-Caveat Lector-
an excerpt from:
Once In Golconda - A True Drama of Wall Street 1920-1938
John Brooks�1969
Truman Talley Book/ E. P. Dutton
ISBN 0-525-48166-4
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A good book of social history. A sympathetic study. The cast includes many
Bonesman and their family members.
Om
K
--[2]--
IV
What did a New York banker have to do to make money in early 1929? Lend it
in the call-money market at 10 or 12 percent, at a time when he could, if he
chose, borrow it from the Federal Reserve at 5 percent. As simple as that;
both transactions were cut and dried, requiring no business initiative and
involving practically no risk, and although starting in early February the
Federal Reserve Board officially disapproved of the practice, it continued to
be done. Bankers, like royalty in a constitutional monarchy, were in the
position of being handsomely paid simply for existing. A plum tree had been
grown, tended, and brought to fruit just for their shaking. No doubt the
situation had come about through inadvertence, rather than as a result of any
conscious conviction of the American people or their government that bankers
deserved the rights of royalty; but it does not seem too much to suggest that
a prevailing national attitude not very different from this had been a
contributing factor.
Specifically, the situation had come about as follows. Despite the Fed's
restrictive efforts, speculation not only continued but actually accelerated
during January, 1929, a month during which the stock indexes rose another 20
or 30 points and brokers' loans another $260 million. On February 2 the Fed,
having failed so signally to produce results with higher interest rates and
sales of government securities, resorted to what is called "direct action" and
others called "moral suasion"; it announced publicly its belief that "the
Federal Reserve Act does not . . . contemplate the use of the resources of the
Federal Reserve System for the creation or extension of speculative credit."
ln other words, please don't shake the plum tree any more for a while. That
such a sudden prohibition of what had long been standard practice was
virtually unenforceable seemed clear; the Fed was appealing to the better
natures of the nation's bankers. Or�weak and vacillating as it was at the
time�it was merely trying to save its face and its conscience, to wash its
hands like Pilate. CertainIy it seemed to back away from any vigorous
prosecution of its wishes when, three days later, it issued a statement that
it had "no disposition to assume authority to interfere with the loan
practices of member banks so long as they do not involve the Federal Reserve
banks," and a week or so after that it seemed to be almost pleading rather
than commanding when it wrote to the various member banks reminding them that
it was now their duty to prevent the use of their funds for speculation "as
far as possible."
At all events, speculation went on�and Federal Reserve funds, hugely
augmented now by money from American corporations and even from Oriental
potentates lured into the New York money market by the soaring interest rates,
continued to be used to some extent to finance it. The chief effects of the
Fed's efforts were another sharp stock slump, amounting this time to a genuine
baby crash, during March, and finally, on the twenty-sixth, a wild climax in
the clamor for more call money that sent the rate rocketing up from 12 to 20
percent. Whereupon a leading banker�President Charles E. Mitchell of the
mammoth National City�took matters into his own hands by coolly and brazenly
defying the Fed's warning; he simply announced that his institution had on
hand twenty million dollars, borrowed from the New York Federal Reserve Bank,
that it would be happy to lend for speculative purposes at once. The mutiny
prospered. The squeeze was instantly ended, panic was averted, the calI-money
rate settled back to a mere 15 percent, and the stock market resumed its
upward course. Over night the mutineer Mitchell became a national hero,
replacing Coolidge as the great patron of the boom. As for the injured and
insulted Fed, it dared attempt no action against Mitchell, maintaining a
sullen silence. It was beaten again.
So bankers were free to resume shaking the plum tree without even feeling
guilty about it. Government "interference" was humiliated and discredited; now
anything went. In such circumstances one might have expected bankers, at least
the most important, prestige-laden, and supposedly conservative among them, to
lie low, to accept quietly the profits that flowed to them so effortlessly, to
take the occasion of the happy market (a God-given market, one of them
seriously called it later) to pursue sporting, cultural, or scho]arly
interests. But most of them were hard~riving, seli-made men, ill-equipped by
background or temperament to leisure activities. They were the sort of
restless, competent, limited men that the system and the spirit of their times
brought to the top of their profession everywhere except in the few tradition-
bound firrns like Morgan and Kuhn, Loeb. They had to have something to do, and
they found things.
