The Day a Whole Generation Went Broke
The market went up and up; bootblacks and millionaires gambled wildly — they were sure it couldn’t stop. Then, 25 years ago this month, came the crash heard around the world
TWENTY-FIVE years ago this month—to be precise, on Oct. 30, 1929—Variety, New York’s exuberant newspaper that caters to the world of show business, moved slightly off its regular circuit and summed up the events of the preceding day in one of its most famous headlines: WALL STREET LAYS AN EGG.
To regular readers of Variety, who understood its special brand of English, the translation was simple. The New York stock market had crashed on Oct. 29, dragging with it exchanges across the U. S. and in Canada, and starting declines in the major stock markets around the world. It was the spectacular climax of a three-month skid in stock prices in which approximately $25 billions were wiped from the values of stocks listed on the New York board alone. On that one day a whole incredulous and stricken generation realized that its dream of perpetual prosperity had evaporated. Although not everyone knew it, the Great Depression was officially under way.
Oct. 29 was a Tuesday, and was immediately christened Black Tuesday. It was not the first day of the 1929 panic, nor the last, but it was the worst. There were tears shed on Black Tuesday by widows and old maids and housewives and charwomen. There were suicides by men to whom the crash meant financial failure and social ruin, men who could not stand the combination of poverty and shame. On Black Tuesday one Toronto man came home after work and told his wife that he had resigned from all but one of their seven clubs; that
he had sold the second car and advertised the extra garage for rent; that he had closed out most of the charge accounts. He then fired the maid, and went to bed.
In Montreal another speculator took his losses and with some friends went out on the town. About two in the morning he and his pals rented a hack and went up to St. Joseph’s Oratory to pray. On Oct. 30 he bought more stock and lost more money.
Today, as its silver anniversary approaches, the 1929 crash is to an entire generation something that happened to its parents, and to its parents it is a memory that time has mercifully dulled. Today most people who went through the crash prefer not
to recall the frantic hours they spent watching the tickers spell out their ruin and the empty despair that comes to a man who bets on what he thought a sure winner and sees it run the wrong way.
At its beginning it had seemed, at least on the surface, as though 1929 would be the best year of all in a series of years that had rolled happily and crazily through what historians now call the Roaring Twenties. ’Twenty-Nine was above all a year for making money, but there were other diversions. Radio was still new and the All-Talking and AllSinging movie was packing people in. There was growing unemployment but it had worried only the unemployed. The motor car had really come into
Happy Days Are Here Again was the theme song of the Roaring Twenties.
But after Black Tuesday it became—Am I Blue?
A MACLEAN’S FLASHBACK By John Gray
its own: in 1927 Henry Ford had unveiled the Model A and all through 1928 people had despaired of getting the style and color they wanted so great was the demand. Skirts kept getting shorter. Popular songs such as Singing in The Rain and Happy Days Are Here Again were on everyone’s lips -gay songs that have remained popular for a quarter of a century. In Canada W. L. Mackenzie King, though Prime Minister, was not yet an institution. The New York Rangers won the Stanley Cup in the spring. The Hamilton Tigers were favored to win the Grey Cup for a second year. In the United States Cal Coolidge had not chosen to run and his Republican colleague, Herbert Hoover, had recently been elected by a landslide vote. The menace of a Red Russia had subsided; Hitler was still unknown; throughout the world there was not one major war. Prosperity throbbed across North America.
Through the prosperous air there ran a current
of optimism, the kind of optimism that found its way into the sensitive pocketbooks of men and women who in quieter times put their money into first mortgages and government bonds or a trusty sock under the mattress.
North America was on one of the greatest gambling binges it has ever known. It had created what was probably the greatest sucker market of all time as millions of people who might have confused the stock market with a cattle auction yard started buying common stocks in such volume and with such fervor that the prices of securities began to climb and then to leap and finally to rocket. Shares in the Consolidated Mining and Smelting Co. of Canada, for example, sold at a high of $50 in 1924. In 1925 they went to $184, by 1927 they had risen to $274, in 1928 they hit $400 and in 1929 $575.
