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Ten shares of one of the utility holding companies of the day - Middle West Utilities - worth $500 in 1929, dropped to $1.25 in 1933. Of course it all eventually collapsed in the stock market crash. Will Rogers described holding companies as “something where you hand an accomplice the goods while the policeman searches you."Īt their height in the 1920s, holding companies were blue chip stocks that everyone held. Utility financiers of the time used holding companies to disguise assets, manipulate stock prices and regulators, and hand back assets among subsidiaries to avoid income taxes.
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The rationale for the law were the financial games and trickery played by utility barons, most famously, Samuel Insull, who temporarily left the country in the early 1930s to avoid capture by the authorities. What it ultimately did was force utilities to register with the Securities and Exchange Commission, and then dissolve themselves if they stretched across state lines unless the SEC gave them a waiver.
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This law was one of the most controversial fights of the entire New Deal. In the 1930s, Congress passed a law called the Public Utility Holding Act, which broke up the complex financial holding structures that had captured control of electric utilities across the country. In fact, all are financial holding companies that capture the innovation of others, and hold it back. But at the time, most people thought Standard Oil was innovative. You might think Google or Amazon are innovative. The era of cheap gas came, or at least was accelerated dramatically, by the break-up. While stockholders did fantastically well, Indiana shareholders did even better. After the break-up, Standard Oil of Indiana simply went ahead and began using thermal cracking, and eventually the whole industry was licensing patents from the company. The company primarily sold kerosene, and while cars were increasing demand for gasoline - what was then seen as a relatively useless byproduct of oil refining - such an investment was simply too risky to what had become a lazy, slothful monopoly. The Indiana branch applied to headquarters to put $1 million into developing the process, but HQ said no. In 1909, a Standard-employed chemist named William Burton invented “thermal cracking,” which was a way to vastly improve the process of turning oil into gasoline. Why did Standard Oil’s component parts do so well? And was the break-up responsible for higher stock prices? The answer is that the older monopolistic business structure was inefficient, and breaking up the company helped unleash technological innovation in the industry by enabling the use of a relatively unimportant part of Standard’s portfolio: gasoline. Shareholders did fantastically well in the break-up, with Rockefeller quintupling his wealth. In 1911, the Supreme Court broke his company into 34 components, many of which went on to be some of the most powerful companies in the world, such as Exxon, Mobil Pennzoil, Conoco, Chevron, and so forth. Rockefeller’s oil monopoly at the turn of the century that structured the most important business of the era. The granddaddy of all monopolies and break-ups is Standard Oil, John D.
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I have three examples suggesting they shouldn’t be so concerned, or should even seek a break-up. So mostly analysts want to make sure they aren’t out of step with the crowd, and the crowd right now is concerned about antitrust and big tech. It’s fine to lose money, but only as long as everyone else is losing it, and vice versa. Brent Thill at Jeffries joined Squawk Box to say that, though he doesn’t think a break-up will happen, that “Regulatory is the number one question asked by investors.”īig tech - Facebook, Google, Amazon, Microsoft, and Apple - are the largest and most liquid names in the stock market, sometimes known as ‘hedge fund hotels.’ Taking other peoples’ money and investing it is based on groupthink. And there’s something disconcerting about policy that would reduce the value of our businesses.įor example, here’s a segment on CNBC. Stock prices are not a reason to break up a company, but I get the question a lot because the stock market is an instrument for valuing our enterprises. Would it increase the stock price of the company? Today I want to answer a question about what breaking up a big tech company would do. Welcome to Big, a newsletter about big tech, monopoly power, and the politics of business.