[Global Finance History] How Roosevelt Used Joseph Kennedy, the 'Master of Stock Manipulation'

Joseph Kennedy Appointed as First Chairman of SEC, the Stock Manipulation Oversight Agency
Roosevelt: "A Thief Is Best Suited to Catch Thieves"

Joseph Kennedy, the father of President John F. Kennedy, was known as a ruthless nouveau riche who made his fortune through stock manipulation and other dubious means. Despite this, President Franklin Roosevelt appointed him as the first chairman of the Securities and Exchange Commission (SEC) in 1934. When Kennedy's appointment faced opposition, Roosevelt insisted, saying, "There is no trick in the stock market that Kennedy does not know. When it comes to catching thieves, a thief is the best man for the job," and pushed through the appointment. What kind of person was Joseph Kennedy that Roosevelt chose him as the right man for the job?

Unlike Roosevelt, who came from a traditional aristocratic family, Kennedy was the son of a Boston tavern owner and the grandson of an Irish immigrant who had left his homeland due to the potato famine and was looked down upon. In another light, Kennedy was someone who spent his life striving to overcome the ethnic and class prejudices of his era. After graduating from Harvard University, he devoted himself to climbing the social ladder. Kennedy decided to pursue a career in finance, modeling himself after JP Morgan. He thoroughly studied how JP Morgan amassed his wealth. His first job was as an investigator at a government-owned bank. Although the salary was meager, he learned a great deal about the practical workings of the financial industry there. In 1913, when a rival group appeared aiming to take over the Columbia Trust Bank, where his father was a shareholder, Kennedy decided to buy the bank. He borrowed $45,000 from his family and wealthy Harvard graduate friends to acquire the company's shares. As a token of gratitude for saving the bank, 25-year-old Kennedy became the self-proclaimed "youngest bank president in America." Building on this experience, Kennedy married Rose Fitzgerald, the daughter of the Boston mayor, in 1914. Kennedy wanted to work for stock investment firms like Morgan Stanley but found it difficult. Reluctantly, he established a company bearing his own name and began investing in stocks. Through trial and error, Kennedy amassed roughly $500 million through stock investments. He first created a securities company under his own name.

He was a master of stock manipulation and short selling. With extraordinary skill, he manipulated stock prices and quickly exited before laws prohibited such actions. He cared little for professional ethics. Kennedy received commissions for manipulating the stock price of a taxi company he was hired to work for. Knowing the company's situation so well, he himself shorted the stock and made a large profit, which plunged the company into trouble. This story remains well-known to this day. Kennedy's greatest success was selling most of his stocks before the 1929 Great Depression hit. A legendary story is told about this. When a shoeshiner at the stock exchange asked Kennedy how to invest in stocks, Kennedy took it as a sign that stocks were overvalued. Anticipating the market collapse, he immediately sold all his stocks. He bet on the market's decline by taking short positions. When stock prices plummeted endlessly in October of that year, he made a tremendous amount of money. While his fellow heavyweight investors poured money into the stock market, Kennedy began short selling, betting on price drops. On Black Tuesday, when everyone else was frustrated, Kennedy left Wall Street wealthier than ever.

His next destination was Hollywood. Between 1926 and 1930, Kennedy was an investor in Hollywood studios. His interest in the film industry was purely financial. After acquiring a failed studio, he consolidated film companies producing low-budget movies to increase efficiency. He then sold them again, recovering his investment with profit. By the time he left Hollywood in 1931, Kennedy had earned about $5 million.

Anticipating the end of Prohibition, Kennedy started a legitimate liquor import business. He became the exclusive U.S. agent for dry gin, Scotch, and other liquors. Kennedy invested the money earned from the liquor business in real estate in Chicago and Florida. Rumors that he was a "bootlegger" distributing illegal liquor were just rumors. Kennedy's biographer said, "We found all sorts of dirty things about Kennedy, but he was not a bootlegger." The story that the president's father made enemies in the underworld during his bootlegging days and that the Mafia assassinated JFK did not emerge until the 1970s. Such rumors were mainly spread by teams hired by the Republican Party when Richard Nixon ran against JFK in 1960.

Roosevelt, who became president in 1932, established the SEC to prevent the widespread stock market manipulation that had persisted for decades. Appointing Kennedy, a master manipulator, as the first chairman naturally caused a stir. Roosevelt countered by saying he brought in Kennedy because he knew everything about the stock market, having been a thief himself. Roosevelt rhetorically asked, "Who could lead the SEC better than someone who has manipulated stock prices?"

Kennedy accepted the appointment to make a name for himself and his family, and more importantly, he believed in the SEC's mission. He successfully fulfilled his role. As a realist, Kennedy recognized the commission's limitations and that it could not realistically act as both prosecutor and judge like a court. He instinctively understood the value of public regulation. Kennedy's vision centered on a simple goal. As a former market manipulator, he effectively cracked down on many of the methods he had used to amass his fortune. Not only as chairman but also as a respected investor, Kennedy guaranteed that "Wall Street would never be exploited again." When the SEC was established, it was expected that government intervention in the stock market would paralyze the already depressed market. The SEC was crucified in the court of public opinion. Kennedy engaged in constant dialogue with exchange officials, accountants, and brokers. He convinced them that the SEC was a government agency created by investors to protect investors. After a tumultuous year, Kennedy resigned as chairman. The brightest period in Kennedy's life was probably the 431 days he served as the SEC's first chairman. His next public office was as the U.S. ambassador to the United Kingdom. For someone of Irish descent who had been persecuted, being appointed ambassador to Britain was a family honor, but he was dismissed in November 1940 due to conflicts with Winston Churchill.

His son, John F. Kennedy, was elected president in 1961 and assassinated in November 1963. When Joseph Kennedy died in 1969, his fortune was $400 million. His wealth was unusual in several respects, one being that unlike the wealthiest families in America at the time, he did not invest heavily in oil. After retirement, he earned over $100 million from tangible asset investments. Another $100 million was in tax-exempt securities. The only company where Kennedy's money was tied up was the family itself.

Baek Young-ran, Representative of History Journal

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