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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If cases come into your office where it is absolutely necessary
to trade, do so as quietly as possible and prevent the quotation
from being published."
It will be noticed that the policy adopted here was less stringent
than what came later when the growth of an outside market increased
the dangers of the situation.
* * * * *
With the question of outside dealings there at once arose the closely
connected question of the danger arising from having price quotations
of such dealings made public. The quotation machinery of the Exchanges
had been silenced by the closing of those institutions, but there
remained the public auctioneers whose sales, if they took place, would
be disseminated by the press and might spread panic among security
holders and money lenders. The auctioneers in New York, Boston,
Philadelphia, and Chicago were at once approached, not only directly
but through their bankers and other advisers. It was a disagreeable
task as these auctioneers had to be urged to cease doing business, but
it was rendered unexpectedly easy by the courtesy and friendliness
with which they coöperated for the general welfare. So loyal were
these various agencies that not a single sale, either of listed or
unlisted securities, occurred in any auction room of the country until
the urgent phases of the crisis had passed.
It was not in auction rooms alone, however, that prices might be made;
dealings were liable to occur in any unexpected locality, and it was
urgent that prices of an alarming character should be kept from the
public. For this most important purpose the coöperation of the press
was absolutely necessary. To obtain this, at the outset, was no easy
matter. The closing of the Stock Exchange placed the financial news
writers of the daily press in a curious position. With them were
allied that group of financial writers connected with the various Wall
Street news agencies, the several financial journals that are
exclusively devoted to Wall Street affairs, and the financial
correspondents of out of town newspapers. All told there were about
one hundred salaried men in these various groups, men experienced in
financial affairs, widely known and respected, engaged in a work which
had never been interrupted and which, as far as could be foreseen,
promised to furnish them with a continuous vocation.
The first effect of the war was a general curtailment of newspaper
advertising, a rise in the price of paper, and a greatly increased
cost of the news of the day owing to excessive cable charges for
foreign dispatches. Thus the newspapers suffered a rapidly diminishing
revenue, and they found it necessary to discharge many of their
employees and to reduce the salaries of others. With the Stock
Exchange closed, naturally the salaried financial writers were among
the first to feel this hardship.
Those whose services were retained throughout this crisis were
confronted with divided responsibilities. It was their duty to
interpret a mass of more or less fantastic rumors at a time when
nerves were overwrought and points of view magnified and distorted.
They wished to prevent the publication of anything of an incendiary
nature, while at the same time a necessity arose for presenting to the
public the news to which it was entitled. Placed in such a position
there was a very natural impatience here and there to have the
Exchange reopened, while now and then a tendency became manifested to
publish certain news of the day which, while interesting to the
public, tended to handicap the efforts of those bent only on
reassurance and calm counsel. At times it became somewhat difficult to
prevent the publication of some of these matters, particularly of the
prices made in the so called "gutter" market which sprang up in New
Street. And yet on the whole nothing could have exceeded the fairness
and the spirit of coöperation of these gentlemen in this trying time.
One newspaper even went so far as to cease the publication of a
remunerative page of small advertisements having to do with dealings
in outside securities. This was done at the request of the Committee
without hesitation. Others coöperated in the suppression of
advertising on the part of questionable people, while correspondents
of out of town newspapers, both foreign and domestic, cheerfully
acceded to requests to suppress all disturbing financial reports. In a
word, the financial department of the whole newspaper press accepted
the situation philosophically, bearing their losses without complaint
and supporting without cavil the restrictive measures which it was
necessary to employ.
This loyal conduct of the press and of the auctioneers was one of the
great factors without which the critical days of the suspension of
business could not have been successfully surmounted.
* * * * *
It will be remembered that in the morning of July 31st, the Governing
Committee not only voted to close the Exchange but also declared that
the delivery of securities should be suspended until further notice.
The motive of this latter action was to prevent the possible
insolvencies that were likely to be forced if purchasers were
compelled to pay for their securities in the absence of a call money
market. At the earliest moment that attention could be given to it the
Committee of Five requested the Chairman of the Stock Exchange
Clearing House to place before it the exact figures of the outstanding
contracts. These figures when presented showed that there were stock
balances open on Clearing House order amounting to $38,700,000 and
Ex-Clearing House contracts amounting to about $61,000,000. Roughly
speaking there had been about $100,000,000 of stock sold in the
Exchange on July 30th, the delivery of which to the purchasers had
been suspended by the action of the Governing Committee. Obviously a
first great step toward clearing up the situation and preparing the
ground for the ultimate reopening of the market was to get this great
volume of contracts settled, so that if any failures were inevitable
they would be disposed of beforehand.
It being probable that many of the purchasers of stock on July 30th
were in a position to finance their purchases even in the midst of the
crisis the Committee deemed it wise to offer every possible facility
for the immediate settlement of contracts when the purchaser was in
this position. They therefore issued the following notice on August
4th:
"The Special Committee of Five appointed to consider questions
connected with the closing of the Exchange state that the
resolution of the Governing Committee suspending deliveries
until further notice does not mean that settlement may not be
made by mutual consent wherever feasible. The Clearing House of
the Exchange is prepared to advise and assist, and inquiries
should be made in person there."
