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Table of Contents & Introduction

DESCENT INTO THE DEPTHS (1929):

The Great Depression Crash Of '29

Page Contents:

Prelude to Crash of 1929

The Crash of 1929

FUTURECASTS online magazine
www.futurecasts.com
Vol. 3, No. 3, 3/1/01.

 Homepage

Summaries of Great Depression Facts and Controversies

The Great Deception:

Great Depression Chronologies

II.
Rebound from Crash of '29 (1930)

III.
Collapse of agriculture (1930)

IV.
Debate begins. (1931)

V.
Collapse of international finance (1931)

VI.
Collapse of WW I financial obligations (1932)

VII.
Collapse of governments (1932-1933)

(The vast majority of the following was taken from articles published in contemporary issues of the N.Y. Times.)

NOTE: I suggest the following, very conservative, rules of thumb to assist in making comparisons with today's conditions.

  This may look strange when applied to commodity and consumer prices, but actually highlights the tremendous productivity advances of the last 70 years.

 Prelude to the crash of 1929:

 

 

?

   In 1926, French prime minister Poincaré imposed austerity on the French economy in a successful effort to stop French inflation. This temporarily constrained French finances, but left France as the only major European nation with a relatively healthy economy at the time of the Crash of '29. The French economy remained fairly resistant to the Great Depression for about six months after the '29 Crash, but French tax policies limited French markets as a source of credit for foreign borrowers.
 ?

 

The Allies could pay war debts to the U.S. only if they received reparations from Germany. Germany could pay these reparations and meet her internal needs for capital only by borrowing from the U.S.

   England had not fully recovered from the financial aftereffects of WW I, and made matters worse by a disastrous attempt to go back on the gold standard at a level that was much too high to be sustained by the reduced purchasing power of the post WW I pound sterling.
 ?
  As a result, only New York could provide significant amounts of capital. The Allies could pay war debts owed to the United States (more than $11 billion) only if they received reparations payments from Germany. Germany could pay these reparations (well over $30 billion) and meet her internal needs for capital only by borrowing from the United States.
 ?
  Under the 1924 Dawes Plan - by September, 1929 - Germany had paid almost $2 billion in reparations, but had had to borrow almost $1.2 billion from the U.S. market, and her state governments and private businesses had also borrowed heavily in the futile effort to keep her economy afloat.

 Financial developments:

 

 

 

 

 

?

   In the year before the Crash of '29 - in addition to the normal factors of economic growth, such as technological productivity gains and population growth in a nation with ample unused territory - there were several special factors affecting the U.S. economy.

  • The U.S. picked up many export customers - especially in Latin America - due to the ability of New York to finance their purchases. Thus, even though trade war constraints limited opportunities in many markets, U.S. exports were running at record levels in 1928 and the first four months of 1929.
  • The dullness of the European economies and securities markets - still dominated by the aftereffects of WW I and the Treaty of Versailles as well as by the trade war - made European speculative capital eager to find opportunities elsewhere.
  • Wire services now made overseas investment easy.
  • A vast reservoir of unrestricted credit available in New York multiplied the possibilities for speculative gain.

All the indications of a substantial boom were present. These in turn increased confidence and spurred speculative market investments. These were multiplied by the use of credit which the lack of proper regulation left open for use - and abuse - by speculators.

 

