"Big Board" Failures

If evidence that finance is international in scope were needed, it would be strikingly provided by the failures cf the Stock Exchange firms of Knauth, Nachod & Kuhne and Zimmerman & Forshay. Both were old and for years substantial concerns, specializing in German securities exchange, and engaged in a banking rather than a stock commission business. The causes for these failures are therefore quite different from those behind the recently announced insolvencies of Curb, Consolidated and nonmember houses, and can directly or indirectly be traced principally to the sensational fall in the German mark.

In the case of the first house known in the Street as "K. N. & K" or "Knock, Knock & Kuhne" because of the common difficulty in pronouncing its partners' names) its long-established business in German securities and exchange became so unprofitable that the house was compelled to enter new and previously untried financial fields. With very faulty but not uncommon judgment, the house began to float petroleum securities in the boom of 1919-20. Heavy losses were sustained in Simms Petroleum, which took a greater toll from supposed "Wall Street insiders" than from the general public. The last venture was in Mexican Seaboard, whose sharp drop was the occasion of the firm's insolvency. Rumors caused a run of frightened customers and the failure became inevitable.

Unlike "K. N. & K.," the failure of Zimmerman & Forshay was quite unexpected. No mention of its name had been made in the excited rumors of Wall Street. Even President Crowell of the Stock Exchange was unaware of its critical condition. The house was, in fact, solvent on paper at the time of its failure, but its assets, including claims against the Alien Property Custodian, were frozen. The concern had long been known for its dealings in foreign exchange and silver bullion. Before the establishment of the Reserve System, the firm had during panic times done a curious but successful business in exchanging American currency, then at a premium, for American certified bank checks.

The third Stock Exchange failure --that of Einstein, Ward & Co.--apparently arose from the sharp recent decline in stock prices.