The Capital Of Capitalism

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Not everybody was in the market in the twenties; it just looked that way. Only half a million margin accounts were discovered on Exchange brokers’ books in 1929, out of about a million and a half Exchange customers. Another million and a half people may have been dealing on the Curb Exchange or over the counter, where many of the newly formed investment trusts were traded. The three million included upper- and middle-income businessmen, doctors, professors, plus a smattering of clerks, waiters, domestics, mechanics, and even factory workers—one plant used to post stock prices hourly on a blackboard so the men wouldn’t lose working time trying to find out how their stocks were doing.

Some people had been sold dubious stocks by fast-talking “boiler-room” salesmen operating through highpressure phone calls. Others picked up cheap “cats and dogs” the Exchange had ruled out. Everyone believed in a new and permanent era of good times, in which anybody with a little money to invest could make himself a pile.

Tales of fabulous profits in the market, some of them true, were avidly circulated. There was such a demand for new issues of stock, which always jumped in value just after being listed, that J. P. Morgan & Company, Dillon, Read & Company, and others had “preferred lists” reserving part of their new issues for high-powered friends and government officials. Elegant rooms were set aside in some brokerage houses for women customers, who talked about “Big Steel,” RCA , and Wright Aeronautical as well as about each other.

By far the bulk of the stock, in terms of value, was owned by a relatively few wealthy people. A later investigation showed that 51,000 people reaped half the value of the cash dividends paid in 1929. Many of these were wealthy old families who kept their securities in the vault, but there were some spectacular plungers who livened up the Wall Street scene. William C. Durant, who had lost ninety million dollars and control of General Motors in 1920, reappeared in the chips, always the optimist, a daring speculator with a big following. The seven Fisher brothers, loaded with cash and General Motors stock, Harry F. Sinclair, a major figure in the oil industry, and Bernard Baruch, who dated back to the bull market of the nineties, spurred activity in the so-called rich men’s stocks, priced at several hundred dollars per share, like General Electric and Aluminum Company of America. They and their companions were behind the powerful pools that manipulated at least a hundred leading stocks in 1929.

Of course it all had to end. After some minor dips that unsettled investors, the market began a catastrophic slide on October 24, 1929. Shares held on margin, shored up by more collateral once or twice in response to frantic calls from brokers, finally had to be dumped. The Exchange floor was a roaring battleground as frenzied brokers, dazed but game, rushed about trying to sell for their customers. A crowd gathered outside the building after the visitors’ gallery was closed to keep the unseemly view from the public. In brokers’ rooms clients sat stunned as the ticker, running hours behind, unfolded the grim news. The first part of the panic ended with 16,410,000 shares changing hands on October 29. Disillusionment was so severe that U.S. Steel’s announcement of a higher backlog of orders only caused the stock to decline another eleven points.

Various financiers attempted to halt the panic. The John D. Rockefellers, senior and junior, announced that they were buying. Julius Rosenwald and Samuel Insull offered to guarantee the margin accounts of their employees. A group of bankers headed by the House of Morgan formed a pool and sent a popular broker named Richard F. Whitney onto the Exchange floor to try to turn around U.S. Steel, bellwether of the market. He succeeded only in bringing about a temporary pause in the panic.

The reassurance from on high was reminiscent of previous panics. In 1893 it was announced that Russell Sage was buying, the Rockefeller crowd was planning something, James R. Keene was rumored to be getting up a magnificent bull pool. In 1907 Rockefeller had said that “the existing alarm among investors is not warranted,” and others echoed him. It didn’t work on those occasions, and it didn’t work in 1929.

Contrary to legend, men who were wiped out did not leap immediately from tall buildings. The suicide rate did go up in the Depression; but at first, of course, no one realized that the Great Crash was the Great Crash. For all the selling, there was buying as people looked for bargains. In fact, the market recovered 50 per cent of its loss in a postpanic rally that carried into early 1930.

Speculation went on; there were bull pools and bear raids still. Everyone was expecting business to “turn the corner.” But after the rally, prices drifted lower and lower, and business failures multiplied. In 1931 Moody’s Investors Service sadly told its readers it couldn’t recommend any common stocks until things looked brighter.

Moody’s was right. The low-water point was reached in 1932. Pennsylvania Railroad, for instance, which had declined from 110 to 74 in the panic, went to 6½ in 1932 ; Montgomery Ward, from 1567/8 to 49 ½ to 3 ½; Du Pont from 231 to 80 to 22; U.S. Steel from 261 ¾ to 150 to 21 ¼.