Once Upon A Time in October

By Otto Friedrich

As usual, there were dark portents. On Sept. 5, 1929, just two days after the New York stock market reached its highest level in history, an eccentric statistician named Roger Babson warned the National Business Conference that "sooner or later a crash is coming, and it may be terrific." The market responded nervously, with the New York Times's 25 leading industrial stocks taking a 10-point dip, then recovering. The Times fretted about the "idea of an utterly disastrous and paralyzing crash."

Also as usual, the portents went largely ignored. People yearned to believe what the authorities told them. Calvin Coolidge, on turning over the White House to Herbert Hoover earlier that year, had pronounced the U.S. economy "absolutely sound." Charles E. Mitchell, chairman of the National City Bank of New York, echoed the former President in early October by declaring that the "industrial situation of the U.S. is absolutely sound, and our credit situation is in no way critical."

That is what the market seemed to have been saying for some time. The average top price for the Times industrials had risen from 186 in 1926 to 469. Just in the previous 18 months, General Motors had climbed from 73 to 140, General Electric from 129 to 396. Best of all, in the view of the investors who spent much of their spare time eyeing the tickers in the brokerage houses that were springing up around the country, stocks could be bought on margin, or credit, for as little as 10% in cash. About one-third of the nation's more than 3 million stockholders were playing the market on margin, and people at dinner parties kept telling stories about barbers or messenger boys who had kept their ears open, bought on margin and become millionaires. John J. Raskob, who had been a director of General Motors and was now the Democratic Party chairman, published an article titled "Everybody Ought to Be Rich." The jazz age would never end. What almost nobody seemed to notice was that while the leading stocks kept climbing, many others did not. Celanese, for example, had dropped from 118 to 66 since 1927, Philip Morris from 41 to 12. The speculators also did not seem to notice that the allegedly sound economy had started slowing. By October of 1929 the Federal Reserve index of industrial production had dropped from 126 to 117 since June. Homebuilding had been down for several years, and farming had been in trouble since the early 1920s.

Or if they noticed, they didn't believe. Though stocks zigzagged but generally declined through September, Banker Mitchell announced on Oct. 15 that the "markets generally are now in a healthy condition." Irving Fisher, a Yale professor of political economy, declared that stock prices had reached "what looks like a permanently high plateau."

One thing people did notice the following week was that quite a few brokers were sending out quite a few margin calls: speculators who had bought declining stocks on credit would have to provide more cash or face the loss of their stocks. Late on Wednesday, Oct. 23, came a sharp break: 2.6 million shares sold in the closing hour. The Times industrial average dropped from 415 to 384. The market looked ahead to the next day's opening with a sense of dread.

"Promptly at 10 a.m. on Thursday, Oct. 24, sounded the gong of the New York Stock Exchange and 6,000 shares of Montgomery Ward changed hands at 83 -- its 1929 high having been 156," reported a six-year-old newsmagazine named TIME. "For so many months so many people had saved money and borrowed money and borrowed on their borrowings to possess themselves of the little pieces of paper by virtue of which they became partners in U.S. industry. Now they were trying to get rid of them even more frantically than they had tried to get them. Stocks bought without reference to their earnings were being sold without reference to their dividends. At around noon there came the no-bid menace. Even in a panic market, someone must buy the 'dumped' shares, but stocks were dropping from 2 to 10 points . . . before a buyer could be found for them."

Outside in the streets, people began drifting toward the pillared exchange building and assembling there as though it were some royal palace where a king lay dying. One observer recalled later that the people in the crowd showed "not so much suffering as a sort of horrified incredulity." In Once in Golconda, John Brooks' lively history of Wall Street, another witness observed that the crowd gave off a sound that "was subdued, a kind of murmur, hardly more than a whisper, broken occasionally by the distinct, surrealistic cackle of an isolated hysterical laugh." Of that crowd in the surviving photographs, Brooks added, "They stare in the way a caught fish stares as it lies on the beach."

A few minutes after noon, someone spotted Mitchell slipping into the offices of J.P. Morgan & Co. It was J.P. Morgan, according to Wall Street legend, who had stopped the Panic of 1907 virtually single-handed by pumping money into a threatened company. The elder Morgan was dead now, and his son was in Europe, but the firm's senior partner, Thomas W. Lamont, had summoned Mitchell and the heads of Chase National, Guaranty Trust, Bankers Trust and First National to the House of Morgan at 23 Wall Street. The bankers created a pool (estimates of its size range from $20 million to $240 million) to support the market. "There has been a little distress selling," Lamont told reporters, but he added that it was just a "technical condition" and "there are no houses in difficulty."

