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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immense responsibilities of re-establishing the market without the
backing and approval of the entire banking fraternity. Gradually the
excited solicitude about a premature reopening subsided as the
ultra-conservative attitude of the Exchange was understood, and this
was followed ere long by the first symptoms of agitation for the
establishment of some form of restricted market.
As we have already shown the restraints of July 31st were relaxed one
by one with the lapse of time. First a market at or above the closing
prices was organized under the Committee on Clearing House; then
Committees to facilitate trading in listed and unlisted bonds were
formed; and finally a market was provided for unlisted stocks. All
these devices, however, while they brought about readjustment and
diminution of strain, did not constitute a reopening of the Stock
Exchange, and the restoration of that great primary market, in some
restricted way, became more and more a subject of public interest and
concern.
As we have seen, the fundamental reason for closing the Exchange was
that America, when the war broke out, was in debt to Europe, and that
Europe was sure to enforce the immediate payment of that debt in order
to put herself in funds to prosecute this greatest of all wars. To use
an illustration popular in Wall Street at the time, there was to be an
unexpected run on Uncle Sam's Bank and the Stock Exchange was the
paying teller's window through which the money was to be drawn out, so
the window was closed to gain time. How to reopen this window in such
a way as not to pay out any more money to the foreign creditor than
would suit our own convenience was the problem which soon began to
agitate many ingenious minds. As time went on plans for performing
this difficult feat poured in upon the Committee of Five in constantly
increasing volume, and they were frequently accompanied by a request
on the part of their authors that, when adopted, the credit for their
success be publicly attributed to them. An edifying confidence was
thus shown in what were usually the most visionary of these schemes.
* * * * *
Space does not permit the presentation of all these multitudinous
suggestions, but as a matter of information we shall quote extracts
from some of them. In point of time, the first communication to the
Committee on this subject came on August 4th when a prominent banker
appeared in person, and gave vent to the following oracular utterance:
"When the Exchange reopens it should not do business from ten till
three, but should open from ten o'clock to one. All transactions
should be for cash, and must be delivered and paid for the same day,
no contract to be allowed to stand over night." He also made the
prediction, which was amply verified, that many weeks would elapse
before the Exchange could be reopened at all. Some little time elapsed
before anything further was presented on the subject, but by the end
of August the flood of plans began and went on increasing until the
Exchange resumed business.
On August 31st a communication was received from a well known
"Statistical Organization" for "Merchants, Bankers and Investors"
which said, in part: "In behalf of my clients, who are exceedingly
interested in making it possible for the Stock Exchanges to open
safely, I am getting the opinion of important bodies relative to the
proposed legislation suggested on the enclosed slip, or any other
which you think would serve the purpose." On the enclosed slip was the
following proposed legislation "to enable the Stock Exchanges to
open."
"Be it enacted: That until the President considers European
conditions fairly normal it shall be a misdemeanor in this
country to buy, sell, transfer, give, or accept as collateral,
shares of stock or evidences of indebtedness extending over one
year, unless accompanied by a certificate showing that the owner
is a United States citizen, together with such evidence as the
Secretary of the Treasury may require that the securities have
been owned by United States citizens since July 30th, 1914."
In answer to this proposition the Secretary of the Stock Exchange sent
the following reply:
"Answering your letter of August 29th, 1914, I am instructed by
the Special Committee of Five appointed by the Governing
Committee to say that in its opinion such legislation as referred
to would be ruinous to the credit of the United States throughout
the world for many years to come."
In September a letter was received from a Western banker suggesting
that the slogan "Buy a share of stock" if started "would achieve
success, and by so doing would greatly benefit the stock market
situation. This movement would have to be started so as not to create
the impression among the many thousands of people it would reach, that
it was merely a movement for the purpose of benefiting the stock
brokers, but that it would be instrumental in relieving the strain on
every conceivable business. Were such a movement accepted, and should
it meet with results worthy of the plan it would be found out when the
smoke clears away that American people would own American railway and
industrial shares. This could be only for the great benefit of this
country but for Europe as well, for the reason that if Europe knew
that there was a good absorbing power here it necessarily would not
dump its stocks at frightful sacrifices."
In October a junior member of one of the big private banking houses
appeared personally and stated that, in his opinion, both domestic and
foreign security holders should be treated alike; that sales should be
conducted as usual; that on reopening transactions should be
restricted and only sales be published and no bids or offers. His idea
of restriction at the start was that all stock purchased should be
paid for on the basis of 10% cash and the balance in certificates of
deposit for cash, which certificates were to be non-negotiable except
between banks. A Committee could, from time to time, remove the
restrictions from such securities as seemed no longer to require them.
The banks should be asked to agree not to call any present loans and
to be very sparing in calling for margins.
Close upon the heels of this plan came a letter signed "A Friend of
the People" which said "Let the Stock Exchange be opened strictly for
the sale of American securities held by foreign stock holders. If they
wish to throw their stocks over we can buy them at our own price.