This was a "New Era" in economics. An "unlimited" supply of purchasing power was available to the American public. Government, financial and business leaders would never allow any substantial decline. UP was the only way to go.
   Good business conditions during the first four months of 1929 caused the stock market to rise. The rising market attracted capital from abroad as well as from investors at home. Speculators drew heavily on available credit and channeled a huge volume of capital into the stock exchanges.
 ?
  The market averages rose sharply, pushed on by the buoyant speculative leaders. Large profits increased confidence and the speculative spirit drew available credit from all over the world.
 ? 
  Profits spurred consumption and consumption spurred industrial expansion. The economy boomed even above the level of the 1928 boom. Autos, steel, exports, imports, and railroad car loadings moved smartly higher. While construction was slow, even the chronically sick textile and coal industries were showing substantial improvement.
 ?
  Record 1928 crops in the U.S. and worldwide at 4.7 billion bushels left a 1/2 billion bushel carryover, of which over 40% was U.S. and Canadian wheat. The U.S. carryover almost equaled an average yearly export total. The U.S. had produced almost 20% of the total world wheat crop.
 ?
  Despite this huge agricultural carryover, reports of poor crops in Canada, Argentina and Australia - and a federal Farm Board authorization of $500 million to support agricultural prices - aided agricultural prospects and supported generally higher prices during the summer of 1929. Unemployment was low and wages and dividend payments reached new highs.
 ?
  All the indications of a substantial boom were present. These in turn increased confidence and spurred speculative market investments. These were multiplied by the use of credit which the lack of proper regulation left open for use - and abuse - by speculators.
 ?
  Although earnings were at boom levels, by August, 1929, the market price of speculative leaders ranged from 20 to 30 times earnings, with some even above that. When questioned how high the market could go, "experts" would state that there was no limit. The market was merely discounting the future economic expansion which was sure to come. This was a "New Era" in economics. An "unlimited" supply of purchasing power was available to the American public. Government, financial and business leaders would never allow any substantial decline. UP was the only way to go.
 ?

Short term interest rates had frequently been at and above 15% in 1929, but did not exceed 10% after August, 1929.

 

After the first week in October, 1929, speculators could borrow at 7% and less - New York banks were able to increase their reserves - many brokers were able to enforce new minimum margin levels ranging from 30%-to-50% on speculative stocks - and investment trusts were able to sell out a large portion of their holdings and carry hundreds of millions of dollars in cash and liquid assets.
   On September 1, 1929, with values on the New York Stock Exchange (NYSE) calculated at just under $90 billion, bank financed broker's (margin) loans equaled almost 9% of this total - the vast majority of which was channeled into NYSE stocks. Additional margin loans were funded by the well healed brokers, who were able to call on funds from "others," including corporations, wealthy individuals, foreign sources and out-of-town banks. Loans extended directly by banks on securities of all sorts were just as high. There was well over $7 billion in unsecured bank loans, and debts from installment purchases reached into the billions of dollars as well.
 ?
  From all over the nation and the world, capital was attracted to New York and channeled by speculators into approximately 42 issues on the Big Board and a small number of other attractive issues on the other national exchanges, pushing them continuously upwards from one new high to another.
 ?
  This massive inflow of private credit limited Federal Reserve Bank efforts to dampen the speculative excess. These efforts had pushed short term "call" rates to and above 15% in March, April, May, and July -- but they would not exceed 10% after the end of August.
 ?
  The bond market was dull and most of the rest of the shares listed on the stock exchanges showed as many declines as advances. Despite the great bull market, the dividend yield average for NYSE stocks only briefly dipped below 3%. Except for France and the tiny Scandinavian nations, credit dried up all over Europe. 
 ?
  In the first 10 months of 1929, there was $9.2 billion in new securities issued. This was 30% more than in any previous 10 month period. Yet, so great was the flow of credit capital into New York that the supply remained capable of meeting all demands. In September, 1929, speculators could borrow at rates ranging from 8% to 10% and, from and after the first week in October, 1929, at 7% and less.
 ?
  New York banks were able to increase their reserves. Many brokers were able to enforce new minimum margin levels ranging from 30%-to-50% on speculative stocks, and investment trusts were able to sell out a large portion of their holdings and carry hundreds of millions of dollars in cash and liquid assets.

  Ten percent is not much to pay when stock is rising 8% per month, and 3% dividends can also be borne. But if there is any substantial indication that the stock market rise may be at an end, these factors will force selling until the encumbered shares have found new owners at price levels that bring a more substantial dividend return.
 ?
  However, while "tight money" thus played some role as one of the "triggering" events of the economic slowdown and initial uncertainty that afflicted the markets in September, 1929, it was obviously not a factor after the first week in October, 1929. It played no role in the Crash at the end of October, 1929, or in subsequent economic or financial developments.