At 1:30 p.m., the bankers' pool went into action. The stock exchange's acting president, Richard Whitney, strode jauntily across the floor of the market to Post No. 2, where stocks in U.S. Steel were traded. Though U.S. Steel had already slid from 205 to 190, Whitney boldly offered to buy 10,000 shares at 205. His gesture had a spectacular effect. In record trading that finally totaled 12.9 million shares, the panicky market rallied. At the closing, the Times industrials were only 12 points below the previous day's level.

"Roaring was the business done by downtown speakeasies," TIME reported on the moderately happy ending to what soon came to be known as Black Thursday. "Wild were the rumors of ruin and suicide." It has always remained part of American legend that Black Thursday featured stockbrokers leaping from skyscraper windows, but specific instances are hard to find. The nearest to such a case was the president of Union Cigar, who was appalled when his company's shares fell from 113 to 4. He jumped or fell from a ledge of a New York hotel.

Contrary to popular belief, the Crash of 1929 did not take place in one or two days. It stretched out for weeks, gathering momentum through the autumn. On the day after Black Thursday, President Hoover bestirred himself and declared that the "fundamental business of the country, that is, production and distribution of commodities, is on a sound and prosperous basis." Share prices remained stable that Friday and Saturday. (Yes, markets were open on Saturdays, from 10 a.m. to 12 noon, until 1952.)

But then came a new collapse. On Monday, Oct. 28, the Times industrials sank an additional 49 points. Then came Black Tuesday, the most devastating day of all. Three million shares were sold in the first half-hour, and often there were no takers at any price. One block of White Sewing Machine Co., which had been 48 a share a few months before and 11 the previous night, reportedly went for 1 because a bright messenger boy made that offer and there were no others.

Once again the bankers met, but this time they gave up all hope of rallying the whole market; they agreed only to help fill "air holes," stocks that could find no buyers at all. This time no Dick Whitney went marching out to snap up U.S. Steel. Instead, Whitney and the rest of the exchange's governing committee met secretly in a room directly under the exchange floor to decide whether the markets should be temporarily shut down.

"The 40 governors came to the meeting in groups of two and three as unobtrusively as possible," Whitney recalled. "The office they met in was never designed for large meetings of this sort, with the result that most of the governors were compelled to stand or to sit on tables. As the meeting progressed, panic was raging overhead on the floor . . . The feelings of those present were revealed by their habit of continually lighting cigarettes, taking a puff or two, putting them out and lighting new ones -- a practice which soon made the narrow room blue with smoke." After due deliberation, they decided to let the market run its course. By the end of that Black Tuesday, a record 16.4 million shares had changed hands, and the Times industrials had fallen 43 points more.

The ups and downs continued. The next day, U.S. Steel declared an extra dividend, the market took heart and the Times industrials gained 31 points. John D. Rockefeller, now 90, announced his optimism: "Believing that fundamental conditions of the country are sound . . . my son and I have for some days been purchasing sound common stocks." Retorted Comedian Eddie Cantor: "Sure, who else had any money left?"

Not until Nov. 13, finally, did the market groan down to its low point for the year. By then the Times's 25 industrials had sunk from 452 in September to 224. Of the $80 billion that the entire market's stocks had been worth in September, $30 billion had vanished into thin air.

As the year faded, President Hoover promised a tax cut, recommended public works, called a series of conferences with business leaders, and declared that "we have re-established confidence." But in the course of 1930, the Times industrials sank to 199, and the entire economy kept contracting; some 1,000 banks failed, wheat slumped from $1.35 per bu. to 76 cents, and panhandlers proliferated. Hard times were here to stay.

Whether the crash caused the Depression or merely presaged it is still a $ topic of debate. Nobody can say with certainty what caused those twin catastrophes or who is to blame, and so theoreticians have accused greedy speculators, Wall Street manipulators, gold merchants and a carnival of other scapegoats. Those experts who contend that the crash did bring on the Depression blame the Federal Reserve for reacting to the collapse by allowing the money supply to diminish, thereby stifling consumption and investment. Others argue that the stock tumble was essentially a market correction and simply signaled the start of a recession.

One New Yorker came up with another kind of answer, or perhaps just an epitaph. It was a bedraggled parrot that a policeman found in Manhattan in November of 1929. "More margin!" the bird squawked, in echo of some desperate stockbroker's greedy injunction to the bird's vanished master in that already vanished era. "More margin!"