Many publications of the time spoke out in favour of the boom. The craze for stocks seeped into the very being of America. In Only Yesterday by Frederick Lewis Allen, he writes of the rich man’s chauffeur who has his ears pinned back for news on Bethlehem Steel, the window cleaner who pauses to watch the ticker as he considers converting his savings into Simmons’ shares, a broker’s valet who makes nearly $250,000 and a nurse who cleans up $30,000 from patients’ tips.
In fact, participation in the market was not overly pronounced, it was just that its significance to American culture had hugely increased and permeated lunchtime chats and dinner party discussions.
Markets built on speculation fall apart when the fundamentals are shown to be flawed. Thursday , October 24, 1929 is the day when the first signs of that unravelling in confidence began in earnest.
Since October 12, the first dissenting voices had appea- red and stocks traded sideways for several days. Rumours of investors unable to meet margin calls abounded and fiction replaced fact as the hard currency of the day. The general agreement was that a small correction would be good.
Yet in these days of global communications, we forget that in 1929, the ticker was often several hours behind the market. Bad news was turning up out of the blue. Selling gathered pace and stocks floundered. Volumes set new records daily and many big names, such as Tel & Tel (AT&T) and General Electric, declined steadily.
The good news was that “organised support” would arrive any day now. This was the bankers’ consortium of the fabled rescue in 1907 by JP Morgan. The market took succour from the fact that the great and the good had the financial wherewithal to prevent a major crash by stepping in and shoring up prices.
Like the Henry Paulson of his day, one Richard Whitney is credited with the great bail-out plan. Witnesses from the time describe him as jauntily strolling to the middle of the dealing floor as the representative of the consortium and buying up steel shares at prices higher then the last deals. This was mid-afternoon on a day that had seen many lose a fortune already as stocks had halved before the rescue began.
Word got round. Bankers had moved in to support the market and brought off a notable coup. Prices became buoyant and then surged again as the bailout restored confidence. All morning, the market had seen carnage. Falling prices had breached many hundreds of stop-loss orders placed by worried brokers faced with non-payment of margin calls. That led to more margin calls, more defaults and more stop-losses.
The surprise bailout had caught many off guard mand out of the market, compounding their losses. It was called Black Thursday and yet prices had ended barely a few points down although huge numbers had lost heavily.
Through that Friday and Saturday, uncertainty persisted over the bailout but the market remained robust. Had enough been done to restore confidence? Nobody could be sure but after the short Saturday session, the weekend all- owed distant investors to rec- eive the ticker and become fully appraised of what had happened. The media was positive. The message was to buy bargain stocks now. On Monday, the chickens finally came home to roost and everything got a whole lot worse.
Monday, October 28 was another terrible day. Volumes reached nine-and-a-quarter million shares and losses were far more severe. Once again, a late ticker left many in less than blissful ignorance of their fate. Everyone awaited the second intervention but this time there was no jaunty Richard Whitney and in the last hour an incredible three million shares traded and the market fell.
Tuesday, October 29 was the single most devastating day of the history of the NYSE. There was uncertainty and alarm, huge volumes of trades and precipitous share falls. One of the great riddles in a falling market is always who is buying and on this day nobody was. Prices were in freefall and buyers offered a dollar for a block of shares at a time – and got it.
If the previous Thursday had slaughtered the innocents, then this was the extermination of the great and good as well. The wealthy were being levelled in a way not seen since the communist revolution in Russia – it was unprecedented and uncontrollable.
Rumours began that the bailout had been reversed and bankers were selling stocks to break even. Others said the bankers were engaging in a bear raid. It continued for days.
I would not be surprised if the Sage of Omaha himself emerges soon to shore up confidence. That is what the great Rockefeller did in October 1929. He gave a public statement that he and his son were buying stocks and the fundamentals of the economy were as sound as ever. It worked – almost. Stocks rose on October 31 but it was a blip.
Even those who re-entered the market bravely in November and December saw 75 per cent of their value wiped out over the next few years. The Wall Street Crash entered the history books for ever.
The enduring legacy of JP Morgan Jr’s consortium and their well meaning “organised support” was a total lack of confidence in the ability of financiers to be trusted. Ordinary Americans, Brits and Europeans would struggle to trust the fiduciary authorities again for a generation. In some ways, the associations between Jewish people and banking made Hitler’s task that much easier from 1933 onwards.
The crisis today is very different, yet we hear ordinary people railing against the excesses of the few causing suffering for the many.
Many applauded Paulson and Bush for finding a solution to the toxic debt now clogging up the financial conduits and the markets have tentatively embraced the initiative.
If we have learnt anything, it is that what seems great at the time has a nasty habit of appearing somewhat different from a distance. I hope 2009 in no way replicates 1929 but I also hope decisions in coming months are blessed with the wisdom of a nation that once lived through such a crisis, for all our sakes.