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

is the duty of loyal members to comply.

     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