 Boom:

 

 

 

 

 

 

?
   Portents of trouble began to arise in May, 1929. By the end of the month, there were reports that automobile inventories for both new and used cars were building up, and auto production would be cut back - but only to the "boom" levels of 1928. However, auto production had been running at 38% above 1928 levels. This surge in auto production had been stimulated in part by record exports, which had suddenly begun a rapid decline in May.
 ?
  The auto production cutback would eventually cause a 10% reduction in steel production - also back to 1928 levels. Steel production was running close to and sometimes even above 100% of rated capacity, with unfilled order backlogs at or near record levels.
 ?
  There had also been a sharp but temporary drop in farm commodity prices that May, accompanied by a sharp decline in stock prices as wheat approached and passed the "traditional dollar line" bear market signal. The rise and fall of wheat exports and prices had been the predominant factor in several business cycles during the previous half century. However, most of the rest of the economy was booming and, except for autos, inventories of manufactured goods were reported low.
 ?
     In June, 1929, English gold reserves again started draining out to France, and U.S. broker's loans - already over $6 billion - began to rise. But bullish news of much smaller crops in Canada, Argentina and Australia pushed wheat and other grains substantially higher and the increase in value was expected to more than make up for the smaller crops that U.S. farmers were harvesting. Even though wheat tariffs were high in important markets like France and Italy, it was expected that exports would be substantial and that the U.S. would enjoy a substantial decline in the huge stockpile of wheat left over from its 1928 bumper crop.
 ?
  The U.S. had been exporting almost 300 million bushels of wheat annually from crops of about 800 million bushels, and the grain markets were hugely dependent on these exports.
 ?
  The stock market quickly regained all of the ground lost in May. The German market continued its painfully steady decline into depression, and London and Paris markets were dull. Wall Street interest rates in excess of 10% attracted credit capital from all over the world, and the expectation of a substantial market recovery from the May decline attracted ownership (equity) capital as well.
 ?
  However, the cessation of the capital flow out of New York was already disrupting the circular arrangement of world finances and causing a crisis in reparations and war debt payments. Foreign loans by U.S. lenders in 1929 would reach only 50% of the 1928 total.
 ?
  The NYSE rose approximately 8% in June, 1929, to a new total value of about $77 1/4 billion. But broker's loans rose to $7 billion. An economist, B. M. Anderson, Jr., noted that the flow of capital to New York had already pushed European interest rates up to levels that were too high for many foreign borrowers.
 ?
  In late July, the U.S. wrote off 61% of French war debts, decreasing the total from $4.2 billion to $1.6 billion.
 ?

 Economic slippage had begun in autos, exports, and construction, with steel expected to follow. But confidence remained high, and capital continued to flow into New York from all over the nation and the world.
   August, 1929, saw signs of continued prosperity. Despite large auto inventories and auto production cutbacks, steel production was maintained at nearly 100% of capacity by increases in demand for pipe and structural steel and the existence of the big backlog. The average for the first eight months was a spectacular 95%.
 ?
  But a 10% reduction in production was predicted for September. Both new and used car dealers reported huge inventories, but it was widely hoped that domestic and export sales would cut into this in September. Exports were slipping from their high spring levels. Construction had become depressed.
 ?
  Exports were up 10% over 1928 levels for the first seven months of 1929 - but they had been running at 18% higher than 1928 levels in the first four months. Only Germany, the Netherlands and Russia had curtailed imports from the U.S., but slippage was already evident.
 ?
  Dividends rose substantially, and almost all levels of the economy were booming. With summer slowdowns the rule in previous years (before air conditioning, the economy fluctuated seasonally) - this economic activity instilled great confidence.
 ?
  Capital continued to flow into New York from all over the world. NYSE stocks reached $89.6 billion on September 1, 1929, up a fantastic $19 billion in the last three months. But broker's loans and bank loans on securities were also up sharply. Broker's loans equaled almost 8.8% of total Big Board value on September 1.
 ?
  The use of other sources of credit had also been sharply increased, and the flotation of record volumes of new securities were planned for the rest of the year. Corporations, wealthy individuals, foreign sources and out-of-town banks continued to pour credit capital into New York to take advantage of the high interest rates.

 Bust:

 

 

 

?
   On September 1, 1929, it was reported that British gold reserves had declined to the lowest levels in four years. It was expected that England would soon have to raise its discount rate to 6 1/2% to attract capital back from New York and Paris.
 ?
  New York banks were reducing their market commitments and the investment trusts - in which over $3 billion had originally been invested - were selling substantial amounts of their securities holdings - increasing their liquid reserves to between $500 and $700 million. (News of this "smart money" sell off would not be reported until November - after the Crash.)
 ?

