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
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through the anxious days of August, to have had the New York market
liquidated as far as it could be without disaster, and the level of
closing prices relatively low. How vastly greater would have been the
task of safeguarding the situation in the face of declining prices in
the "New Street Market" had the closing prices on the Exchange been
ten or fifteen points higher. The truth is that the Exchange was
closed at the very best possible moment. The market was kept open as
long as liquidation could safely be carried on (thus immensely
diminishing the pressure to be withstood during the suspension) and it
was closed at the very instant that a collapse was threatened.
The above facts suggest some reflections with regard to the agitation
for governmental interference with or control of the Exchange. The act
of closing necessitated the prompt decision of men thoroughly familiar
with the circumstances in a period of time actually measured by
minutes. If it had been necessary to reach government officials
unfamiliar with details, convince them of the necessity of action, and
overcome the invariable friction of public machinery, the financial
world would have been prostrated before the first move had been made.
If the Exchange had been an incorporated body, and had been closed in
the face of the difference of opinion and possible conflict of
interests that existed at the time, it would have been possible for a
temporary injunction to have been brought against its management
restraining its freedom to meet the emergency. Long before the merits
of such an injunction could have been argued in court the harm would
have been done, and ruin would have overtaken many innocent people.
The full power of a group of individuals thoroughly familiar with the
conditions to act without delay or restraint prevented a calamity
which can safely be described as national.
It is a fact, which will probably never be appreciated outside of the
immediate confines of Wall Street, that the Exchange was unexpectedly
thrown into a position where the interests of the whole country were
put in its hands, and that through the prompt and energetic action of
the thirty-six men who faced the awful responsibility on July 31st
financial America was saved. It is true that in saving the community
they saved themselves, but so do the soldiers who win upon the
battle-field, and in neither case is the obligation cancelled by the
selfish considerations involved. When in future the perennial outcry
against the Exchange is being fostered by those whose minds are
exclusively occupied with the evils that are inseparable from every
human institution, let us hope that once in a while some friendly
voice may be raised to remind the world of July thirty-first, nineteen
hundred and fourteen.
CHAPTER II THE PERIOD OF SUSPENSION
During the same morning on which the momentous action of closing was
taken the Committee of Five met and elected the President of the
Exchange as their Chairman. The acute crisis was over, the danger of a
cataclysm had been averted, but the situation that remained was big
with problems full of menace and uncertainty.
Just what effect the closing of the market would have was a matter of
doubt. On all previous occasions when the facilities of the Exchange
had been inadequate, or had been shut off, an unregulated market had
established itself in public places and proceeded uncontrolled. Thus
during the Civil War, when the volume of speculation had completely
outgrown the limited machinery of the old Board of Brokers, a
continuous market developed partly in the street and partly in a
basement room called the "Coal Hole" and flourished during the day,
while in the evening it was continued in the lobby of the Fifth Avenue
Hotel. This market did more business than was done upon the Exchange
itself, and a few years after the War, many of its members, who had
organized into the "Open Board of Brokers," were admitted to the Stock
Exchange in a body. The suspension of business in 1873 was too brief
to allow of the formation of a market such as the above, but, while it
continued, cash transactions for securities were being carried on
every day in the financial district.
Would results such as these obtain on this occasion? Much depended
upon the length of time before the Exchange could re-open, but this in
itself was a problem for which no one could venture a solution. Again,
a vast volume of contracts made on July 30th had been suspended. How
long could the enforcement of these contracts be successfully
prohibited, and above all how long would the banks and financial
institutions which were lending money on Stock Exchange collateral
refrain from calling loans when they were deprived of any measure of
the value of their security? Over its own members the New York Stock
Exchange might exercise a rigid control, and it could safely be
assumed that the other Stock Exchanges of the country would coöperate
with it, but numberless outside agencies existed such as independent
dealers unaffiliated with exchanges, and auctioneers, any of whom
might establish a market. If declining prices were made through media
of this description, and the press felt called upon to furnish them to
the public, the closing of the Exchange might not suffice to prevent
panic and disaster.
Oppressed by these considerations, and by an appalling sense of
responsibility, the new Committee of Five began its labors in the
morning of July 31st. The first step decided upon was to communicate
with the Bank Clearing House Committee. Mr. Francis L. Hine, President
of the Clearing House, was invited to meet the Committee of Five which
he did, a little later in the day, and presented to them the
following statement of the action taken by the Clearing House.