The same Charles E. Mitchell who so successfully bested the Fed was also the
man who during the boom did most to destroy the old American image of the
banker as a cautious guardian of traditional values along with other people's
money. A big, heavy-set, broad shouldered, good-natured man with a bold jaw
and features that expressed power rather than sensibility, he was a born
supersales man. As he saw it, the principal business of his bank�and it was
the biggest commercial bank in the country�was not lending or conserving money
but peddling securities, common stocks included. This in itself was
untraditional enough�bankers were supposed to swear by bonds, and to look upon
all but the most deepdyed of blue-chip stocks with suspicion�but Mitchell went
much, much further in his iconoclasm. Not content to wait with customary
banketly discretion for customers to come in and ask for securities advice, he
believed in hawking his produce, going out into the towns and villages to find
customers and, if necessary, cram the product down their throats. True enough,
banks were restricted by law in their freedom to trade in securities; but
Mitchell's bank (like others in his time) circumvented the restrictions with
insolent ease through the use of a flimsy dodge called a "security affliate"�a
separate, paper company wholly owned by the bank and sometimes even sharing,
down to the last man, the bank's officers and directors, yet free to plunge in
the market at will because of its nominal status as a nonbank. F. L. Allen was
not alone in finding the institution of the security affiliate "a masterpiece
of legal humor."
The methods of Mitchell and the National City Company, the National City
Bank's affiliate, were without precedent. He simply thought of securities as
merchandise like any other, and handled them accordingly. Maintaining a state
of hundreds of salesmen with offices in dozens of cities around the country,
he pressed his men to move the merchandise as relentlessly as if it were shoes
or hair oil. There were contests, prize money awarded to salesmen according to
elaborate point systems�one point per share of General Mills common disposed
of, four points for Missouri-Kansas-Texas preferred, and so on. Mitchell was
nothing if not candid about his view of his business; he habitually spoke of
the securities trade as a form of "manufacturing," to be conducted like any
other form. Once he explained, "We have a certain portion of our
organization�and it amounts to a large force�devoting itself to the
manufacture of long term credits suitable for public distribution, and for the
analysis of the production of other manufacturers." The manufactured goods
were, of course, pieces of paper priced at hundreds ar thousands of dollars
each, and representing promises that were by no means always kept. Many of the
products of Mitchell's manufactory were bonds of foreign countries wiIh
notoriously shaky treasuries, and in 1927 Thomas Lamont felt impelled to speak
pointedly, with unmistakable intent, of "American banks and firms competing on
an almost violent scale" to sell foreign bonds.
But a rebuke from the House of Morgan did not deter Mitchell; soon after
that his National City Company successfully sold the two ill-fated issues of
the Republic of Peru that were to make the term "Peruvian bond" for years a
rueful rnetaphor for nearly wonhless securities. About this time Mitchell
switched his major effort to common stocks; in 1929 his affiliate pushed out
more than a million shares of highly speculative Anaconda Copper, and more
than a million of those of his own bank, the National City. By then Mitchell's
affiliate was blithely participating in Stock Exchange pools; it was taking
wild speculative flyers with what, after all, was basically the bank
depositors' money; it was actively soliciting the holders of National City
bank balances to get their money out of cash and into the stocks it was
sponsoring; and Mitchell himself, taking a modest basic salary of $25,000, had
pressured his bank's board of directors into voting him such a lavish
incentive bonus that for the first half of 1929 his personal compensation
amounted to just over one million dollars. Every traditional banking
inhibition was flouted, all the bars were down, and the man who had lowered
them, far from being subject to censure now, was reaping general approbation
along with money. Imagine an old-style American banker in a Midwest farrn
town�one who eschewed stock speculation an principle as his father and
grandfather had always done, who lent cautiously in local mortgages, who never
solicited business because he believed that salesmanship was alien to the
fiduciary aspect of his profession, and who scrupulously absented himself from
the boardroom when his own remuneration was under discucsion�considering the
doings of Charles E. Mitchell. He might have found himself confused. He might
have had a sense of the world gone mad and of himself as a caricature of a
fuddy duddy, goody-goody old fool.
