"October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, December, August and February."
Pudd'nhead Wilson (Mark Twain)
Margin is a pretty wonderful thing. Simple, too: you borrow money to buy securities and you put up the securities as collateral for your loan. If the securities go up, you collect the dividends, which is also known as clipping coupons. If the securities go down, you raise some more cashmarginto cover your investment. So many people were buying on margin in 1929 that there was six billion dollars outstanding in brokers' loans as compared with one billion in 1920 and 3.5 billion in 1927.
The Federal Reserve Board in Washington took to brooding about this item and got into a lovers' quarrel with the banks about it. The gentlemen in the capital wanted to raise interest rates to make borrowing a little tougher. But the banks had no qualms at all about the mountainous speculative tides; they were doing nicely, thanks.
Thus Charles E. Mitchell, president of the National City Bank and a director of the New York Federal Reserve Bank, took a very dramatic step in March when the growing talk of a curb on loans led to a break in the market. As more than eight million shares changed hands in a wave of scare selling, Mitchell announced that his institution stood ready to put out 25 million dollars in call loans. "We feel," Mitchell said, "that we have an obligation which is paramount to any Federal Reserve warning, or anything else, to avert any dangerous crisis in the money market." The Federal Reserve people laid back until August before raising their interest rates to 6 percent. It was too late then; prices were on the rise again and the prophets of doom, their honor besmirched by the rampaging tickers, were on the run. Mr. Hoover himself said things were sound.
On September 3, 1929, the all-time high was reached. Steel soared to 261,
compared to 138 the year before. General Electric went to 396, against 128 the year before; A. T. & T. to 304, against 179; Westinghouse to 289, against 91. Nobody knew how many people were in Wall Street by then; the estimates ran from 1,000,000 to 25,000,000. As the new peaks were scaled, Roger Babson put out a sober warning. "Sooner or later," the economist said, "a crash is coming and it may be terrific." Professor Irving Fisher of Yale entered a quick dissent. The professor had just announced that stocks had reached "a permanently high plateau," so he evidently regarded Babson's dire prediction as a personal affront. Other Wall Street authorities wrote off Babson as an impractical longhair who didn't know what he was talking about.
Babson was right. The nightmare began September 5, although none of the market specialists in attendance read the symptoms correctly. Steel and other key issues fell off in a brief but heavy wave of selling. On October 4, securities dipped from 2 to 30 points and margin calls began to be heard on every hand. October 21 an avalanche of selling set in but was checked before the tickers closed. "I know of nothing fundamentally wrong with the stock market," Charles Mitchell said, and some of the financial editors talked of the trading mart's "merry comeback."
There was no real comeback. On October 23, fresh selling smashed values down by five billion dollars. All the leaders dipped but it was only a prelude to the calamity that lay ahead. The next dayBlack Thursdayselling orders jammed the trunk lines into the Exchange. The ticker ran close to an hour late that morning and the quick fortunes of the New Era began to dissolve. The soothsayers poured not only words but money on the troubled waters. "There has been a little distress selling," said Morgan partner Thomas W. Lamont, Sr., "but reports from brokers indicate that margins are being maintained satisfactorily." The nation's banking giants assembled in the House of Morgan and pooled 240 million dollars to stick a cushion of buying power under the sagging market. The pool's emissary, the imposing Richard F. Whitney, strode onto the Exchange floor at 1:30 P.M. and bought 10,000 shares of Steel with theatrical flourishes. Then he began to snap up other issues. He said he might buy 20 to 30 million dollars' worth if time allowed. Psychologically, it was a master stroke. With the smart money buying instead of selling, the market steadied to hold off total disaster. On October 25 less than six million shares were tradedhalf the Black Thursday recordand fresh optimism flowed from high places.
