Hanging together

17 March 2008 By Martin Hutchinson

Bear Stearns is 10 times larger than the brokers that failed in 1970. But the crises have something in common. In both cases, dense networks of obligations between the brokers made them too complex to fail. Derivatives today play the role incomplete computer systems did then.

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Brokers who failed or were bailed out during the 1970 crash included:

McDonnell & Co., liquidated in April 1970 without loss to investors, its $10m losses being made up by a crisis fund, topped up with a levy of $15 on trades of 1000 shares or less.

Hayden Stone, which was bought out by Cogan, Berlind, Weill and Levitt (Weill and Levitt being future Citigroup CEO Sandy Weill and future SEC Chairman Arthur Levitt), supplemented by $9.8m from the crisis fund.

Blair & Co. liquidated September 1970, with $12m from the crisis fund.

Goodbody & Co. was bought by Merrill Lynch November 1970, with a contribution of $30m from New York Stock Exchange members.

DuPont Glore Forgan was bought by Ross Perot in January 1971 for $10m; Perot found an undisclosed $80m of losses in DGF's accounts and had lost $100m on the investment by the time it was liquidated in January 1974.

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