The New York Stock Exchange in the Crisis of 1914 by Henry George Stebbins Noble (romantic books to read TXT) 📖
- Author: Henry George Stebbins Noble
Book online «The New York Stock Exchange in the Crisis of 1914 by Henry George Stebbins Noble (romantic books to read TXT) 📖». Author Henry George Stebbins Noble
liquidated, and the possessors of savings made most profitable
investments. To have closed the Exchange during that crisis--assuming
it to have been possible--would have been an unmixed evil. The violent
decline in prices was the natural and only remedy for a long period of
over-speculation, and it would have been worse had it been
artificially postponed.
Considerations of this general character, up to July 30th, caused the
authorities of the New York Stock Exchange to take no action, although
the other world markets had all virtually suspended dealings. On July
30th, the evidences of approaching panic showed themselves. An
enormous business was done accompanied by very violent declines in
prices, and, although money was still obtainable throughout the day,
at the close of business profound uneasiness prevailed.
* * * * *
On the afternoon of July 30th, the officers of the Stock Exchange met
in consultation with a number of prominent bankers and bank
presidents, and the question of closing the Exchange was anxiously
discussed. While the news from abroad was most critical, and the day's
decline in prices was alarming, it was also true that no collapse had
taken place and no money panic had yet appeared. The bankers' opinion
was unanimous that while closing was a step that might become
necessary at any time, it was not clear that it would be wise to take
it that afternoon, and it was agreed to await the events of the
following day. Meanwhile, several members of the Governing Committee
of the Exchange had become convinced that closing was inevitable and,
in opposition to the opinion of the bankers, urged that immediate
steps be taken to bring it about. It may seem strange to people
outside of Wall Street that the night before the Exchange closed such
apparent indecision and difference of opinion existed. It was,
however, a perfectly natural outcome of an unprecedented situation.
The crisis had developed so suddenly, and the conditions were so
utterly without historic parallel, that the best informed men found
themselves at a loss for guidance.
During the evening of July 30th the conviction that closing was
imperative spread with great speed among the large brokerage firms. Up
to a late hour of the night the President of the Exchange was the
recipient of many messages and telegrams from houses not only in New
York, but all over the country, urging immediate action. The paralysis
of the world's Stock Exchanges had meanwhile become general. The
Bourses at Montreal, Toronto and Madrid had closed on July 28th; those
at Vienna, Budapest, Brussels, Antwerp, Berlin, and Rome on July 29th;
St. Petersburg and all South American countries on July 30th, and on
this same day the Paris Bourse was likewise forced to suspend
dealings, first on the Coulisse and then on the Bourse itself. On
Friday morning, July 31st, the London Stock Exchange officially
closed, so that the resumption of business on that morning would have
made New York the only market in which a world panic could vent
itself.
The Governing Committee of the Exchange were called to meet at nine
o'clock (the earliest hour at which they could all be reached, for it
was summer and many were out of town) and at that hour they assembled
in the Secretary's office ready to consider what action should be
taken. In addition to the Committee many members of prominent firms
appeared in the room to report that orders to sell stocks at ruinous
prices were pouring in upon them from all over the world and that
security holders throughout the country were in a state of panic. It
would be hopeless to try to describe the nervous tension and
excitement of the group of perhaps fifty men who consulted together
under the oppressive consciousness that within forty-five minutes (it
was then a quarter past nine) an unheard of disaster might overtake
them. It was determined that the Governing Committee should go into
session at once as there was so little time to spare. Just as they
started for their official meeting room a telephone message was
received from a prominent banking house stating that the bankers and
bank presidents were holding a consultation and suggesting that the
Exchange authorities await the conclusion of their deliberations.
There is an employee of the Exchange whose duty it is to ring a gong
upon the floor of the big board room at ten o'clock in the morning.
Until that gong has rung the market is not open and contracts are not
recognized. This employee was instructed not to ring the gong until he
had received personal orders to do so from the President; a permanent
telephone connection was established with the office in which the
bankers were conferring, and amid a horrible suspense the outcome of
their conference was awaited. For twenty minutes this strain
continued. It was a quarter before ten and only fifteen minutes
remained in which to act. Meanwhile the brokers were fast assembling
upon the board room floor, orders were piling in upon them to sell at
panic prices, ten o'clock was approaching, and although all felt that
the opening should not be permitted no one had a word from the
Governing Committee as to what was going to be done.
* * * * *
At a quarter of ten, no word having come from the bankers, the
receiver of the telephone which had been connected with their meeting
place was hung up, and the Governing Committee were called in session
to take action. As they took their seats two messages reached them.
One was brought by a prominent member of their body who had gone to
the office of the President of the bank Clearing House and had been
told by him, after consulting with some of his fellow officers, "We
concur; under no circumstances is it our suggestion, but if the
Exchange desires to close, we concur." The other was sent, through a
member of the Exchange, from one of the leading bank Presidents who
stated that closing would be a grave mistake and that he was opposed
to it.