Albert H. Wiggin, boss of the nation's second biggest commercial bank, the
Chase National, is a study in comparison and contrast to Mitchell. Nine years
the elder of the two, he, like Mitchell, had sprung from modest surroundings
in the Boston area. Each in his way had the standard environmental impedimenta
of successful American financiers�Wiggin was a clergyman's son, Mitchell had
worked his way through college; each began his business career in the humblest
of positions; each reached the presidency of his mighty bank at an early age,
Wiggin at forty-three and Mitchell at forty four; each was shrewd, aggressive,
and single-minded, little distracted by outside interests, cultural or
otherwise. But in temperament the two were opposites. Where Mitchell had the
glib tongue and brusque good humor of a high-class carnival barker, Wiggin was
reserved, almost scholarly in demeanor. In the public conduct of the Chase's
affairs Wiggin was relatively traditional, even though his bankt too,
appreciated and availed itself of the legal humor of a security affiliate. But
in his private dealings for his personal account, he was considerably more
daring than Mitchell. The latter could usually show that his garish actions
were in the interest of his bank's stockholders, and thus could lay claim to
the honored virtue of corporate loyalty. Not so Wiggin; the bank might pay him
$275,000 a year for guiding its destiny, but when he saw a chance to profit at
its expense~ he did not feel bound to deny hirnself.
In 1928 a national bank examiner reported that Wiggin "dictates
the policies of the bankt" and was "the most popular banke in Wall Street�;
the previous year the popular dictator, without informing the bank examiner or
virtually anyone else. but without brea}ing the law either, had formed several
"personal holding companies" to enable him to speculate in stocks while
concealing his identity and minimizing his taxes. By this means he played the
market with notable success and participated in pools in various stocks; but
his favorite vehicle for speculation was the shares of the company he knew
best, the Chase National Bank. The president of any corpora tion is, of
course, the nominal employee of its stockholders; there fore, stripped to
essentials, Wiggin's speculative operations in Chase stock consisted of trying
to make money at the expense of his nominal employers, and between 1927 and
1929 he succeeded to the extent of several million dollars, doing it so
discreetly and deftly as not to so much as cause them even a ripple of
annoyance.
Then he went a step further. Beginning in July, 1929, Wiggin� as astute as
ever�began to see the prospects for the stock market in general and Chase
stock in particular as dim. Accordingly, through one of his personal companies
he sold over 42,000 shares of Chase stock short. He was then in the curious
position of having a vested interest, and a huge one, in the deterioration of
the institution he headed. Just as corporate officers are usually encouraged
to own stock so that they will have added incentive to put out their best
efforts, so Wiggin, with his short position in Chase stock, had pro vided
himself with incentive to produce his worst efforts. This was legal; the
audacity of his action was such that the question of forfending it by law had
apparently never come up. Moreover, it was perfectly timed. When the account
was closed that November, the whole market had collapsed as Wiggin had
foreseen, and the profit to his personal company came to just over four
million dollars. And no one�for several years�was the wiser; when Wiggin
retired in 1932, the Chase's executive committee thanked him fulsomely for his
uncounted services to the bank and unanimously voted him a life pension of
$100,000 per year.
Enough; here and elsewhere, Mitchell and Wiggin have been overpilloried.
Undoubtedly Mitchell wasn't the most overaggressive among the bankers of his
time, nor Wiggin the most perfidious; they were only the most prominent
offenders. Even Wiggin seems to have acted acceptably by his own curious
lights He had a faculty for convienient, sentimental self-deception; it was he
who later spoke feelingly of the 1929 market as a gift from God, and he
maintained to his death, with evident sincerity, that his Chase short sales
had been entirely proper. Victims of a Zeitgeist if ever men were, these two
were reflectors as well as creators of the collapse of old values, the
falling-apart of things, in the sphere of commercial banking.
All this and more came out later. In the summer of 1929 the surface of Wall
Street was a mixture of placidity and mania�stock averages at record highs and
still headed upward, the dissenters momentarily routed, the clubious pastimes
of some of the most trusted leaders hidden from public view. Even with all
that we know now, it remains hard to see that summer whole. The present
generations, and perhaps those to come too, are doomed by the technical
imperfections of old films and phonograph records to see the life of the
1920s, its nuances of mood, in distorted perspective. Of earlier times we have
virtually no aural or moving visual record; of later times we have technically
perfect ones The twenties are the limbo between, and if (as Richard Avedon has
said) there is something in the way a woman moves that speaks with unique
eloquence of the time in which she lives, there is a gap in our knowledge;
only with an intellectual effort can we avoid thinking of I929 as a time when
people walked like jerky puppets and talked in tinny voices. But let us try,
as best we can, to look at Wall Street as it was in August, 1929, to catch its
essentials in a frieze.
