mortgages and loans

There were three merger waves (or major merger movements) in U.S. financial history. Interestingly, these three separate waves emphasized different forms of business combinations and financing methods, but similar causes for their cessation in terms of overriding events.

The first such wave was horizontal in character, used European capital (principally British), began in the last years of the 19th century, and was ended in 1914 by the onset of the hostilities of the First World War (then called the Great War). Unknown to many at the present time is that the mergers that were consummated during this time brought together many of the great industrial aggregations of today – IBM, General Motors, U.S. Steel, and others were each put together during that time. These mergers were largely created by buying out competitors: John D. Rockefeller, who had earlier put together Standard Oil, offered to either economically kill off his competitors or buy them out. Paradoxically, those who were forced to “invest with him” did very, very well.

The merger movement of the 1920s was quite different in all respects noted. This second merger wave was assisted by a philosophy of the time of buying stock that came back in the 1990s, the so-called “one bigger fool philosophy” of investing. It didn’t matter (as also occurred in the 1990s) how high a price you paid, as long as you bought a “growth company’s stock.”

The method of identifying a “growth company” or the valuation technique employed was not nearly so important as the field the company was in. In the 1920s the business area in vogue was technology connected to radio waves. While most stocks during that decade rose out of all proportion to value, radio was the “pet” technology of the time. If this sounds alarmingly similar to the stock market exuberance of the 1990s, it is common to almost all market bubbles. It almost didn’t matter in the 1920s and 1990s what you paid for a stock. As long as you bought a growth company’s stock, you would benefit, because regardless of what you paid, you’d find a bigger fool to sell it to, someone who would be willing down the road to pay a higher price. Obviously, that is foolish almost beyond comprehension. But this type of financial analysis (non-analysis would be more proper) is the norm during stock market bubbles.