After six or eight days' selling from Europe the Exchange could be
open to the world. By that time the market should be on a rising scale
and safe for all."
This gentleman showed some originality in his view that the foreigner
should be invited to sell at once, instead of being legislated out of
the market as so many other advisers proposed. He seemed to be quite
oblivious of the difficulties, however, that would have been
encountered in inducing American security holders to stand by in
pensive calm while the foreigners unloaded to their heart's content.
Early in November a Philadelphia banker wrote a long and intricate
letter the full details of which we have not space to reproduce, but
it contained the following fragment which is interesting in its way:
"Could not a plan be formulated between the Stock Exchanges,
investment bankers and Federal Reserve Banks, by which the
securities could be valued on their intrinsic and market values
at such prices that would be considered reasonable to be obtained
in the next two or three years; that the lenders be guaranteed
against any losses from recession below the stipulated point at
which the securities might later be liquidated, say sometime
during the year 1917, if it had not been voluntarily liquidated
without loss before. Loans so insured would have to be in force
on securities carried prior to a certain date, probably before
the Exchange opened, if not last July 30th, and that an insurance
premium would be charged which would be considered slightly more
than adequate. Any surplus could be eventually pro-rated to the
policy holders. There would need to be no obligation to take out
such insurance unless the borrowers preferred. The banks might,
however, force them to do so in many cases or pay off loans."
At about this time many letters and suggestions were received
centering round the main idea that the market be opened exclusively
for such stocks as were not much held in Europe. Just as a
correspondent cited above seemed to believe that American security
holders could be compelled to remain inactive while foreigners sold
their holdings, so these people imagined that holders of one class of
securities could be kept quiet while the prices of some other class
were declining in a free market.
With the above came a letter from a correspondent whose thoughts
carried him back to the old days of buyers' and sellers' options, when
most of the security business was done on 30 or 60 day contracts. He
proposed that the Exchange be reopened so that "all trades made be
'buyer 60'. No other bids or offers to be valid." This would postpone
for two months the settling day for the expected liquidation, and he
felt certain that by that time there could be no trouble in meeting
obligations. Unfortunately at the time he wrote there was no way of
obtaining assurance of this happy outcome. The same idea in a somewhat
different form came from another correspondent who, instead of
deferring payment by a buyer's option, proposed that stocks and bonds
be sold on a 10 per cent. basis "That is, the seller of 100 shares of
Union Pacific at 112 will deliver to buyer 10 per cent. of amount
sold, and receive a check for $1,120, together with a contract in
which the buyer agrees to take 10 per cent. more, or say 10 shares at
the end of six months, 10 shares in 9 months, 10 shares in 12 months,
10 shares in 15 months," etc., etc., at the original price of $112 per
share. This plan seemed to contemplate a bequest of unsettled
contracts to future generations of unsuspecting brokers. The author of
it was particularly solicitous that, in the event of its adoption, his
name should be handed down to posterity along with the unfulfilled
contracts.
An idea of very wide prevalence, which was touched upon in nearly all
communications to the Committee and which even some bankers approved,
was that a preliminary step to reopening should be an agreement by
the banks not to call loans made prior to July 31st, 1914, for some
specified period of time. This idea was very thoroughly discussed and
looked into by the Committee. It was found to present great practical
difficulties, but was never definitely abandoned until the resumption
of business was shown to be possible without it.
* * * * *
The advice which was received by the Committee of Five with regard to
reopening was divided into two classes. There was that large body of
suggestions, some of which we have described above, which were
volunteered either in letters or in interviews, and there was the
advice of well known bankers and men of financial prominence which the
Committee itself solicited. In the latter class figured a member of
one of the largest private banking houses in New York whose opinions
and counsel were of inestimable value. This gentleman, gifted with
clear insight and a thorough grasp of the situation, and generously
anxious to be of service to the Committee, pointed out from the start
that the reopening of the Exchange hung upon a favorable swing in the
balance of trade. When the indebtedness of the United States to Europe
could be offset by our exports the danger of reëstablishing our market
would become negligible, and this shrewd adviser predicted that the
desired reaction in foreign exchange was much closer at hand than was
generally supposed. The most valuable of his admonitions, and the
words which did most to strengthen the courage and resolve of the
Committee were these: "You will be given all kinds of advice by all
kinds of people, but remember that in the end the responsibility will
fall upon you, therefore listen attentively to everything you are told
but act on your own independent judgment." This wise course was
successfully followed, and the change in the trend of foreign exchange
came, as he predicted, much sooner than was expected.
Numerous other prominent men who were turned to for assistance showed
the greatest willingness to render every service within their power,
and placed the Committee under heavy obligations. There was one case
where the zealous desire to work out a very detailed solution of the
reopening problem brought a
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