The roll was called and thirty-six out of the forty-two members
answered to their names. The Chair having announced the purpose of the
meeting, Mr. Ernest Groesbeck moved that the Exchange be closed until
further notice. This motion was carried, not unanimously but by a
large majority. Mr. Groesbeck then moved that the delivery of
securities be suspended until further notice, and, this being carried
unanimously, made a third motion that a special Committee consisting
of four members of the Governing Committee and the President be
appointed to consider all questions relating to the suspension of
deliveries and report to the Governing Committee at the earliest
possible moment. The third motion, like the second was carried
unanimously and the Committee adjourned. It was then four minutes of
ten. On the instant that the first motion closing the Exchange was
passed, word was sent to the ticker operators to publish the news on
the tape. In this way the seething crowd of anxious brokers on the
floor got word of the decision before ten o'clock struck. Immediately
upon the adjournment of the Committee Mr. George W. Ely the Secretary
of the Exchange ascended the Chairman's desk in the board room and
made the formal announcement, which was greeted with cheers of
approbation. The President promptly appointed Messrs. H. K. Pomroy,
Ernest Groesbeck, Donald G. Geddes, and Samuel F. Streit to
constitute, with himself, the Committee of Five, and the long suspense
and anxiety of four months and a half began.
These events, which were crowded into a few feverish hours, and which
seemed to those who participated in them more like a nightmare than
like a reality, present some aspects that are especially worthy of
detailed description. It is noticeable that the vote to close the
Exchange was not unanimous. This shows the immense complexity of a
situation, which, even at the last moment, left some two or three
conscientious men undecided. It is a fact of profound importance, and
one that never should be forgotten by stock brokers or by the public,
that the Exchange closed itself on its own responsibility and without
either assistance or compulsion from any outside influence. Many false
assertions by professional enemies of the institution have been made
to the effect that the banks forced the closing, or that its members
were unwillingly coerced by outside pressure. The facts are that the
influential part of the membership, the heads of the big commission
houses, made up their minds on the evening of July 30th that closing
was imperative, and that on the morning of July 31st their
representatives in the Governing Committee took the responsibility
into their own hands, the bankers having been unable as yet to reach a
conclusion.
Immediately after the closing the President of the Exchange visited
the prominent bank president who had served notice at the last moment
of his disapproval of this procedure. He was found in his office in
consultation with a member of one of the great private banking houses.
Both the bank president and the private banker agreed that, in their
opinion, the closing had been a most unfortunate mistake. It was an
opportunity thrown away to make New York the financial center of the
world. The damage was done and would have to be made the best of, but
had the market been allowed to open the banks would have come to the
rescue and all would have gone well. These gentlemen admitted that the
Exchange was to some extent excusable owing to the negligence of the
bankers in not notifying them that they were ready to protect the
money market.
It may safely be stated that within twenty-four hours after this
interview neither the two bankers in question nor any one else in Wall
Street entertained these opinions. The rise of exchange on London to
$7--a rate never before witnessed; the marking of the Bank of
England's official discount rate to 10%, accompanied by a run on that
institution which resulted in a loss of gold in one week of
$52,500,000; the decline of the Bank's ratio of reserve from the low
figure of 40% to the paralyzing figure of 14-5/8%; together with the
fact that the surplus reserves of our New York Clearing House banks
fell $50,000,000 below their legal requirements, were reasons enough
in themselves to convince the most skeptical of the necessity of what
had been done.
The frightful gravity of the situation which had arisen became clearer
and more defined in people's minds a few days after the first of
August than it was on the morning of July 31st. European selling had
been proceeding for some time before the outbreak of War and in the
last few days before closing had been temporarily arrested by the
prohibitive level of exchange and the risk of shipment at sea. The
American public itself, however, was seized with panic on the evening
of July 30th, and on the morning of July 31st brokers' offices were
flooded with orders to sell securities for what they would bring and
without reference to values. Had the market been permitted to open on
that Friday morning the familiar Wall Street tradition of "Black
Friday" would have had a meaning more sinister than ever had been
dreamed of before.
In all previous American panics the foreign world markets were counted
upon to come to the rescue and break the fall. Imports of gold,
foreign loans, and foreign buying were safeguards which in past crises
had been counted upon to prevent utter disaster. On this occasion our
market stood by itself unaided; an unthinkable convulsion had seized
the world; panic had spread; even the bargain hunter was chilled by
the unprecedented conditions; there were practically no buyers. A half
hour's session of the Exchange that morning would have brought on a
complete collapse in prices; a general insolvency of brokerage houses
would have forced the suspension of all business; the banks, holding
millions of unsaleable collateral, would have become involved; many
big institutions would have failed and a run on savings banks would
have begun. It is idle to speculate upon what the final outcome might
have been. Suffice it to say that these grave consequences were
prevented in the nick of time by the prompt and determined action of
the Stock Exchange, and by that alone.
* * * * *
Any decisive step whether right or wrong always finds its critics.
There were a few people who criticised the Exchange for closing too
soon and thought that the feeling of panic was increased by this
action. These few were mostly converted from their opinions as the
situation became clearer. There was a larger number who took the
ground that the Exchange had not closed soon enough, and urged that
had the step been taken a few days sooner a considerable decline in
values would have been prevented. It is strange that the latter
critics did not stop to reflect on how great an advantage it
Comments (0)