SPECULATIVE FEATS AND EXCESSES-CORNERS 1. Corners defined.—A corner has already been de fined as the situation that exists when shorts cannot borrow stocks. Technically and strictly speaking, the definition is correct, but it is not comprehensive. A corner is a control or monopoly of a commodity or security, which has been effected for the purpose of raising prices. Those who engineer a corner aim to dominate a given market, such as that for a certain stock or metal, or for one of the staples, such as wheat, coffee or cotton.
The promoters of a corner usually aim not only to dominate prices, but also to create a situation in which they can actually dictate terms to the unfortunate per sons who have become ensnared in their trap. The corner takes its name, of course, from the fact that the victims are at bay and must meet the terms of their captors. In other words, they are in a corner.
Corners may take place outside the field of organ ized speculation. Indeed, the first classic example of a corner, as well as of produce speculation, was the situation described in the Bible, when Pharaoh, upon hearing Joseph's dream, concerning the fat and the lean years, decided to accumulate grain in the period of plenty and good harvests, and to sell it at a higher price later on during a period of scarcity and famine. Speculation, in this case, was of simple character; it consisted merely of buying produce outright and hold ing it for an inevitable advance. The plan was car ried to a successful conclusion, and the Pharaohs waxed rich.
Corners have been engineered in all manner of ar ticles, and in reality are commoner in transactions car ried on outside the exchanges than in those of the ex changes themselves. Nevertheless it is true that the conspicuous corners have taken place on the stock or produce exchanges. They are especially spectacular because of the plight of the short seller. The shorts, unaware of the secret efforts of those who are engineer ing the monopoly, suddenly find they cannot meet their contracts unless they pay the prices of those in control. A witness in court once described a corner
as "a . .. combination to prevent people short of stocks from buying them." 2. How corners are worked.—Corners have often proved as dangerous for those responsible for them as for the intended victims, and very frequently the manipulators reap only financial disaster for their pains. Because of the creation of big corporations that issue an enormous amount of stock, and because of a wide distribution of the ownership of these stocks, the opportunity for cornering stocks is no longer fre quent. Indeed there has been no important corner on the Stock Exchange in a number of years.
To take a hypothetical case, suppose that the issue of B. T. & D. stock is 500,000 shares, of which A and B own 200,000. These two conspire to work a corner. Quietly, and without arousing suspicion, they begin to buy up shares of the B. T. & D. This unadvertised but active buying gradually boosts up the price of the stock to such a high point that short selling takes place. That is to say, speculators anticipate a slump from the abnormally high price, and consequently sell. "When the shorts are requested to deliver the stock to A and B they find themselves in a peculiar position. They cannot deliver the stock because they sold what they did not own, and the only persons from whom they can borrow are A and B, the very persons to whom they sold. And of course A and B, since they have bought up all the available supply, will not loan stock on the usual terms.
There are only two alternatives open to sellers. One is to fail to deliver the securities, a method that entails expulsion from the exchange for breaking a contract. The other is to settle at a fixed price deter mined by the parties to the corner. This amount is known as the "settlement" price. In any case, if the corner succeeds, the victims are caught, or squeezed. Usually the manipulators have lulled the suspicions of the shorts by previously lending stocks freely; then, when all is ready they suddenly call in their loans.