It is the month of Wall Street's traditional vacation, when even the most
dedicated and the most obsessed drift off to mountains or seashore to wait,
Zestlessly, for Labor Day and rebirth. But this year they have not drifted
away. Stock Exchange volume for the month is a record for August and not far
from a record for any month of the year. Coast to coast, more than half a
million are playing the market on margin and perhaps as many more with cash.
The days, for the most part, are unexpectedly and blessedly cool and dry;
Golconda's climate lacks the usual seasonal sniff of Hell. Not only do the
regulars stay in town; newcomers have arrived in great numbers. They are men
and women who are sacrificing their own vacations, or else have simply chucked
their jobs, to spend their days sitting, or more likely standing, in the
brokerage customers' rooms watching the quotation board report the glorious
news, and to share in the benefits. They arrive early to read the brokerage
houses' "morning letters" informing them confidently which stocks will rise
how much that particular day, which will be "taken in hand" by a pool at what
hour, which companies have favorable news to come out shortly. By Stock
Exchange opening time, all along Wall and Nassau, Broad and Broadway and Pine,
the customers' rooms are jammed�there is standing room only and perhaps not
even that, there is a premium on positions from which the quote board can be
seen. Still, they all are sure it is worthwhile being there, right on the
scene; they feel themselves to be part of something tremendous, and perhaps,
too, they feel their physicaI presence in Wall Street makes them insiders,
gives them some slight advantage over those who are maintaining the same vigil
elsewhere�the barber or chauffeur or cab dnver whose ear is cocked for a tip
his important client may let fall, even the important man himself who has
given up his vacation not in substance but only in spirit, and, sacrificing a
seat in the sun, is glued all day to one in an office in Bar Harbor or Newport
or Southampton or in a Catskill Mountain hotel. Brokerage house branches have
suddenly made their appearance at every important resort, and the wires
between them and their home offices hum all summer long.
Many of those now crowding Wall Street have burned their bridges. They have
thrown over their jobs on reaching some predetermined goal, a paper net worth
of $500,000 or $100,000 or $200,000; they have bought expensive houses and
mink coats for themselves or their wives, and look forward to lives of leisure
and affluence spent at this easy and entertaining game. Moreover, in their
short time on Wall Street they have come to feel a sense of belonging there;
the scars on Morgan's are their scars and the grave of Hamilton in Trinity
Churchyard is theirs. They have a new Iife and, if they wish, they can even
partake of the very symbol of belonging. The most change-resistant of
institutions, the urban ciub, has gone democratic on Wall Street; luncheon
ciubs most of them no more than six months old, are everywhere, ranging from
fancy cafes to one-arm counters in bare rooms, and membership is just a matter
of knowing somebody�anybody�and paying a fee.
At lunch hour the streets of the district are jammed frorn building line to
building line. Even at the height of the morning and afternoon business hours
the streets are full of pedestrians, talking, gossiping, shouting to make
themselves heard over the din of the new office-building construction going on
everywhere. But at noon the crowds on the streets grow so thick that no car
can pass, and the construction sounds are stilled for the workmen's lunch
break. A visitor from England, charmed by the silence broken only by talk and
footfalls, is reminded of Venice. He finds the atmosphere "savagely exciting,"
and, as an outsider watching the performance of a rite he does not understand,
he feels loneliness and a certain alarm. He is not reassured when his American
friend and guide breaks into a cool explanation of Wall Street and the
American business system to say, abruptly and cryptically, �AII the same, I
don't really believe it."
All through the days, and long into the evenings, the talk, talk, talk goes
on. There are tales of fortunes just made and of fortunes about to be
made�above all, talk of fortunes. There is no talk of panic; the spring crisis
is in the past now, brokers' loans are soaring faster than ever but that is
considered healthy now, there is no money squeeze and call money has settled
back to a reasonable 6 or 7 percent. The market averages stand 34 percent
above the March low and 76 percent above early 1928. When, on the ninth of the
month, the New York Federal Reserve Bank raises its rate to 6 percent, nobody
pays much attention; the Fed is a figure of fun now. There is constant talk
about the new investment trusts, Blue Ridge and Alleghany, Shenandoah and
United Corporation and hundreds more, that are the latest thing in stocks, a
billion and a half dollars' worth of new ones put on the market since January;
paper companies with staffs of only half a dozen people, existing merely to
hold and trade in the stocks of other companies, most of them elaborately
designed to "move fast" by the application of "leverage" in their structure,
they are considered flimsy and over speculative by some, but why should they
be? Weren't Alleghany and United sponsored by that pillar of conservatism, J.
