Panic and Crash: 1929

[1929]

That was the day when the bottom fell out of the big bull market and when, in the light of subsequent developments, it became plain that financial events had become too big for a few individuals, however, powerful, to control. October 24, 1929, was not the first day of the big break in stocks, nor was it the last. It was not the largest day in point of volume of stocks dealt in and, on balance, the decline of prices was not large. Nevertheless, it was the most terrifying and unreal day I have ever seen in the Street, and it constitutes an important financial landmark, for that day marked the beginning of the great decline in the prestige and power of Wail Street over national affairs.

The big bull market which had begun five years earlier with the election of Calvin Coolidge reached its peak in September of 1929. Stock prices turned downward in the latter half of that month and by the third week of October a spectacular decline was in progress.

On Monday, October 21, the market broke badly on 6,091,870 shares. Washington, according to the headlines of the day, viewed the situation as "sound." Professor Irving Fisher said stock prices were too low and "bankers" predicted a rally. The next day there was a rally, and Charles E. Mitchell, returning from abroad, opined the "decline had gone too far."

On Wednesday, October 23, stocks crashed again. The New York Times average of 50 stocks, which had reached 311.90 on September 19, fell to 261 that day, showing a loss of 16 1/3 per cent from the high of a month before. Washington was "surprised."

This, then, was the situation on the eve of October 24, 1929. Stocks had been falling for over a month; had lost, on the average, about 1/6 of their quoted value, and looked "cheap" according to the opinion of important bankers, economists, and government officials. Business was still good—the economic position of the country was "sound" and technically the stock market itself had been improved by a "healthy reaction." Practically everyone thought a good rally must be close at hand.

The day was overcast and cool. A light northwest wind blew down the canyons of Wall Street, and the temperature, in the low fifties, made bankers and brokers on their way to work button their topcoats around them. The crowds of market traders in the brokers’ board rooms were nervous but hopeful as the ten o’clock hour for the start of trading approached. The general feeling was that the worst was over and a good many speculators who had prudently sold out earlier in the decline were congratulating themselves at having bought back their stocks a good deal cheaper. Seldom had the small trader had better or more uniform advice to go by.

The market opened steady with prices little changed from the previous day, though some rather large blocks, of 20,000 to 25,000 shares, came out at the start. It sagged easily for the first half hour, and then around eleven o’clock the deluge broke.

It came with a speed and ferocity that left men dazed. The bottom simply fell out of the market. From all over the country a torrent of selling orders poured onto the floor of the Stock Exchange and there were no buying orders to meet it. Quotations of representative active issues, like Steel, Telephone, and Anaconda, began to fall two, three, five, and even ten points between sales. Less active stocks became unmarketable. Within a few moments the ticker service was hopelessly swamped and from then on no one knew what was really happening. By 1:30 the ticker tape was nearly two hours late; by 2:30 it was 147 minutes late. The last quotation was not printed on the tape until 7:08½ P.M., four hours, eight and one-half minutes after the close. In the meantime, Wall Street had lived through an incredible nightmare.

In the strange way that news of a disaster spreads, the word of the market collapse flashed through the city. By noon great crowds had gathered at the corner of Broad and Wall Streets where the Stock Exchange on one corner faces Morgan’s across the way. On the steps of the SubTreasury Building, opposite Morgan’s, a crowd of press photographers and newsreel men took up their stand. Traffic was pushed from the streets of the financial district by the crush.

It was in this wild setting that the leading bankers scurried into conference at Morgan’s in a belated effort to save the day. Shortly after noon Mr. Mitchell left the National City Bank and pushed his way west on Wall Street to Morgan’s. No sooner had he entered than Albert W. Wiggin was seen to hurry down from the Chase National Bank, one block north. Hard on his heels came William C. Potter, head of the Guaranty Trust, followed by Seward Prosser of the Bankers Trust. Later George F. Baker, Jr., of the First National, joined the group. . . .

After the meeting, Mr. Lamont walked across Broad Street to the Stock Exchange to meet with the governors of the Exchange. They had been called together quietly during trading hours and they held their meeting in the rooms of the Stock Clearing Corporation so as to avoid attracting attention. Mr. Lamont sat on the corner of a desk and told them about the pool. Then he said:

"Gentlemen, there is no man nor group of men who can buy all the stocks that the American public can sell."

It seems a pretty obvious statement now, hut it had a horrid sound to the assembled governors of the Exchange. It meant that the shrewdest member of the most powerful banking house in the country was telling them plainly that the assembled resources of Wall Street, mobilized on a scale never before attempted, could not stop this panic.

The bankers’ pool, in fact, turned out a sorry fiasco. Without it, no doubt, the Exchange would have been forced to close, for it did supply bids at some price for the so-called pivotal stocks when, because of the panic and confusion in the market, there were no other bids available. It made a small profit, but it did not have a ghost of a chance of stemming the avalanche of selling that poured in from all over the country. The stock market had become too big. The days that followed are blurred in retrospect. Wall Street became a nightmarish spectacle.

The animal roar that rises from the floor of the Stock Exchange and which on active days is plainly audible in the Street outside, became louder, anguished, terrifying. The streets were crammed with a mixed crowd—agonized little speculators, walking aimlessly outdoors because they feared to face the ticker and the margin clerk; sold-out traders, morbidly impelled to visit the scene of their ruin; inquisitive individuals and tourists, seeking by gazing at the exteriors of the Exchange and the big banks to get a closer view of the national catastrophe; runners, frantically pushing their way through the throng of idle and curious in their effort to make deliveries of the unprecedented volume of securities which was being traded on the floor of the Exchange.

The ticker, hopelessly swamped, fell hours behind the actual trading and became completely meaningless. Far into the night, and often all night long, the lights blazed in the windows of the tall office buildings where margin clerks and bookkeepers struggled with the desperate task of trying to clear one day’s business before the next began. They fainted at their desks; the weary runners fell exhausted on the marble floors of banks and slept. But within a few months they were to have ample time to rest up. By then thousands of them had been fired.

Agonizing scenes were enacted in the customers’ rooms of the various brokers. There traders who a few short days before had luxuriated in delusions of wealth saw all their hopes smashed in a collapse so devastating, so far beyond their wildest fears, as to seem unreal. Seeking to save a little from the wreckage, they would order their stocks sold "at the market," in many cases to discover that they had not merely lost everything but were, in addition, in debt to the broker. And then, ironic twist, as like as not the next few hours wild churning of the market would lift prices to levels where they might have sold out and had a substantial cash balance left over. Every move was wrong, in those days. The market seemed like an insensate thing that was wreaking a wild and pitiless revenge upon those who had thought to master it.

The excitement and sense of danger which imbued Wall Street was like that which grips men on a sinking ship. A camaraderie, a kind of gaiety of despair, sprang up. The Wall Street reporter found all doors open and everyone snatched at him for the latest news, for shreds of rumor. Who was in trouble? Who had gone under last? Where was it going to end?

I remember dropping in to see a vice-president of one of the larger banks. He was walking back and forth in his office.

"Well, Elliott," he said, "I thought I was a millionaire a few days ago. Now I find I’m looking through the wrong end of the telescope."

He laughed. Then he said: "We’ll get those bastards that did this yet!"

I never did find out whom he meant, but I learned later that he was not merely "busted" but hopelessly in debt.