse stock pool, conducted a precise audit of all United Copper Company shares.¹ To his great surprise, he discovered what appeared to be an oversold position of 100,000 United Copper shares in excess of the 450,000 shares issued and outstanding.² In other words, it appeared that a massive short interest in United Copper of 22 percent had emerged. Otto and Arthur surmised that this was only possible if certain securities brokers were secretly loaning out their shares of United Copper to traders who wanted to speculate in the stock. Those traders, Otto believed, were then selling the borrowed shares at prevailing prices in the expectation that the prices of those shares would fall. If United Copper prices did fall, then when the traders were called upon to return the borrowed shares, they could repurchase them at lower prices and pocket the difference.^a

The Squeeze

Otto Heinze believed, however, that he and his brothers owned most of the United Copper shares, many of which they had pledged as collateral for margin loans from brokers. Otto suspected that the brokers in turn had secretly loaned the shares to the short sellers. If the Heinzes “called in” those loaned shares, then the “shorts” would be squeezed. The squeeze ...