CORNERING THE MARKET IN 2008—WHY VOLKSWAGEN WAS THE MOST VALUABLE COMPANY IN THE WORLD.

CORNERING THE MARKET IN 2008—WHY VOLKSWAGEN WAS THE MOST VALUABLE COMPANY IN THE WORLD. One of the unusual financial events in 2008, little noticed because of all the other events, was that there was a successful attempt to corner a market. This wikipedia article says that “to date very few of these attempts have ever succeeded.” To corner a market, you “purchase enough of a particular commodity to allow the price to be manipulated.” (Think of a temporary monopoly). The stakes become very high. The wikipedia article points out that efforts to corner the silver market in the seventies and the copper market in the nineties were disastrous for those attempting the corner. In 2008, Porsche bought enough shares and options to buy shares of Volkswagen to corner the market for Volkswagen shares. For a period, the prices of Volkswagen shares were driven so high that Volkswagen became the biggest company in the world in terms of stock market valuation. In two days the price of a share went from 210 euros to 500 euros.The corner was particularly effective because many traders, such as hedge funds, had thought VW was overpriced and sold shares short. That is, they sold shares for future delivery without owning such shares. They planned to buy shares after the price had gone down. It turned out that Porsche was able to “squeeze the shorts”. When the price went up, huge sums were spent by the short sellers to buy VW shares. This week, Adolph Merckle, whose investment fund lost over one and a half billion dollars by selling VW shares short, killed himself.