The stock market became a staple of conversation. Housewives exchanged tips over back fences and bridge tables, bootblacks discussed their
purchases with their customers, chauffeurs kept their ears open for market tips from their bosses, railway club cars and smoking rooms radiated with the talk of profits and prospects. Young men just out of college became suave well-heeled customers’ men for brokerage houses, going out and bringing back the eager dollars of friends who wanted to be in on what was obviously a good thing. The air was full of exciting rumors; financial advisers became household gods; brokers flourished.
Office pools were formed to combine the money of stenographers and executives. One pool formed in Toronto in May 1927 paid sixty-five cents on every dollar invested in its first six months of operation, thirty-five cents in the next six months, and eightytwo cents in the next six.
This mass participation in high finance was, in 1929, a comparatively new thing in human history. Until the late Twenties the number of people who speculated on the stock Continued on page 90
Continued on page 90
The Day a Generation Went Broke
CONTINUED FROM PAGE 37
market had been small. The market was already an old institution, but a clerk who speculated on it was in danger of losing his job if the boss found out. This didn’t bother the clerk, for if he thought about the stock market at all it was probably as a vague and shapeless monster, manipulated by brokers and professional gamblers, with a jargon and temples of its own that a wise and cautious young man avoided as he would avoid crap games and loose women.
This attitude broke down after the First World War, and in the Twenties something happened in Canada and the United States which took the lid off the market and opened its doors to hundreds of thousands who saw in it an easy path to riches. There were many causes. During the war people who had never before invested money had answered the call of governments and bought war savings bonds, thus learning that there were other ways to have money earn money than by leaving it in a bank account. Rising wages and prices and industrial expansion in 1926, 1927 and 1928 bred confidence in the future. There were financial advisers, like Professor Irving Fisher, of Yale University, whose rosy oracles promised a prosperity that would go on forever. Even as late as Oct. 17, 1929, when the market had been declining for six weeks, Fisher said he thought stock prices had reached “what looks like a permanently high plateau.” It was only gradually that the stock brokers and financiers realized that their customers had grown into an army of eager, almost slap-happy speculators. When they did realize it, they expanded their facilities to tap what turned out to be a huge virgin market of innocent, if slightly greedy, people seeking something for nothing.
The boom had its ups and downs. There were clear warnings that the crash would come, if anyone had cared to pay any attention to them. In November 1928, for example, a reporter from The Financial Post interviewed Sir Joseph Flavelle, chairman of the board and president of the Canadian Marconi Co. Canadian Marconi shares had risen from four dollars to twentyeight dollars. Sir Joseph told The Post reporter that, in his opinion, the shares were tpo high. At twenty-eight dollars Canadian Marconi had been selling at about twenty-eight hundred times its 1927 earnings of slightly above a cent a share—an over-evaluation no amount of optimism could justify. The Post published the interview on Nov. 30, and within two days the Marconi price fell from twenty-eight dollars to about seven dollars a share. This touched off a break on the New York Exchange, but prices soon recovered. It was indicative of the spirit of the times that Sir Joseph and The Financial Post were bitterly condemned, both for having caused the break, and for a lack of faith in the New Era.
There was another aspect of the stock market in the Twenties that made it attractive to the small investor. It was not necessary to have a lot of money to play the market since most brokerage houses allowed their clients to buy on margin as low as ten percent. That meant that to buy a thousand dollars’ worth of stock only a hundred dollars cash was needed. If a stock were valued at ten dollars a share, an investor could buy one hundred shares with one hundred dollars, wait until the price doubled,
sell, pay his broker’s commission and the interest on the nine hundred dollars he had borrowed and still reap almost a thousand percent profit on his original investment. There was a certain risk in this procedure, for if the price of the stock dropped, the investor had to dig up more money to cover the loss. A drop on a hundred shares of stock from ten dollars to nine dollars a share meant that a hundred dollars cash was needed to cover the margined account.
The bull market in 1928 and 1929 was not always healthy and several times prices dipped, wiping out some of the accounts where clients could not cover their margin, but each time prices recovered and pushed on to new highs. The public firmly believed that the fantastic advances would go on. As long as that attitude was firm in the buyers’ minds prices continued to rise in spite of the warning signs that appeared in early 1929.
The farmers, who had not shared the general prosperity of the Twenties, were suffering from a bad crop year and falling prices—factors that were just adding to their troubles, their debts and their mortgages. Unemployment was on the increase; automobile production was down; freight-car loadings fell.