 An erosion of confidence began to contract credit.
   Nervousness over a stock market that was openly recognized as "speculative" increased the perception of risk and began to contract credit. Brokers started asking substantially increased margin coverage on speculative stocks. Billions of dollars worth of new securities - especially new investment trust stock - was being held on credit due to a lack of buyers. The rediscount rate was 6% in New York City, 5% elsewhere. Short term interest rates for margin speculators ranged between 8% and 10%.
 ?
  The predicted reduction in steel production (down to a total of 89% of capacity) came in the first week in September. In addition to autos, it was reported that steel orders from the agricultural implement manufacturers was less than expected. The construction industry remained depressed - running at about 25% below 1928 levels. Exports continued to slip. However, retail sales, railroad car loadings, and all other economic indices remained at favorable or even record levels. Smaller profit margins were being offset by higher business volumes.

  At this point, nothing in the domestic economy indicated an imminent break in securities prices except the overextended nature of the financial picture. At worst, all that was indicated was a temporary lull in the advance - like so many that had come and been overcome before.

 Reports of increases in broker's loans, and predictions by Roger Babson, made Wall Street nervous.
   However, the overextended financial leverage meant that even a lull would be intolerable. On September 4, it was reported that broker's loans had increased $400 million in the month of August. This report caused a nervous downward reaction in stock prices. But the market started back up the next day. Then, at two o'clock, the ticker flashed the news that a "statistician" - Roger Babson - predicted a great break in stock prices - the greatest break ever - only, he didn't know when it would occur.
 ?
  Bankers, some economists, and Babson himself, had been uttering dire warnings for well over a year without any previous effect. However, the demand for stock at present high prices and low yields had grown so thin, and the competing stock offerings - old and new - had grown so vast, and high interest rates and high price/earnings ratios so obvious, that this time a spectacular fifty minute crash ensued.
 ?
  At the news, speculators started selling out and selling short. The market was honeycombed by "stop loss" orders designed to protect the profits of the last three months. These were reached in minutes and a vast flood of selling was thrown on the market "at the market" only to find few buyers at anywhere near previous prices. Finally, a flood of new buying poured in to take advantage of the low "bargain" prices and, with the help of "covering" by the shorts, provided a slight recovery in the last ten minutes. However, industrials were down over $10 (about 3%) for the day - all in the last hectic hour.
 ?
  The short interest would not exceed 1/6 of 1% of the entire market at any time during these critical last four months of 1929, but it was concentrated in a few speculative leaders. By January, 1932, it would approach 2%.
 ?
  Babson's prediction was uncanny. Any market slide would soon start a stampede to safeguard profits. Investment trusts would begin to sell first (they already had begun to sell - contrary to the market myth that they would always support the market). On hearing this, European brokers would begin to sell out their customers' American holdings. Then the general public would begin to sell and margin accounts would be closed out, "and then there will be a stampede for selling which will exceed anything that the Stock Exchange has ever witnessed."
 ?
  The break predicted was 60 to 80 points on the averages - about 25%. Here, he proved somewhat optimistic.
 ?

"Confidence game" assertions by Yale Prof. Irving Fisher and authoritative Wall Street voices sought to calm investor nervousness.

 

 

  The time was not yet ripe. An economist - the prominent Yale Prof. Irving Fisher - was quickly found to contradict Babson. "Official" Wall Street sneered at Babson's "intemperate predictions." The advance would continue as before - despite such "gratuitous" forecasts.
 ?
  The stock market - which previously appeared to ignore outside influences in its headlong climb - was now reacting nervously to each scrap of news. The financial pages were filled with news of the record high earnings and general economic prosperity of the previous summer months, and hopes for recovery in auto sales and steel production. But news of the great increases in broker's loans each week brought periodic sharp drops to the market and general apprehension. A large short interest was reported.
 ?
  However, capital was still pouring in from many sources. The large volume of odd lot purchases indicated buying by many small speculators. The market edged upwards on September 18. The upwards movement broke the nerve of many of the shorts and sent them scurrying to "cover" their positions and limit their losses. This surge brought the market to its all time high on September 19, 1929.

