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

the dangers were, had no intention of assuming the

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