Nobody noticed. Everybody went on buying. So great and so unreasonable was the public’s desire to buy common stocks that many large corporations took the opportunity to convert their bonds, on which they had to pay a regular set interest, to common stocks, on which they had to pay dividends only if they showed profits. The public ate up the new stock issues.
Everyone Should Be Rich
On Sept. 3 the buying wave arched as close to heaven as it was to go, though no one knew it at the time. On that day the Dow-Jones average, an index of the market prices for a selected group of industrial stocks, all sound and respectable, reached 381.17, a high that has never been equalled.
Many people in early September trusted implicitly in the kind of enthusiastic assurance given by such highly publicized financial advisers as John J. Raskob, vice-president and chairman of the finance committee of the General Motors Corporation, vicepresident of the General Motors Acceptance Corporation, vice-president and member of the finance committee of the E. I. du Pont de Nemours Company, director of the Bankers Trust Co., the American Surety Co., and the County Trust Co. of New York. Raskob listed his occupation in Who’s Who as “capitalist.” In August he had written an article for the Ladies’ Home Journal entitled, Everybody Ought To Be Rich. His formula seemed simple enough: you saved
fifteen dollars a month, invested it in good common stocks, allowed the dividends and rights to accumulate, and at the end of twenty years you would have about eighty thousand dollars and an income from investments of about four hundred dollars a month. There was nothing to it.
But the great bull market broke early in September and prices started going down at an alarming rate. Still there was no panic. Though General Electric dropped fifty points, from $396 to $346, in a month; though U. S. Steel slid from a high of $261.75 to $204 and Consolidated Smelters from $450 to $380, confidence continued unabated. Speculators remembered the breaks that had occurred in June and December of 1928 and in March and May of 1929, and the lesson those drops had taught: when prices came
down there were bargains to be picked up; the market always recovered, because prosperity went on forever.
This time the market did not recover.
It seemed on the point of doing so on Oct. 22 but gains made that day were wiped out in the last hour of trading. On Oct. 23 more shares were traded on the New York Stock Exchange than had ever been traded before, six million shares that caused the ticker to run one hundred and four minutes late. On the Toronto Stock Exchange eightyfive thousand shares were traded, a big jump from an average day’s twentyfive thousand. The stock market was front-page news across the continent.
On Oct. 24 the public held its breath. For a short time after the opening the market was firm but in an hour or so prices began to go down, and soon they were plunging. Speculators were close to panic as they saw profits draining away and more and more selling orders piled up. And then, shortly before noon, a group of New York bankers pulled an ace from the hole.
A crowd had gathered outside the New York Stock Exchange, which was on the opposite corner from the office of J. P. Morgan and Co., the giants of American finance. The crowd saw Charles E. Mitchell, a popular prophet of good times and chairman of the National City Bank of New York, go into the Morgan offices. They transferred their attention from the Exchange to Morgan’s. Mitchell was followed soon after by Albert H. Wiggan, head of the Chase National Bank, William Potter, of the Guaranty Trust Co., and Steward Prosser, of the Bankers Trust Co. Inside, with Thomas V. Lamont, of J. P. Morgan and Co., md George F. Baker Jr., of the First National Bank, the men conferred. They agreed to put up forty million dollars each to try to patch up the worst holes in the stock market and, as Lamont explained later, to keep trading on an orderly basis. Lamont met reporters in the Morgan offices soon after the group broke up and said, “There has been a little distress selling on the Stock Exchange.” The rest of his message was reassuring.
Word that the bankers had met spread like wildfire and prices immediately began to steady, and then to rally. Shortly after 1.30, Richard Whitney, for the Morgan interests, . walked to the crowded floor of the New York Exchange and went to the spot at which U. S. Steel was being traded. U. S. Steel was one of the bluest of blue chips, a stock that led market trends. Whitney bid $205 for ten thousand shares of U. S. Steel. Steel had sold earlier that day for $195 and the twisted story that found its way to the newspapers was that Whitney had, in a magnificent gesture, paid one hundred thousand dollars more for Steel than he needed to, just to show what confidence the bankers had in it. According to Frederick Lewis Allen in his book about the Twenties, Only Yesterday, Whitney bid the price of tiie last sale, and bought only two hundred shares, leaving the rest of his order with a specialist who handled Steel exclusively. He then walked around the floor, trailing a growing wake of confidence behind him, and repeated the offer—ten thousand shares at the last selling price—for about fifteen of the leading stocks. In each case the order was left with a specialist. In effect, Whitney offered to buy—though it was never clear how much he actually purchased—about $25 millions worth of securities in the space of fifteen minutes. It was a magnificent bluff. Because of it the market held fairly steady and closed only slightly lower than it had the day before.
