September 1929 felt the first shock waves of the earthquake that was to topple and destroy the great bull market of the Twenties.
Unheeding, still cheering each other on with the clichés of the new prosperity, the speculators plunged in again on the premise, true so often in the past, that every dip heralded a rise to an even higher plateau.
This time they were wrong. The market danced erratically for a while, but over-all it was losing ground, losing momentum, failing to show the resilience on which the nation so desperately depended. By the third week of October, the Crash was in being.
Even today the events of the week culminating in the terrible Tuesday that was October 29 make sad and distressful reading. The only way to suggest them is in terms of the great natural disasters: the avalanche, the tidal wave, the volcanic eruption. And the human response was equally fundamental: terror, panic, despair, and here and there courage.
When it came, the Crash utterly reversed the pattern of the times. Up became down, high became low, rich became poor, success became failure, prosperity became depression. It happened, too, with bewildering speed, and nothing checked the descent.
It will be remembered that basic to all market action is the trade, the negotiated transaction between buyer and seller. With the Crash, the inconceivable occurred: suddenly, the buyers vanished. Suddenly, everyone was a seller. From all over the nation, almost as if on signal, the orders poured in: sell, sell, sell. Thousands upon thousands of shares were offered at the market—and there was no market.
Down tumbled issue after issue from the proud heights which supposedly were only foothills of the heights to come.
The pace of the market accelerated beyond human comprehension. The ticker lagged by hours. Prices dove vertically down, 10, 20, 30, 40 points. Inexorably, the great downward pressure grew. Margin calls went out, and went unanswered by thousands of speculators, big and small, whose entire fortunes were tied up in the stocks now diving through the floor. Facing the loss of the billions they had loaned, the brokers threw the collateral stock onto the market for whatever it would bring, thus swelling the floodtide of unwanted securities.
There was no safety anywhere. No stock was strong enough
to withstand the hammering. The best and bravest names in American industry were in full retreat, like any overblown utilities holding company, like any cat and dog.
The huge investment trusts, commonly regarded as financial Gibraltars impregnable against the waves of adversity, were crumbling like the rest. Then” reserves, supposedly a cushion under a falling market, were insufficient and ineffective. They, too, were dumping.
At the end of the day, 16,410,030 shares had changed hands at fantastically lower prices. And the end was not yet. On through November the slide continued. Amer Tel & Tel fell to 197, a loss of 138 points. Steel dropped to 150, a loss of 129 points. New York Central sank to 160, a loss of 96 points. General Motors fell to 36, a loss of 145 points. The values represented in the leading stock averages were cut in half. The Crash wiped out all the gains so spiritedly made since 1924—and more. In 1930 the market twitched feebly, trying to get off its back, but eventually sank even lower.
In 1931, it hit bottom, plumbing new depths that made even the 1929 lows look good.
A doleful story, a dark chapter in financial history. Even today, veterans of the Street speak of it wryly and with respect, like the survivors of a memorable battle or a fire at sea. The market, of course, did not cause the Crash.
The market never knew what hit it. No one can ever say what subtle shift in the thinking of thousands of stockholders across the nation changed the eager scramble for the sunlit summits of September into a stampede back down the slopes. Perhaps it was no one thing, and perhaps if it was, it is not important; jitters were evident on many occasions before the panic.
But whatever may have pulled the trigger, the fact remains that the market was powerless to withstand the blow. Surveys of the wreckage pointed up the unhealthy use of credit that had so disastrously accelerated the collapse when it came, pointed up the manipulative operations that had gone unchecked, pointed up the inadequate information available about listed securities.
Had none of these abuses existed, it is still likely that the Crash, as the signal of a general economic collapse, would have occurred. But it can be argued that the market would not have slid so far or so fast if, for instance, more stock holders had owned their shares outright and been able to ride out the storm.
The road back was long and hard. Principal steps toward recovery were the Securities Acts of 1933 and 1934, and the establishment of the Securities and Exchange Commission, a government agency, to administer them. Financial experts can see loopholes and deficiencies in the acts and some Wall Streeters squirm under the onus of Federal regulation, but it is generally acknowledged that tighter control of the securities market was essential, if only to restore public confidence after the debacle.
Actually, the provisions of the acts can also be viewed as not stringent enough.
They require, first, that all new securities offered to the public, with some exceptions (Federal and municipal bonds, national and state bank stocks, and, in some cases, issues under $300,000, to name a few), be registered with the SEC. Registration, it should be noted, does not make the SEC an arbiter of a security’s worth, and does not in any way constitute an endorsement.
It is merely a procedure to place on the public record a full and fair account of the financial, technical, commercial, and legal condition of the issuing company.
Capitalization, earnings, compensation of officers, stockholdings of officers or options and other benefits available to them —all this and more must be disclosed. As anyone who has ever plowed through a stock prospectus knows, the material is often difficult to digest, but it is complete, and no one need feel he is buying a pig in a poke. The SEC’s only responsibility is to see that the information submitted is adequate and not misleading.
The acts also prohibit all manipulations, such as pools, fake sales, or any artificial trading which, by creating the appearance of activity, stimulates buying or selling by others.
Finally, they control, through the Federal Reserve Board, the flow of credit into the securities market. The Board must approve the source from which a broker borrows, and it is responsible for setting margin rates.
There are other powers which the SEC may exercise “in the public interest,” but by and large the registration procedure, the ban on manipulation, and the control of credit have been the principal areas of government intervention to assure an orderly market.
At the same time, the exchanges—the New York Stock Exchange in particular—have undertaken to police themselves more rigorously. Requirements for listing a stock on the Exchange have tightened up.
Today we can also use software to help us predict price movements with regard to shares and the Forex.