At the request of the Committee of Five the Committee on Clearing
House at once undertook the task of assisting members of the Exchange
in closing up these contracts and used its clerical force for that
purpose, thus involving much careful and detailed work. They held
daily continuous meetings, giving their personal attention in
assisting members, and using a care that involved both tact and
arduous labor. Through their efforts such extraordinary progress was
made, in this complex and difficult task, that by September 22nd
announcement was made that the delivery of all Clearing House balances
had been completed with the exception of those of the few firms whose
affairs were in the hands of receivers. These were settled shortly
afterwards and at the same time the great volume of Ex-Clearing House
contracts were also completely fulfilled.
This is one of the most extraordinary and gratifying experiences of
the great crisis. In about seven weeks, at a time when money was
unobtainable and the condition of panic was at its height, this huge
volume of unsettled contracts was met and consummated by voluntary
coöperation and without compulsion of any kind. In some few cases
selfishness or indifference delayed action on the part of individuals,
but these were all brought to a final adjustment by the influence and
persuasion of the Committee.
This achievement not only reflects undying credit upon the members of
the Exchange by showing both the sound condition of their business and
their zeal to act for the general welfare, and creates a deep sense of
obligation to the Clearing House Committee who for many long weeks
worked unceasingly to overcome the difficulties that beset the path,
but it justifies and confirms the wisdom of the New York Stock
Exchange in adhering to the practice of daily settlements. In all the
great European centers, where trading on the fortnightly settlement
basis is in vogue, the restoration of dealings was terribly
complicated by the herculean task of clearing up back contracts that
extended over many days. In New York, when conditions so shaped
themselves as to warrant reopening the Exchange, the back contracts of
its members had all been settled up _two months_ before. Had our
system, like the European, involved "trading for the account," every
additional day of back contracts added to the $100,000,000 worth of
July 30th would have stood in the way of a final settlement, and the
reopening of the market (which was long postponed as it was) would
have been much further delayed.
* * * * *
On August 4th, a problem which had loomed upon the horizon the day
after the closing of the Exchange, was brought squarely before the
Committee. A delegation of houses dealing in securities for European
account appeared and stated that approximately $40,000,000 to
$50,000,000 of securities were to arrive "this week, beginning
to-morrow, Wednesday," and that they would be accompanied by sight
drafts which would have to be financed. This alleged great volume of
securities had been sold in this market for foreign account and
borrowed in New York in order to make the immediate deliveries that
our day to day system requires. The suspension of the fulfillment of
contracts declared by the Exchange made it impossible to return this
borrowed stock, and the houses doing this business were therefore
obliged either to allow the drafts to go to protest or finance the
incoming stock until the free enforcement of contracts was again
permitted.
With money practically unobtainable, and general panic prevailing, it
is needless to say that these statements of the delegation of houses
doing foreign business were a severe shock to the Committee of Five. A
remedy proposed by one or two of these banking houses was that the
people from whom they were borrowing stock should be required to take
it back. This simple expedient, while eminently satisfactory from the
standpoint of the borrower of stock, was not very helpful to the
Committee, as it would merely have shifted the problem of financing
the stock from one set of brokers to another, and would have raised
the dangerous question of a general enforcement of contracts in
borrowed securities. It was an interesting illustration, among some
others to be subsequently experienced, of the manner in which certain
minds can become entirely absorbed in that aspect of a question which
deals solely with personal interest. After careful discussion it was
determined that the coöperation of the Clearing House banks should be
sought in solving the difficulty. The Committee of Five thereupon
sent a communication to the Bank Clearing House committee setting
forth all the circumstances connected with the expected consignment of
securities as stated by the delegation of banking houses and requested
an appointment to meet them, or a sub-committee of their members, and
discuss the matter. The appointment was obtained for the following
morning, August 5th, and the Chairman and Mr. H. K. Pomroy were
appointed a sub-committee to confer with the Bankers and directed to
take Mr. Richard Sutro with them as a representative of the houses
doing foreign business.
At the meeting with the Clearing House bankers it was very properly
decided that a solution of the problem could only be reached when an
exact knowledge of the amount of money required to pay for the
incoming securities had been obtained, the figures stated by the
banking houses which were seeking assistance being only estimates. The
representatives of the Stock Exchange agreed to obtain this exact
information at once, and having returned and stated the circumstances
to the Committee of Five, it was directed that the following
communication be sent to a list of members of the Exchange who, it was
understood, were to have foreign drafts presented to them:--
"The Special Committee of Five requests that by three o'clock
to-day they may have in their possession from you information as
to the number and amount of drafts which you expect will be
presented to you from Europe on any steamers arriving to-day or
subsequently. They would particularly like to know how much you
expect on each steamer. In case any of these have already been
financed please so state in your communication.
"The Committee would also like to have you tabulate in your
reply, so far as you can, the banks, trust companies or bankers
from
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