  Brokers were being deluged with telephone requests for up-to-the-minute quotations. This would continue for the next two months.
   Wall Street was nervous. Brokers were being deluged with telephone requests for up-to-the-minute quotations. This would continue for the next two months.
 ?
  Construction remained depressed, autos, farm machinery and steel production had been cut back to 1928 levels. Exports continued to fall. There were reports of further cutbacks in steel orders. While only small further production declines were expected, hope for a rapid renewal of production increases faded. Broker's loans continued upwards and the tide of new offerings competing for available capital reached flood proportions.
 ?

 

 At first, after each drop, "experts" could be found for "confidence game" assertions that the liquidation had run its course. Brokers were congratulating themselves that their foresight in raising margin requirements had kept the number of margin calls low.
   Ownership (equity) capital was leaving the market. It had begun when the investment trusts started to build up their cash holdings. One trust, International Equities Corp., was reported holding 94% of its assets in cash. There was a shift towards bonds and utilities stocks, which was reflected in the rise of these prices. British investment trusts were getting out - and would stay out - resulting in excellent profits for 1929.
 ?
  As steel production continued to slip, speculative issues slipped lower, and margin requirements and credit for margin speculators tightened. The "Hatry" scandal - which would cost investors about $57 1/2 million - broke in England at about the same time that the Bank of England was forced to raise its discount rate to 6 1/2%. This initiated a small but significant flow of capital out of Wall Street and back to England.
 ?
  The market was struck by several sharp declines and sharp, but much smaller, recoveries as each drop drew more speculators in to buy at new "bargain" prices. After each drop, "experts" could be found for "confidence game" assertions that the liquidation had run its course. Brokers were congratulating themselves that their foresight in raising margin requirements had kept the number of margin calls low.

 It was reported that many margin investors were buttressing weak margins by borrowing on stock not previously held on margin.
  By October 1, 1929, ten of the summer's most spectacular issues had dropped 12 1/4% to 28% (an average of about 18%) from their highs, and the NYSE was down $2.8 billion for the month of September. Nevertheless, broker's loans surged by $667.7 million to about $8 1/2 billion (now almost 10% of total NYSE value).
 ?
  It was reported that many margin investors were buttressing weak margins by borrowing on stock not previously held on margin. Money was readily available. Secured and unsecured loans and consumer credit were all sharply up.
 ?
  Railroads had declined furthest despite reporting record car loadings and earnings. Railroads had been a favorite of foreign investors, and car loadings were considered a primary indicator of economic activity in that era before super highways. Nevertheless, pipelines and trucking were beginning to take larger shares of the long distance transportation market. Utilities and bonds were up.
 ?

Broker's loans had risen sharply at the end of September despite the stock market decline.

 

  The liquidation during the first week of October finally began to free credit capital. Interest rates dropped sharply in the second week and would not again be a factor in the Great Depression.
   October began with good news. A rise in steel production put both U.S. Steel and Bethlehem Steel at 90% of capacity. The U.S. Steel unfilled orders backlog rose 1/4 million tons in September to almost 4 million tons - just 1/2 million below its spring record. Business failures were low and railroad car loadings, wages and dividends had continued upwards.
 ?
  However, October 3 brought the report that broker's loans had risen sharply despite the stock market decline. It touched off a wave of selling. Shorts sold actively. Stop loss orders were quickly reached and a large volume of stock was thrown on the market at whatever it could bring. Even utilities were now caught in the sell-off.
 ?
  That night, the first large-scale margin calls went out from Wall Street. The next day saw continued selling of odd lots and small lots as the "little guy" was forced to sell in response to margin calls. However, affluent speculators generally covered their margins with new cash or borrowing.
 ?
  The Saturday session saw a sharp rally as investment trusts, pools, businesses and financial institutions entered to grab "bargains." Foreign capital was fleeing, and the London market was up. The liquidation finally began to free credit capital, as interest rates dropped and would not again be a factor in the Great Depression.
 ?
  The lows of October 4 were 39 1/3 points - 12 5/8% - below the September 19 highs. The Big Board had lost over $8 billion. No one was laughing at Babson any more.
 ?

