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Good-bye To Everything!
For the first half hour on that fateful Thursday, stock prices were steady.
August 1965 | Volume 16, Issue 5
The psychological medicine seemed to work. “It was with a sigh of relief, extending from the Atlantic to the Pacific, that the opening prices were watched,” the New York Times reported. “The crisis appeared to have been successfully weathered.” Trading for the day was brisk—5,923,220 shares—but most prices fluctuated little more than a point. Saturday saw more of the same, while more prophets of the bull market radiated optimism. Charles M. Schwab, chairman of Bethlehem Steel, said there was no reason why prosperity would not continue indefinitely. James A. Farrell, president of U.S. Steel, solemnly concurred. Charles E. Mitchell said the trouble was “purely technical” and that “fundamentals remained unimpaired.” Alfred P. Sloan, Jr., chairman of General Motors, declared the break was “healthy.” In this chorus of cheer, few noticed the Governor of New York, Franklin D. Roosevelt, who told a church group in Poughkeepsie that improper schemes and questionable methods were being used in stock promotions. “Many investors,” he declared, “have lost sight of the real purpose of the Exchange in a fever of old-fashioned speculation.”
Actually, much of the tranquillity on Friday and Saturday can be attributed, in retrospect, to bookkeeping. Most brokerage offices worked day and night, and on through Sunday, to get their accounts under control. One firm estimated it lost $500,000 on Thursday alone from mistakes due to “the hellish rush.” By Sunday night, accounts were fairly up to date—and another flood of margin calls went humming out over the telegraph wires.
Monday dawned in a swirl of hopeful rumors. A mountain of buying orders had supposedly piled up in brokers’ offices over the weekend. Stocks were cheap, and the Monday papers were full of brokerage-house ads, urging juicy bargains on one and all. But no one was listening. In the Sunday silence, thousands of speculators, surveying the disasters of the previous week, had decided to get out while “organized support” made the getting moderately good. Still other thousands had received those margin calls, for which they had no ready cash reply.
Trouble appeared seconds after Monday’s opening gong. Steel was off 1 ½; International Tel. and Tel., 3; General Electric, 7 ½. From there the dying Hull slid crazily downhill, carrying blue chips down five and ten points an hour. By eleven o’clock the Exchange was as demoralized as it had been at the same hour on Thursday. Where was the “organized support?” At 1:10 P.M. word swept through the Exchange that National City Bank’s Charles Mitchell had been seen entering the Morgan offices. Steel, which had broken to 194, instantly rebounded to 198. But no Richard Whitney materialized, and Thomas Lamont told reporters he had no statement to make. Ten minutes later, steel was selling for 190, and in another hour had slipped to 188.
In the light of later developments, it seems probable that Mitchell, the most outspoken champion of the bull market in its heyday, was going to Morgan’s to negotiate a personal loan. He later admitted to inquiring senators that he had borrowed $12,000,000 from the House of Morgan in a desperate attempt to support his bank’s stock. As one reporter put it, the previous week had seen the “slaughter of the innocents.” Now it was the giants of the market who were being pounded to doom. The citizens of Guclph, Ontario, birthplace of Arthur W. Cutten, had long followed his every maneuver, and more than a few had grown prosperous. After Thursday’s debacle, one of his closest home-town friends had phoned him for advice, and the ex-wizard of the Chicago wheat market had advised holding on for an inevitable rise on Monday. Now the Guelphites were out an estimated $2,500,000, and Cutten actually phoned the local paper to deny any responsibility for the crash.
A other ex-wizard, Charles Topping, who had made $85,000,000 on Western Warehouses, began receiving threats on his life from ruined true believers. Asked about Milbank Mines, his latest bullish venture, which was teetering at 43, he said: “I’ll take all that is offered at 40.” It was soon plunging past 20, and Topping himself threw in his last million-share block for a terrific loss. There was scarcely a giant who did not turn ottt to have feet of very inferior day. Almost all the august bankers who had marched to the rescue on Thursday were later found to be suffering from severe financial wounds at the very moment they had uicd to save the day. Charles Mitchell narrowly escaped jail for selling 18,300 shares of his collapsing National City Bank stock to his wife when it was pledged as collateral for his loan from the House of Morgan. This secret transaction—he “bought” it back at 213 when it was selling at market for 40—enabled him to declare a loss of $2,872,305, thus wiping out all the income tax he owed on his one-million-plus salary, which he had poured into the market and lost.
The vaunted power of the investment trusts turned out to be even more mythical. When senators and other investigators finally pried open the trusts’ portfolios in 1932, ’33, and ’34, there was often little evidence of superior wisdom in men who bought, for example, $295,000 worth of bonds of the Kingdom of Yugoslavia, or 20,000 shares of the Kolo Products Corporation, which proposed to make soap out of banana oil. More important, managers of investment trusts showed far more interest in trying to support the stock of their own trusts, in which they had the bulk of their personal fortunes, than in any general support of the market as a whole.