P. Morgan & Company, and hasn't Alleghany gone up from its February offering
price of 20 to 56, United from its January offering price of 25 to 73? There
is talk about John J. Raskob's article in that month's Ladies' Home Journal
entitled "Everybody Ought to Re Rich,� in which he explains how savings of $15
a month wisely invested in stocks will do the trick in twenty years, and talk
about how the Stock Exchange, emulating so many of the companies whose shares
it lists, has just declared a "stock dividend" to its members�one-fourth of a
seat to each holder of one. There are jokes about well-fed, broad-beamed
Exchange members needing a seat and a quarter each, these days.
Money is king�but there is something else. lt is a high, wild time, a time
of riotous spirits and belief in magic rather than cold calculation, a time of
Donysius rather than Apollo. People speak of "luck" and "the breaks" more than
of earnings and dividends. They have given up their month at the lakes and
beaches not in the puritanical spirit of "business first" or "come, labor on,"
but in the hedonistic spirie of living more fully and not missing life's
chances. It is almost as if they believed the market existed for taking
chances not on money but on happiness.
On the seventeenth the Ile de France and the Berengaria depart, on
transatlantic trips, the former eastward and the latter westward, each fully
equipped for speculation with floating brokerage offices; when the Berengana
arrives in New York six days later, passengers tell of how every day the
office on the promenade deck has been so mobbed that quotations had to be
passed by word of mouth to passengers who couldn't get near enough. The same
week, there is much favorable comment on a new book, Wall Street and
Washington, by that renowned Princeton economic authority Joseph S. Lawrence,
in which he scores off the Federal Reserve for its insolent meddling with Wall
Street ("an innocent community" mercilessly persecuted by "flannel-throated
fanatics� in Congress) and suggests that anyone who favors stronger regulation
of the stock market is undoubtedly an all-round bluenose and probably an
advocate of Prohibition to boot. This is the kind of talk the tape-watchers
dote on, and when it comes from a cloistered professor, so much the better. As
the month draws to a close and the Stock Exchange decides to forgo its usual
Saturday session and declare a full three day holiday over the Labor Day
weekend, there is further cause for jubilation. There are rumors, cited even
in the Times, of many large pools being formed to buoy the market during the
autumn, and it is said that a single brokerage firm has received invitations
to join no fewer than five of them; meanwhile four important railroad stocks,
Santa Fe, Union Pacific, Chesapeake & Ohio, and Norfolk & Western, are all
nearing the magic price of 300 in what appears to be a race. Nobody doubts
that they will alll reach it; the only ques tion is wh hich will reach it
first.
So, assuming one can get hold of a reservation�the railroads and the
Trimotor airliner to Boston are all overbooked�one can take that three-day
weekend with no fears for the future. And yet�can one really believe it?
When the crash finally came, it came with a kind of surrealistic slowness�so
gradually that, on the one hand, it was possible to live through a good part
of it without realizing that it was happening, and, on the other hand, it was
possible to believe that one had experienced and survived it when in fact it
had no more than just begun.
The market did not all crash at once. Large segments of it had been
depressed for a year or more. The 1929 boom was, in fact, quite a narrow
selective one. lt was a boom of the handful of stocks that figured in the
daily calculation of the Dow-Jones and New York Times indexes, and~ that was
why those well publicized indexes were at record highs. lt was also a boom of
the most actively traded stocks bearing the names of the most celebrated
companies, the stocks mentioned daily by the newspapers and millions of times
daily by the board-room habitues�and that was why it was constantly talked
about. But it was emphatically not a boom of dozens of secondary stocks in
which perhaps as many investors were interested.
As a matter of fact, a good part of the stock market had been more or less
depressed all through 1929.
The soaring of the averages made a rousing spectacle. Yet the highest
September, price 1929 been 118. The September high af Cluett, Peabody was 46;
its high in 1928 had been 110. The September high of Consolidated Cigar was
62; its high in 1928 had been 100. The September high of Freeport Sulphur was
43, its 1928 high, 105. The September high of New York Shipbuilding was 27;
its 1925 high, 88. The September high of Pepsi-Cola was 10; its I928 high, 19.