 Interest rates had declined to the lowest levels since July, 1928.
   The second week in October was nervous but almost normal. Large used car inventories were reported and steel orders by auto manufacturers declined to the lowest levels so far that year. Steel production for the smaller producers declined to about 75%, although U.S. Steel remained at 89% and reported good increases in unfilled orders due to demand outside the auto industry. Exports continued lower.
 ?
  Business remained good in almost all other fields, and broker's loans finally showed a significant decline. Interest rates had declined to the lowest levels since July, 1928. Stock markets in England, France, and even Germany, showed good strength.
 ?
  Investment trust managers had a problem. They could not meet their preferred dividend obligations if they just held cash and liquid assets. Nor were the low dividend yields of the stocks they held sufficient for this purpose. They were thus forced to be optimistic and were using their large cash reserves - prudently acquired in the previous weeks - to snap up "bargains." This buying power - potentially in excess of $1/2 billion - helped sustain the market for over ten days. But a large portion of this money went into the bond market.
 ?

New issues continued to flood the market. Many remained unsold and were carried on broker's credit. Many were canceled.
   Broker's loans were again increasing, almost completely wiping out the decline of the previous week. New issues - planned weeks before the decline began - continued to flood the market. Many remained unsold and were carried on broker's credit. Many were canceled.
 ?
  The Big Board recovered about $6 billion of the $8 billion lost since its September high, and, on October 11, showed a gain of about $1.7 billion for the month.

Aided by margin call selling forced by the week's decline, prices were soon driven amongst the stop loss orders and the sell off became general.

 

A sharp decline in commodity prices now provided additional evidence that the economic boom was over. Indeed, a significant decline in economic activity was becoming increasingly evident. Despite falling interest rates, the stock markets had only one way to go.

 

   In the latter half of the third week of October, U.S. Steel production dropped to 82% of capacity. The market was jolted by several sharp sell offs. This culminated in a $1 billion loss on the NYSE in the short (3 hour) Saturday trading session. Saturdays normally showed reduced trading activities and, this time, buying orders were few and far between. Large short interests repeatedly entered to sell speculative stocks down. Aided by margin call selling forced by the week's decline, prices were soon driven amongst the stop loss orders and the sell off became general.
 ?
  By the end of the day, the largest short interest in history was reported in the market. They could be expected to cover their positions and realize their gains at some point, thus providing potential buying interest. However, many speculators and ordinary investors had fled the market, and this damage could not quickly be undone. Many investment trusts and other large investors had been using "scale down" techniques to buy during the decline, but had now lost so much on their "bargains," and had used up so much of their cash reserves, that even these sources now began to dry up.
 ?
  A sharp decline in commodities prices now joined the stock market decline as capital began to deteriorate. Many commodity prices were undermined by the declining export market and were threatened by heavy surpluses. This sharp decline provided additional evidence that the economic boom was over. Indeed, a significant decline in economic activity was becoming increasingly evident. Even steel prices - sensitive to market conditions - began to slip. Despite falling interest rates, the stock markets had only one way to go.
 ?

Despite the month long drop, stock averages were still almost 50% above their January 1, 1929, level. Babson predicted a renewal of the decline. Mitchell of National City Bank countered with sunny confidence.
   Monday, October 21, saw a continuation of the crash. Speculators could no longer meet margin calls and shorts sold with abandon. Investors who still had profits continued to sell out and foreign capital continued to leave.
 ?
  Worried about the economic impact of this now substantial break in stock market prices, bankers, political leaders, and Prof. Fisher began playing the "confidence game" in earnest. Business was still good, securities prices were now at "bargain" levels and would soon recover and move to new high levels. Tuesday saw a sharp rally as shorts hurried to take profits. But purchases by even this record short interest could not, of itself, sustain a rally for more than a few hours.
 ?
  Despite the month long drop, stock averages were still almost 50% above their January 1, 1929, level. Babson predicted a renewal of the decline. Charles E. Mitchell, Chairman of National City Bank, countered with sunny confidence. Growing evidence of economic weakness, high levels of broker's loans and "undigested" stock offerings need only be ignored to be rendered harmless.
 ?

 

 

 

Railroad car loadings - a vital indicator of economic activity - had joined in the economic decline.

