The New York Stock Exchange in the Crisis of 1914 by Henry George Stebbins Noble (portable ebook reader .txt) 📕

to furnish the means by which needy sellers constantly

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