The September high of Philip Morris was 12; its 1927 high, 41. The list, even
if confined to well-known stocks, could be extended to astonishing length The
motor stocks, in particular, were in a virtual industry-wide depression.
Studebaker, Hudson, Hupp, and Graham-Paige, at that peak of the most
celebrated stock boom in history, were down from their previous highs by 22,
25, 43, and 55 percent, respectively. And even General Motors, the very
bellwether of the boom all through the decade, was down over 10 percent. The
persistence of the idea that all stocks were going through the roof in the
autumn of 1929 is a monument to the power of popular myth.
But if a sort of slow, partial crash, invisible except to its victims, had
been occurring over a period of at least three years, Tuesday, September 3,
1929�the day the market averages reached the all time highs that were to
endure for a quarter of a century�was not a day when the public at large gave
its attention to such a matter. It was the first day after the Labor Day
recess, and thus by traditional stock-market reckoning the start of the active
season, almost the start of a new year. The fact that it was a record-setting
scotcher in New York, with a maximum temperature of ninety-four degrees and
brutal humidity, did not deter the mobs from thronging back to the downtown
customers' rooms and trading in such volume as to set a September record. Thus
unaware of its achievement, in the atmosphere of a steam bath, the market of
the twenties achieved its Everest. Next day there was a general, if
unsensational, decline. The daily column of market comment in the
Times�unsigned, but presided over and often written in those days by the
paper's justly celebrated financial editor, the learned Alexander Dana Noyes�
contained the sober remark, "The pace of advancing prices during the past week
has been so rapid, and so regardless of the money market position, as to
inspire a growing sense of caution even among convinced speculators for the
rise." The following day, September 5, there occurred the curious phenornenon
ever after. ward called the Babson Break. A not especially well-known, and
hitherto even less influential, financial adviser operating far frorn Wall
Street�a frail, goateed, pixyish-looking man in WeIlesley, Massachusetts,
named Roger Babson�said to an audience at a routine New England financial
luncheon, "I repeat what I said at this tirne last year and the year before,
that sooner or later a crash is coming.'' As Babson implied, his earlier
warnings had been roundly ignored. He was, in fact, widely thought of as
something af a nut.
Evidently it was a slow day for financial news, because at 2 p.m. Babson's
words were quoted on the Dow-Jones financial news ticker and thus read in
brokerage houses across the country. Without the slightest hesitation the
market went into a nosedive that carried Steel down 9 points, Westinghouse
down 7, and Telephone down 6 in a frantic last hour of trading during which
two million shares were traded. The tiny cause and the huge effect, by any
llogical standard, were simply far out of proportion.
It was a prophetic episode�and so recognized at once. After the Babson
Break the word "crash," entirely taboo a month earlier, suddenly became common
currency in Wall Street. In its more conservative circles, the notion of an
impending crash came within days to be fully as much the received wisdom as
the contrary notion of an endlessly continuing boom. Babson was, of course,
promptly and violently refuted by such New Era champions as Professor Irving
Fisher of Yale; but five days later the Noyes column in the Times was still
broiling on "the idea of an utterly disastrous and paralyzing crash" in a most
disconcerting way. The Times found certain parallels between the current
situation and that of 1907, when unbridled panic had come totally
unexpectedly. The best reassurance the paper could offer was that now there
were the new forces of the Federal Reserve and the investment trusts, which
would presumably serve to help stabilize the market if necessary. Meanwhile,
the market crept erratically downward until September 24, when there was
another big break, this one unassignable to an cause at all and therefore
dismissed as a "mystery decline."
October in Wall Street began in a mood of pessimism but calm. Rather
spookily, brokers' loans kept increasing, suggesting that more and more people
were still coming into the market. Why weren't their purchases raising prices?
Or were they perhaps coming in on the short side? There began to be scary
rumors of the formation of giant bear pools; Jesse Livermore was accused, and
immediately denied it. Then there was a recocery, and everyone breathed
easier. By the tenth the averages were back to about where they had been in
mid-September. On the fifteenth the voice of the bull prophet Charles Mitchell
was heard from the appropriate pedestal, a deck chair on an ocean liner;
embarking for New York from Germany, he said, "The markets generally are now
in a healthy condition." Irving Fisher chimed in with his soon-to--be-immortal
opinion that stocks had reached "what looks like a permanent high plateau " It
is not to be supposed that these statements were universally accepted;
Mitchell and Fisher by this time had come to be monotonously predictable, and
their views were ceasing to gain emphasis from repetition. Still, the market
held steady for a week. Then on the nineteenth it sank again, in a huge
two,hour break in the course of the second biggest Saturday-morning session
ever.