"There was a meeting of the Clearing House Committee this morning
in view of the closing of the New York Stock Exchange. It was the
opinion of the Committee that the business and financial
condition of New York and the entire country was sound but that
the situation in Europe justified extreme prudence and
self-control on the part of the United States; that the closing
of the Stock Exchange was a wise precaution by reason of the
disposition of all Europe to make it the market for whatever it
wished to sell, and that in this country there was no occasion
for any serious interruption of the regular course of business,
either financial or mercantile."
After the retirement of Mr. Hine, the Chairman of the Committee on
Clearing House of the Exchange stated that all the checks given to the
Clearing House had been certified, and a notice was thereupon sent out
instructing members to call for their drafts at the usual hour. Thus
all the differences due on the day's transactions of July 30th were
settled, and a first encouraging step was taken. It was also decided
to permit the offering of call money on the floor of the Exchange.
The Committee held its second meeting on August 1st and the first of
the long series of problems growing out of the closing of the market
was at once presented to it. A letter from a brokerage house doing
business with Europe was received in which it was pointed out that
"arbitrageurs" who had sold stocks in New York and bought them in
London during the previous fortnight had made their deliveries by
borrowing stock in New York; that the stock purchased in London was
due to arrive on this side, and that the usual process of financing
it by returning the previously borrowed stock had been cut off through
the suspension of unfulfilled contracts. This was likely to lead to
very grave embarrassment because call money had practically
disappeared and houses to whom this foreign stock was consigned might
not be able to meet their obligation to pay for it as it arrived.
There being no arrivals of foreign stock expected that day, the
Committee deferred action, and thus gained time to think out ways and
means of meeting the difficulty.
The second problem presented came in the form of a request for
permission to sell securities outside of the Exchange. The firm of S.
P. Pell & Co. had suspended, and a house which had been lendingthem money wished to be authorized to sell out the collateral. This
was the first of many cases brought before the Committee, during its
long tenure of office, in which individuals sought for a special
privilege to sell securities they were anxious to market while trading
in general was forbidden. In this case the applicants were referred to
that section of the Constitution of the Exchange in which it is
provided that members having contracts with insolvents shall close out
these contracts in the Exchange when the securities involved are
listed. The Exchange being closed, this provision answered the
question without necessitating any independent action on the part of
the Committee.
* * * * *
From the moment of the closing of the Exchange a growing pressure
arose to determine just when and how it should be re-opened. The
desire for information on this point was widespread, and when the
gravity of the situation became clearer to the community, a great
anxiety developed that the re-opening should, above all, not be
premature. Realizing that the fear of sudden and ill considered action
on this question was becoming dangerous to the restoration of
confidence, the Committee of Five, at its meeting of August 3rd
authorized the following statement.
"Announcement is made by the President of the Stock Exchange, in
answer to inquiries as to when the Exchange will open, that ample
notice of such opening will be given."
In spite of this notice fear that the Stock Exchange might act
injudiciously lingered for some time longer until the constant
reiteration by its officers of their intention to act only in
conjunction and in consultation with the banks permanently allayed it.
By Monday, August 3rd, a steady stream of letters had begun to pour in
upon the Committee asking advice and direction upon any number of
questions raised by the closing of the market, and offering every kind
of suggestion and advice. In addition to this it soon became evident
that interviews would have to be held with large numbers of people for
the purpose of securing their cooperation, influencing their conduct,
and obtaining information. The resolution of the Governing Committee
by virtue of which the Committee of Five was brought into being merely
stated that questions such as these should be considered and reported
back "at the earliest possible moment." Clearly here was an impossible
situation. The immense detail of the work which was beginning to
unfold itself could never be handled by so large a body as the
Governing Committee itself. Realizing that this difficulty must be met
without a moment's delay the Committee of Five requested the calling
of a special meeting of the Governors for twelve o'clock the same day
and presented to them the following resolution, which was unanimously
adopted.
"RESOLVED: That the Special Committee of Five, appointed by the
Governing Committee on July 31st, be, and it hereby is,
authorized during the present closing of the Exchange, to decide
all questions relating to the business of the Exchange and its
members."
This action of the Governing Committee, while it was rendered
necessary by the peculiar requirements of the situation, was
unprecedented in the history of the Exchange, for never before had
such powers and such responsibilities been put in the hands of so few
individuals. It was one of a series of "war measures" by means of
which ends were achieved that would not have been reached in any other
way.
Clothed with complete authority the Committee met again in the
afternoon of August 3rd and was at once confronted with a request for
a ruling on the question of how far members were to be restrained from
dealing outside of the Exchange. After a lengthy discussion the
following was approved as their opinion.
"It was the intention in closing the Stock Exchange that trading
should be stopped and it
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