   Wednesday, October 23, saw a loss of about $4 billion on the NYSE - about $6 billion for all stock exchanges combined. A new record was set for margin calls going out from Wall Street. Accompanying these calls in some instances were notices raising margins on speculative issues as high as 75%. Forced selling became common as these margin calls were now seldom answered.
 ?
  The market decline was now, for the first time, having an observable impact on business. Many businessmen were reported reviewing their inventories and revising downwards their purchasing programs for the months ahead. Railroad car loadings and imports had joined exports, commodity prices, construction, steel and auto production in the decline. This news, in turn, reinforced the forces driving the stock market lower. U.S. Steel production slipped to 80%.
 ?

 

 Other stock markets all over the nation and all over the world were now nervously dropping due to the possible implications of the NYSE's wild gyrations.

 

Brokers reported a large decline in the number of trading accounts on their books.
   Thursday, October 24, began with a crash. Unanswered margin calls and news of the decline in railroad car loadings along with considerable short selling blew the bottom out of the market.
 ?
  Bankers and businessmen organized support for the market. An initial purchase of 200,000 shares of U.S. Steel and news of the powerful support caused a rush of short covering. Investment trusts threw in more of their reserves at what was expected to be the "bottom" of the crash. The rally rolled on until the end of the hectic session, making up most of the early losses. Just under 13 million shares were traded.
 ?
  However, many substantial investors had been driven out in the morning crash. The market was losing the broad base of its support. Other stock markets all over the nation and all over the world were now nervously dropping due to the possible implications of the Big Board's wild gyrations.
 ?
  Business leaders joined political leaders and financial leaders in assuring the public that business was still good and the market would go no lower. Brokers took optimistic poses and cautioned against "panic" selling. They advised "selective" buying. An increase in odd lot buying indicated that many "small fish" were biting at this bait. Nevertheless, brokers reported a large decline in the number of trading accounts on their books. By Saturday, stock prices began to edge nervously lower.
 ?

Banks and brokers were loaded with distress stock that they would attempt to unload each time the market started to rally.
These joined the continuing flow of new issues in competition for the now rapidly declining sources of equity capital.

Brokers would sell out margin accounts after a single phone call for additional margin. Orders to buy that had been entered on the books and carried since 1928 were now suddenly being reached. Stocks fell whole points from sale to sale. It was the greatest drop in values in history.
   By Monday, October 28, remaining bull speculators had drawn heavily on secured and personal credit from banks and other sources and had depleted personal savings in the effort to hold on until the expected rebound. But each decline now destroyed more of these overextended investors - driving them under before the partial recoveries could relieve them.
 ?
  Banks and brokers were loaded with distress stock that they would attempt to unload each time the market started to rally. These shares joined the continuing flow of new issues in competition for the now rapidly declining sources of ownership (equity) capital. They discouraged bull speculators and encouraged the bears who were powerfully reinforced with recent profits and legions of newcomers to the art of selling short. Even at these significantly lower prices, dividend yields were still too low to induce buying in the absence of expectations of stock price appreciation.
 ?
  The investment trusts had already expended half their reserves. The huge bankers' pool stood alone in the breach. Sunny statements could not restore the situation.
 ?
  The sell off began early. The shorts jumped in, expanding the demand for scarce equity capital. There was no support anywhere. Many had finally decided over the weekend to get out. Others were soon driven out. Brokers would sell out margin accounts after a single phone call for additional margin. Orders to buy that had been on the books since 1928 were now suddenly being reached. Stocks fell whole points from sale to sale. It was the greatest drop in values in history.
 ?
  $10 billion was wiped out on the NYSE. The combined loss on all U.S. exchanges was $14 billion. 9.2 million shares were traded.
 ?

 Over $30 billion had been wiped off the Big Board since September 19, a loss of 1/3 of its value. Billions more were wiped out on the smaller exchanges.
   On Tuesday, October 29, selling orders came pouring in from all over the country. Selling orders came from discouraged investors and from broken speculators. Selling came from margin closeouts and from an ever growing short interest. Selling orders that, all too often, were at whatever price they could bring, "at the market."
 ?
  The rate of losses continued throughout the day at about the same rate as on Monday, but the volume of shares traded was much heavier. 16.4 million shares traded in a single day.
 ?
  Over $30 billion had been wiped off the Big Board since September 19 - a loss of more than 1/3 of its value. Billions more were wiped out on the smaller exchanges. The now heavily committed investment trusts and big investors were heavily hit at this point. They were "too big to duck." Investment trusts lost about $500 million in the crash.
 ?
  A curb exchange firm was suspended - the first to go. The suicide of a once wealthy investor was reported.