By Monday the twenty-first it was clear that there existed the makings of
the classic stock-market chain reaction downward: the decline in stock prices
leading to calls for more collateral from margin customers; the inability or
unwiIlingness of the customers to meet the calls, leading to the forced sales
of their holdings; these sales leading to a further decline; and the further
decline leading to more margin caIls. There began to be hopeful talk of
�organized support," the kind of massive pooling of resources in support of
the market by the most powerful bankers that had saved the situation in 1907.
"For the time, at any rate, all Wall Street seems to see the reality of
things, and to discard the catchwords and newly-invented maxims of an
imaginary political economy," said the Noyes column. The meaning was clear:
sanity had returned, the New Era had become a thing of the past. The board
rooms were less crowded now; the thousands of tyros who had jammed them in
August were mostly discouraged if not wiped out, and had returned to their
jobs and their old lives. The trumpets of the New Era still sounded, but they
had a muted, valedictory sound now; Fisher dismissed the decline as a "shaking
out of the lunatic fringe that attempts to speculate on margin,� and Mitchell,
on his ship's arrival at New York, could only say that the decline had gone
too far. It went further that very day, with prices closing drastically lower
in wildly confused trading that left the ticker an hour and fortyone minutes
late; but the next day, Tuesday the twenty-second, there was a strong
recovery.
So we come to Wednesday the twenty-third, a mild, clear fall day in New
York, but a miserable one in the Midwest, which was swept by an early-season
visitation of snow and sleet. This meteorological mischance, like the dazzlig
sun at the Battle of Hastmgs, has its niche in history. A market decline began
early in New York; then the storm brought down many telephone and telegraph
wires, and for the rest of the day a good part of the country was dependent on
guesses and rumors as to exactly what was happening. Signs of panic appeared,
and quickly fed on themselves. The day's trading of 6,374,960 shares was the
second greatest in history; among the losses were 96 points for Adams Express,
70 for Commercial Solvents, 20 for General Eleceric, 43 for Otis Elevator, and
35 for Westinghouse. There was no piece of bearish news to account for it, but
no one spoke of a mystery decline now.
By another mischance of retrospective interest, the vice president of the
Stock Exchange was absent from the floor that day He was the elegant Richard
Whitney, now forty-one, the coming man at the Exchange. Not only was he its
acting president in the absence on vacation of its president, E. H. H.
("Harry") Simmoms, who was in Hawaii on a honeymoon, but so well known was his
name and so great his reputation as a man of influence and leadership that the
previous March, when President Hoover had wanted to confer with a Stock
Exchange representative on the dangers of speculation, it was Whitney rather
than Simmons whom he had summoned to the White House. On Wednesday the twenty-
third of October, Whitney was away from Wall Street serving as one one the two
stewards presiding over the climax day of the hunt's racing program of the
Essex Fox Hounds, at Far Hills, New Jersey, where a crowd of some two thousand
was on hand to rub shoulders with the figures of the society pages and watch
perhaps the most fashionable of American turf events. Two horses, Speckled
Beauty and Proposal, finished too close for the judges to decide between them,
and according to protocol the stewards were appealed to. Whitney and his
counter part declared a dead heat. Two other horses had slipped on the damp
turf and collided, sending their riders flying; there ensued an acrid argument
between the two owners as to which jockey had been at fault, with the stewards
again called upon to adjudicate. It was, then, a busy day for Whitney, though
less busy than the day ahead would be.
That night an avalanche of margin calls went out, and a settled gloom hung
over Wall Street. It thought it had had its crash, and was mustering its spunk
to go forward. It little suspected that soon the thousands wiped out would
become tens of thousands; or that the next day, when trading volume would be
not six million shares but nearly thirteen million, would go down in memory as
Black Thursday.
pps. 99-114
----------
Aloha, He'Ping,
Om, Shalom, Salaam.
Em Hotep, Peace Be,
Omnia Bona Bonis,
All My Relations.
Adieu, Adios, Aloha.
Amen.
Roads End
Kris
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