Though the dykes held, Oct. 24 was a bad day. A new high in trading volume had again been set in New York where frightened speculators unloaded more than twelve million shares, well above the two or three million on an ordinary day. That night lights burned late in brokers’ offices across the continent as harassed and weary clerks tried to straighten out the accounts and catch up with the market. Because the ticker had been so late the radio was used until far into the night to get quotations out to the small traders. As the full extent of the losses began to emerge the margin calls started going out, with their simple and terrifying demand that certain sum of money be paid to the broker the next morning before the market opened or the account would be sold out for what it would bring. The comics were well behind the swiftly moving events, and it was ironic for a weary speculator who had been losing money all day to read in Gasoline Alley the remark that “a man with a mere million isn’t particularly wealthy any more.”
Friday and Saturday were not too bad. Trading continued at high levels, but prices held fairly firm. During the week end, however, following the margin calls, the growing clutch of panic moved across the land, and by the time the market opened on Monday, Oct. 28, the selling orders were piled high. The losses on Monday were fantastic: in
New York General Electric lost $47.50, II. S. Steel dropped $17.50, Westinghouse $34.50; in Toronto International Nickel went down $7.75, to $38.75 a share, while Brazilian Traction dropped $11.75 to $51. And Monday was just a rehearsal for Tuesday.
A Flying Cowboy Was Lost
C. W. Stollery, a young floor trader on the Toronto Stock Exchange, met Jack Meggeson, of Hickey, Meggeson and Co., on his way to the office late Monday afternoon and by way of conversation said: “It was bad today.”
“Yes,” Meggeson said wearily, “and it’ll be worse tomorrow.” Bay Street, Toronto’s financial centre, worked late Monday night, sending out the margin calls. In Montreal there was a genteel, if bewildered, summing up in the Star: “The weakness in New York,” a report said, “was somewhat more severe than was generally looked for and the effect locally was more or less of a shock.” On Montreal’s St. James Street, ordinarily as deserted as a graveyard after five o’clock, drivers had trouble finding a place to park; newsboys did a brisk trade; restaurants stayed open; popcorn and peanut vendors did a rushing business; and far into the night taxis hurried along the streets bringing investors who disappeared into brokers’ offices to try to see whether they could salvage their accounts.
Tuesday, Oct. 29 was a nippy day in Canada. The sun shone in Montreal; it was cloudy in Toronto; in both cities the temperature hovered around forty degrees. In the west heavy wet snow was falling.
Things were happening outside the market, of course. In France Edouard Daladier had failed to form a government. Ontario was in the throes of a provincial election. A storm on Lake Michigan had swamped several boats and at least eleven lives were known to have been lost. It was feared that Urban Diteman, the Plying Cowboy from Montana, was lost trying to cross the Atlantic in a small plane. He was never found. Reporter R. E. Knowles sa id in a dispatch to the Toronto Star that “It was on last night’s CPR train en route to Galt that I fell in with a premier expectant. To wit, the
On the trading floor there Mas no more sympathy than at an abattoir. A great gambling binge had become a giant Make
Hon. R. B. Bennett, New Brunswickian, Calgarian, Ottawan, lawyer, journalist, millionaire in triplicate, and leader of His Majesty’s Opposition in the Canadian Parliament . . .” In London, England, the India Central Committee recommended Dominion status for India. In Vancouver the city council decided against allowing skyscrapers over ten stories high. In Montreal the Princess Theatre advertised The Careless Age, with Douglas Fairbanks Jr. and Loretta Young in the leading roles.
