By Boston Library (NYT); - Boston Library (NYT);, Public Domain,

This Week in Trading History: The Original Ponzi

This week in trading history we saw the arrest of the man behind the original Ponzi scheme, World War Two came to an end, and a famous US hedge fund was dissolved due to a struggling Russia...

10th August

The Magellan spacecraft began its orbit of the planet Venus after a 15-month journey from Earth. Over the next four years the spacecraft produced a detailed map of Venus.

11th August

Happy Birthday to Steve Wozniak! One of the three founders of Apple Computer along with Steve Jobs and Ronald Wayne. Wozniak now has a net worth of around $100m.

Publishing giant HarperCollins announced that it would write off 35% of its value, around $270m, in a move to dissuade its parent company, News Corp from selling them off. Rupert Murdoch soon decided that he intended to the use the money to revamp the company.

12th August

Charles Ponzi was arrested. Charles Ponzi started his company “The Securities Exchange Company” with an initial plan to buy International Reply Coupons from countries with a lower postage rate and sell them in another country with higher rates - making a profit on the difference. His company was a booming success and by July 1920, it was estimated that Ponzi was getting nearly $1m a day in new investments. However, doubt spread throughout the media about Ponzi’s returns, so investors rapidly withdrew their investments, draining Ponzi’s bank account in two weeks. Ponzi was also heavily borrowing, resulting in five banks joining him in his downfall. A total of $20m was lost to Ponzi’s scheme, equating to around $257m today.

The first IBM personal desktop computer was sold for $1,565 dollars. The computer, known as IBM Model 5150, had a 4.77 MHz Intel 8o88 processor and used Microsoft’s MS0DOS as an operating system.

Mexico declared a moratorium on their debts, flaring a financial panic that crippled the country for over a decade. In the early 90’s inflation rates hit 100%, and over $250bn in debt from 27 different countries was in default. The Dow Jones Industrial Average was also affected as they reached a 30-year low after adjusting for inflation.

13th August

The Dow Jones Industrial Average reached above 2,700 for the first time whilst celebrating the fifth birthday of the new bull market. Even after Black Monday, when the Dow dropped 24% in a single day, U.S. stock markets would still end the year positive.

Russia put capital controls on the Ruble in an attempt to limit the currency’s decline. Russian stock markets fell 6% as a result of the news, totalling 75% down for the year. Hedge funds were suffering, especially Long-Term Capital Management, who had $3.6bn in assets leveraged 25 to 1, much of which was used to bet heavily on Russian bonds. Four days later, Russia defaulted on its bonds and all equity in Long Term Capital was evaporated in five weeks.

14th August

Japan surrender, ending World War Two. The next day the stock market closed in celebration.

Berkshire Hathaway shares reached $200,000 per share for the first time.

15th August

Stock markets closed for the end of World War Two and didn’t reopen until the 17th August.

President Nixon announced a 90-day freeze on wages and prices in attempt to reduce inflation. He also announced the end to a gold-based dollar, a 10% tariff on all good imported into the U.S. and a 10% reduction in foreign aid. However, it didn’t make much difference and the U.S. battled high inflation for the next decade.

16th August

Nixon's announcement took effect on Wall Street, as a record volume of 31.7 million shares were traded and the Dow rose 3.85%.

Bill Gate congratulated his employees as Microsoft outsold Lotus for the first time. It wouldn't be the last.