It is always easy, with the benefit of hindsight, to spot decisive turning points in the stock market. Unfortunately, it is much more difficult to recognize such instances as they are occurring. September 3, 1929, would prove to be the crest of the great bull market of the 1920s; from that point on the trend was down, although interrupted from time to time by rallies of varying strength.

But there was nothing particularly unusual about September 3 (or even many of the days that would follow in the next few weeks). There were occasional voices of caution, such as the New York Times commentary on September 9 that warned, “It is a well-known characteristic of ‘boom-times’ that the idea of their being terminated in the old, unpleasant way is rarely recognized as possible.” But such opinions had often been expressed before. They were nothing new.

The disturbing downward trend in the market accelerated in October; by the middle of the month, prices were significantly below their September highs. This slide was met with ever more vigorous incantations by the apostles of the bull market, as if their words alone could reverse the direction of stock prices. Charles Mitchell announced that the “industrial condition of the United States is absolutely sound” and predicted that “nothing can arrest the upward movement.”

Big-time speculators like Arthur Cutten continued to voice confidence in the economy, and the market, to anyone who would listen. But the remark that received the most attention came from Professor Irving Fischer of Yale. Fischer proclaimed on October 15 that “stocks have reached what looks like a permanently high plateau.” A few days later stocks fell off Professor Fischer’s plateau with a resounding crash.

Thursday, October 24, 1929, is the first of the days most often associated with the crash of ’29. The market opened on heavy volume, and prices quickly began to fall. The stock ticker, which transmitted information on prices to brokerage offices around the country, soon fell behind the pace of transactions, adding to the uncertainty of worried investors who found they had no means of knowing just how bad the situation was. By 11:30 the market was in a free fall; all semblance of order was lost as the floor of the Exchange was swept by a frenzied panic.

Outside the Exchange building an unearthly roar was audible. A crowd began to gather, and the New York City police commissioner dispatched a squad of policemen to keep the peace. Rumors swirled through the crowd, heightening the sense of anxiety. When a workman appeared atop a nearby building, people assumed he was a likely suicide and waited expectantly for him to jump. An observer thought that people’s expressions showed “not so much suffering as a sort of horrified incredulity.”

Where were the big operators, and the Wall Street bankers who seemingly had so much at stake in the market and presumably could not afford to let it fall? The press searched out the leading figures for comment and soon discovered that a meeting was to convene at the offices of J. P. Morgan & Company at noon to discuss an organized effort to stablize the market. Charles Mitchell of National City Bank and the chief executive officers of other leading New York banks were to attend, hosted by the senior Morgan partner, Thomas Lamont. The elder J. P. Morgan had almost single-handedly stopped the panic of 1907; his successors were now equally determined to do the same.

A decision was quickly reached by those assembled at the Morgan offices to pool resources to support the market. Thomas Lamont, speaking for the group, came out to talk to reporters. In what Frederick Lewis Allen later termed one of the most remarkable understatements of all time, Lamont said, “There has been a little distress selling on the stock exchange.” He went on to say that the weakness was “due to a technical condition of the market” and was “susceptible to betterment.”

At approximately 1:30, the debonair Richard Whitnet, acting president of the New York Stock Exchange and closely connected with J. P. Morgan & Company (his brother was a Morgan partner), crossed the floor to the post where U.S. Steel traded. He bid 205, the price of the last preceding trade, for ten thousand shares. He then proceeded self-confidently around the floor to the trading posts of other leading stocks, entering similar bids. The market reacted instantaneously. Prices shot upward in a move almost as violent as the downdraft that had occurred that morning. Miraculously, by the close, most of the day’s losses had been recovered. A phenomenal 12.9 million shares traded, nearly half again more than the previous record volume.

For the moment, the bankers were heroes. They, like the legendary J. P. Morgan, Sr., had quelled the panic and prevented a catastrophe. Wall Street, reported The New York Times, was now “secure in the knowledge the most powerful banks in the country stood ready to prevent a recurrence of the collapse.” Even President Hoover was induced to say that “the fundamental business of the country… is on a sound and prosperous basis.” Reportedly, President Hoover was also asked to say something positive about the stock market but declined.

The bankers’ glory was short-lived. On Monday, October 28, the decline began again with a vengeance. This time nothing could stem the collapse. Shortly after one o’clock, Charles Mitchell was observed entering the Morgan offices, and rumors flashed that another bankers’ pool was forming. But no organized buying materialized. In fact, it is likely that Mitchell, far from approaching J. P. Morgan & Company to organize support for the market, was instead seeking a personal loan made necessary by his own speculative losses. The decline in the Exchange accelerated, with a crushing 3 million shares trading in the last hour alone.

That evening, by coincidence, Bernard Baruch hosted a dinner party for Winston Churchill, who was then visiting the United States. Attending were several members of the ill-fated bankers’ pool. Charles Mitchell, seemingly taking his setbacks in stride, offered a facetious toast to “my fellow former millionaires.” Overall, Baruch’s dinner guests were cautiously optimistic, the consensus opinion is that the worst was over. They were soon to be disabused of that notion.

To be continued

Credits: Much of this article is extracted from B. Mark Smith’s Toward Rational Exuberance, 2004.

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