"The fundamental business of the country, that is the production and distribution of commodities, is on a sound and prosperous basis," Herbert Hoover said. Andrew Mellon, Secretary of the Treasury and also the Aluminum King, predicted a speedy recovery for the badly shaken market. The Federal Reserve Board held two hurried meetings and reported there was no need for the government to act. "There is nothing in the business situation to justify any nervousness," said Eugene M. Stevens, president of the Continental Illinois Bank. "The worst is over," said I.L. Julian of Fenner & Beane. "The selling was panicky, brought on by hysteria. General conditions are good." There was a point to the remark about hysteria. Police had to send reserves as curious throngs surged into Wall Street when the wild selling wave set in; there were thousands of little people, evidently, who wanted grandstand seats as their dreams of riches washed away in streams of ticker tape.
The soothsayers brought forth two days' respite in the marketplace, and the calendar furnished anotherSunday, no place to trade. On Monday, the panic was on again: 9 million shares sold on the Stock Exchange and 4 million on the Curb and losses exceeded ten billion dollars. The bottom fell out next dayBlack Tuesday, October 29. Not even the Bankers' Pool, shoring up one fast-dropping issue or another, could hold back the whirlwind.
The bedlam that day on the floor was perhaps best described by a gray-haired Stock Exchange guard: "They roared like a lot of lions and tigers. They hollered and screamed, they clawed at one another's collars. It was like a bunch of crazy men. Every once in a while, when Radio or Steel or Auburn would take another tumble, you'd see some poor devil collapse and fall to the floor."
The toll was stupendous. The greatest of all selling waves㬌 million shares on the Exchange and 7 million on the Curbset off a panic that would destroy 30 billion dollars in open market values. Auburn fell off 60 points, DuPont 70. Steel, 205 when Whitney was snapping it up, dropped as low as 167. Westinghouse at one point fell to 100, almost one-third of what it was worth in September. The great investment trusts, led by Goldman Sachs, withered along with the old-line corporations. Now the market's big men, affluent enough to withstand the early shocks, went down with the tradesmen and clerks and shopkeepers who had taken their last pennies into Wall Street.
"Brother, Can You Spare a Dime?"
Song by Yip Harburg, 1932
The Wall Street Crash did not end on Black Tuesday. There were other bad days ahead in the great canyon in downtown Manhattan but they hardly mattered: the major shock was over. There was only a handful of people left to get hurt, and by then it was time to make jokes. The debacle only slightly diminished the peculiar American capacity for extracting laughs from the most ghastly shocks.
In the case of the overnight money shortage, as it happened, the first of the funnies was uttered in total seriousness, on October 30the morning afterfrom no less a party than Bethlehem Steel's Eugene G. Grace.
"I," said Mr. Grace, "cannot see any reason for all this pessimism."
John D. Rockefeller, Sr. had a good one too: "There is nothing in the business situation to warrant the destruction of values that has taken place in the past week, and my son and I have for some days past been purchasing sound common stocks." Eddie Cantor, minus a couple of million himself, had a fast answer for old John D. "Sure he's buying," Cantor said. "Who else has any money left?" Rockefeller was not entirely alone, actually. John J. Raskob, evidently having reread the pearls of wisdom in his "Everybody Ought to be Rich" sermon, said stocks were at bargain prices and he was going to buy himself some choice issues. Julius Klein, Assistant Secretary of Commerce in the Hoover Administration, said everything seemed all right to him and prosperity should go rolling along. The Mayor of New York, Jimmy Walker, appealed to movie exhibitors to show pictures that would "reinstate courage and hope in the hearts of the people." (On Fifth Avenue, police found a stray parrot screaming a message with a somewhat different moral than Mr. Walker's. "More margin!" the parrot cried. "More margin!")
The straight comics were more on the grisly side. There was a rash of suicide jokes. "You stand in line to get a window to jump out of," Will Rogers complained. Then there was the standard gag about the cynical hotel clerk's remark to incoming guests: "You want a room for sleeping or jumping?" And the one, widely told, about the two brokers who took the hotel-window plunge together because they had a joint account. This kind of fun-making did not produce universal laughter by any means, because it had traces of horrible fact. Not only broke but mortgaged or over-extended beyond repair, some men did go out of windows, or suck on gas pipes, or blow their brains out. Nobody ever tried to add up the toll. It remains just about the only missing statistic in the smashing Third Act closing Wall Street furnished for the Get-Rich-Quick Era. Perhaps it's just as well.