A copy writer for Morgan’s in Montreal was toiling over an advertisement announcing The New Silhouette:
The demands of fashion are inexorable. From the “straight up and down” of yesterday we must, forsooth, develop curves . . . and even waists . . . waists just where nature meant waists to be . . . Far, very far, from being wasp waists . . . but slim, and young, and graceful. And this is just what our new foundation garments achieve . . . molding the figure to the new lines demanded by fashion.
The Tuesday morning newspapers carried a statement from A. B. MacKenzie, general manager of the Bank of Montreal, to the effect that the “general conditions in the country are fundamentally sound.” Morris W. Wilson, general manager of the Royal Bank of Canada, had much the same to say: “Fundamentally, business conditions are sound and there is no reason for pessimism ... It is well that in times like these we should not overlook the general soundness of the Canadian situation.”
When the gongs sounded at 10 o’clock to start trading on the stock exchanges nothing seemed sound. It was immediately worse than even the most pessimistic had expected. Huge blocks of stock were thrown on the market for whatever they would bring. Prices plunged. It was no longer the small traders who were panicking but the big traders too, the millionaires and soundly margined men who until now had escaped the full effects of the declining market.
In the exchanges themselves it seemed as though a riot had broken out. Men trampled on each other’s feet, and shoved and pushed, in their rush to sell. At the opening in Montreal one trader almost had his clothes torn off. Within minutes the tickers had fallen behind. In Montreal the din from the trading floor, enclosed in its stout stone walls, could be heard half a block away. In New York the block-long trading floor of the exchange set up a roar that carried two blocks. In the Montreal Exchange hoys in red and blue blazers flitted through the milling, shouting group of men with the slips of paper that carried the fortunes of households—the terse orders to sell, sell, sell. A broker would take a message from a boy, rush out to the floor and raise his voice, almost like an animal in pain, trying to sell something that nobody wanted to buy, at any price.
The excitement was intense, even terrifying. But on the trading floor it was impersonal. Floor traders did not know whose stock they were handling. There was no sympathy,
no compassion. “There’s no more sympathy on that floor than at an abattoir,” one trader said. “It’s the coldest, cruelest thing in the world. Nothing matters but the dollar.”
Outside the exchanges the dreams of millions became nightmares. Around the brokers’ quotation boards the crowds formed, groups of frightened men and women with pale faces and trembling hands. Inside the customers’ rooms they waited, watching hopelessly as clerks frantically chalked quotations on the huge blackboards, figures that were already so old they were meaningless. The greatest gambling binge had become a gigantic wake. Women cried. In one Toronto office a man fainted. He was gently laid out at the back of the room and everyone went back to the board, faces tense and white. There were men who laughed, men on the verge of hysteria. Newspapers were deluged with telephone calls, many of them from sobbing women. In offices little knots of employees formed, fanning among themselves the stories of the break, stories that could hardly be exaggerated.
A telegraph clerk in the Toronto brokerage firm of Solloway and Mills had no rest that day. He handled the direct wire to western Canada, and people were lining up at the branch offices in Vancouver, Calgary and Winnipeg. The order was to sell. All day long the telegraph key clicked out the ominous little dash which meant “sell at the market.” By the end of the day the operator had calluses on his fingers from feverishly wielding his pencil, marking down on the prepared SELL order slips, the account number and the name and number of shares. The orders came so quickly there was no time to use a typewriter.
Rumors Sprouting in Misery
In Montreal the big traders were out in force, and in front of every broker’s office along St. James Street and the warrens that angle off it were the big limousines, casually tended by chauffeurs in uniform. The brokers themselves, deluged with a flood of business they could neither control nor record, did their best. Some refused to take any buying orders that were not accompanied by full payment: the days of low margin accounts were over.
Toward the end of trading on Oct. 29 the big financial interests in New York poured millions into the New York Exchange, so much in fact that they managed to stop the reckless plunge. The market rallied. When the gong finally rang at three o’clock on the Toronto Exchange the traders, pushed to the limits of their endurance, cheered. It was the biggest day the exchanges had ever known: sixteen million shares in New York, half a million in Montreal, three hundred and thirty thousand in Toronto. The average number of shares traded in New York before the crash was between two million and three million shares, in Toronto about twenty-five thousand. New lows had been hit all through the list of Canadian stocks, sixty-two having dropped to their lowest value for the year. International Nickel, one of the most frequently traded Canadian stocks, had opened with an overnight loss of nine
points, went as low as $29 during the day, and closed at $32%, for a loss from the day before of $13%. On ¿ pt. 3 Nickel had sold for $55. On tKe Toronto Curb market Goodyear Tire had gone from $190 to $160, National Steel Car from $60 to $39. In Montreal, Consolidated Mining and Smelting, which had hit a high of $525 earlier in the year, dropped from $300 to $235 on Tuesday.