 From all over the country, buying orders began to flow in. They were not "traders." They bought for cash and often took the stock certificates with them to hold as long term investments.
   Based on current dividends, stock prices had now reached fairly attractive levels. Shorts rushed to "cover" and take profits. Investment trusts exhausted the last of their cash reserves buying stock. Bankers and brokers held on to hundreds of millions of dollars worth of distress stocks that they chose to temporarily absorb rather than risk touching off another selling wave. Brokers reduced margin requirements to 25% to ease pressure on those hard pressed speculators who were still hanging on.
 ?
  From all over the country, buying orders began to flow in. They were not "traders." They bought for cash and often took the stock certificates with them to hold as long term investments. Insurance companies and large businesses bought heavily at the now attractive prices. Many bull speculators scrounged up whatever they could to get back in the game and recoup their losses. Many shorts went long.
 ?

 

U.S. Steel and American Can announced issuance of $1 extra dividends, and Rockefeller let it be known that the family was buying stock at current "bargain" prices. The whole business, financial, governmental and academic community teamed up to issue "confidence game" pronouncements and restore confidence.
   Wednesday, October 30, found the market in a strong all-day rally, with 10.7 million shares traded. The NYSE announced that it would close Friday and Saturday, purportedly to give hard-pressed personnel a chance to catch up with clerical work. The need was real, but the action was also viewed as an effort to dampen market volatility.
 ?
  U.S. Steel and American Can announced $1 extra dividends, and Rockefeller let it be known that the family was buying stock at current "bargain" prices. The whole business, financial, governmental and academic community teamed up to issue "confidence game" pronouncements and restore confidence.
 ?
  The Federal Reserve lowered the discount rate a whole point to 5%, and the Bank of England reduced its rate 1/2 point to 6%. They were actually behind the times. Private interest rates had already fallen much further. Money flowed in from all over the country to get in on what all expected to be the absolute "bottom." Sen. Robinson (D. Ark.) blamed the Fed for not tightening money sooner to prevent the speculative boom.
 ?
  Broker's loans declined over 25%, from $8,549 billion to $6,108 billion. The rally continued sharply on Thursday - the last trading day of the week.
 ?
  Buying orders continued to come in throughout the long weekend. However, a mass of stop loss orders was in place to protect the profits of the sharp two day rally.
 ?

 Railroad car loadings really hit the skids with a drop of about 30% in one week. The market crash had delivered a powerful message, causing businesses all over the country to reevaluate their inventory needs and cancel orders.
   On Monday, November 4, banks and broker's started to take advantage of the inflow of ownership capital to unload some of their distress stock holdings. The two forces balanced precariously as the market edged slightly lower.
 ?
  The market was closed for election day and was limited to three hour sessions for the rest of the week. It was again closed for Saturday. Nevertheless, heavy selling continued through that week and into the next.
 ?
  Railroad car loadings really hit the skids with a drop of about 3% in one week in an industry that seldom saw major variations. The market crash had delivered a powerful message, causing businesses all over the country to reevaluate their inventory needs and to cancel orders. The shorts began to hit the market again. Prices began to fall amongst the stop loss orders.
 ?

 

 Stock averages were now down to the level of July, 1927. Total values on the Big Board had dropped to about $48 billion.
   The crash on Wednesday, November 13, was as sharp as any - limited only by the shortness of the 3 hour session. 6 million shares were traded. Sharp declines now struck all foreign markets as foreign investors were hit by their Wall Street losses. Wheat, corn and oats hit 1929 lows. Cotton prices sagged to the lowest level in two years. Steel production dropped to 73% with a further drop predicted. Stock prices plunged far below their October 29 lows.
 ? 
  Between September 19 and November 13, both the broker's loans and the N.Y. Times Stock Average declined an identical 47%. Stock averages were now down to the recession level of July, 1927. Total values on the Big Board had dropped to about $48 billion.
 ?
  More suicides. The impoverished rich were cutting short European vacations. The first Big Board firm failed. Over $500 million in distress stocks held by banks and brokers hung like a sword over the market, limiting any possible advance.

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Copyright © 2001 Daniel Blatt