Rumors sprouted from the misery, rumors of the failure of brokerage houses and banks, rumors of suicide, the kind of rumors no one could verify. By the time the 3 o’clock gong went, hundreds of thousands of investors had been wiped out, others had taken serious losses.
It was not only rumor that sprang from ihe debacle. There was also a wry smile. The story quickly went around that a man had walked into a New York hotel and enquired about a room on the thirteenth floor, only to be asked by the clerk: “For sleep-
ing or jumping, sir?” It was said to be dangerous to walk along Bay Street (or St. James Street or Wall Street) for fear of being hit on the head by falling stockbrokers. The United Press reported that men carrying sandwich boards had appeared on Wall Street announcing loans on jewels, diamonds, watches and pawn tickets. A man who walked down Wall Street with a fivedollar bill reported sardonically that the lowest offer he received for it was a yacht, a Rolls-Royce and a country estate.
One thing was sure. The great bull market was dead. The great bear market was on. One man came storming into his broker’s office in Toronto with the afternoon paper in his hand that contained one of the “fundamentally sound” statements, this time from Herbert Hoover. “Fundamentally sound,” he said, “fundamentally sound. Look: Tunney and Dempsey are in the ring, and Tunney knocks Dempsey out. There he is, lying on the canvas. Fundamentally sound? Sure he’s fundamentally sound. But he’s out.”
The first reaction to the crash was shock. Later anger welled up and people demanded blood. The Financial Post pointed out in a series of articles which began in November the shady practices being engaged in by some of the larger Toronto brokers, principally those dealing in mining stocks. What these brokers were doing was “bucketing,” which was essentially a process whereby they bet against their customers. In some cases they took orders for stock but did not purchase it, so that it was possible to sell more shares of some stocks than actually existed. In other cases they bought when the customer sold, and sold when the customer bought.
The Financial Post expone brought action. Early in 1930, almost a score of partners in several Toronto brokerage houses were rounded up by provincial police and brought to trial. Included were men who had been penniless three years before, who had become millionaires almost overnight from operating “bucket shops,” and who were now of varying degrees of affluence. Several were already broke. Later there were arrests in Montreal. Most of the accused paid hetivy fines or were sentenced to terms of two or three years in the penitentiary.
Out of the market crash and the brokerage evils came the Securities Exchange Commission in the United States, the various financial securities commissions in Canada, the merger of the Toronto Stock Exchange and the Standard Stock and Mining Exchange of Toronto, strict audits of security houses, higher margin requirements,
new companies legislation and many similar reforms.
Though stock prices reached a low for 1929 in November, the lows of 1931 and 1932 were yet to come. The Abitibi Power and Paper Co., for example, which sold for a low of $35 in 1929, eventually went to twenty-five cents in 1932, and then to thirteen cents in 1933. International Nickel, which ranged from a high of $73 to a low of $25 in 1929, hit the bottom at $4 in 1932. Brazilian Traction ranged between $82 and $30 in 1929, and between $14.75 and $7.75 in 1932.
Economists today say the 1929 crash did not, as many people believe, cause the depression. It marked a dramatic and painful end to the New Era, whose philosophy was onward and upward forever, and served notice that tough times were on their way«. Almost everybody had been wrong. Prime Minister Mackenzie King made a statement on Oct. 30, 1929: “While no
doubt a number of people have suffered owing to the sharp decline in stocks, the soundness of Canadian securities generally is not affected. Business was never better, nor faith in Canada’s
future more justified.” It was a political version of the popular song, Happy Days Are Here Again. King was wrong, a factor that would contribute to his defeat at the next election.
Around the world drastic changes would occur, coming to a head in the Second World War. But on Oct. 29, 1929, no one was concerned with these things. Most people were nursing their wounds and wondering why they hadn’t had the sense to sell out last week, or the week before. There are some, twenty-five years later, who are still wondering, if