Large-Scale State

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Panic! 24 October

On ‘Black Thursday’, panic-stricken investors undertook massive selling on the Stock Exchange forcing prices down. By 11.00 a.m. on 24 October – an hour after opening time – panic had seized the market. The value of US Steel stocks fell from $205.5 per share to $193.5, General Electric fell from $315 to $283. Investors instructed their brokers to sell – at any price, and sometimes for virtually nothing.
No one really understood what was happening. Brokers found it very difficult to keep up with current prices. They were buying stocks for clients at an agreed price only to find out they weren’t worth that much. Scenes at the Stock Exchange were becoming so wild that the police had to be called in. Crowds gathered outside to witness the goings-on.
The New York Times vividly reported: “Fear struck…thousands of brokers threw their holdings into the whirling stock exchange pit for what they could bring. On the stock exchange floor there was a mad scramble to sell. Brokers turned white with shock, some ran about shouting wildly as fear and uncertainty grew. Because of the undignified chaos, officials closed the visitors’ gallery.”
By around noon the worst of the panic appeared to be over, and a rescue operation was under way. Later that day, six eminent bankers and financiers agreed to buy $20 to 30 million to buy blocks of shares. In a statement to the Press they said that there had been ‘a little distress selling’, but had decided to redress the imbalance and so prop up the market.

Richard Whitney, the debonair and self-confident Vice-President of the Stock Exchange, appeared on the floor. Thrusting through the crowds milling around the glass-domed ticker-tape machines, he made for the trading post where US Steel was being sold. He ordered 10,000 shares at a price above that was being asked. He then visited some 20 other posts, again buying large quantities of shares. Within a few minutes he had spent about $20 million of banker’s money.

The market rallied but the effect was short lived.

In New York hotels the clerks ask incoming guests ‘You wanna room for sleeping or jumping?’ And you have to stand in line to get a window to jump out of!”

Will Rogers, humorist

Brokers, knee-deep in sell orders, desperately tried to work out how much their customers were losing, minute-by-minute. Business closed at the usual time of 3.00 p.m., but hours later, lights were still blazing from office windows as clerks struggled to deal with the transactions. Restaurants around Wall Street stayed open throughout the night, and hotels were booked to overflowing.

At the final tally, 12,894,650 shares were sold that day at ever-falling prices. This compared with a daily average of 4 million the previous month.
On Friday 25 October 1929 a newspaper reported that “Secure in the knowledge that the most powerful banks in the country stood ready to prevent a reoccurrence, the financial community relaxed its anxiety yesterday.” Most weekend newspapers were confident that the stock market was healthy and the days ahead would see a rush to buy, taking advantage of the new lower prices.
On Sunday the newspapers declared that the worst of the slump was over, and that business would pick up in the week ahead.
On Monday, however, shares began to fall again. The bankers this time did not come to the rescue. They said it was not their responsibility to protect stock market prices. By Tuesday – ‘Terrifying Tuesday’ – it was clear that the worst was still to come. Chaos ensued as mad selling took place. Nearly 16.5 million shares were traded. No one was buying. $14,000 million in paper profits were wiped out in a single day. At one stage an Exchange messenger-boy offered $1 for a block of stock that six days earlier had been worth $100,000 – and got it. The stock exchange closed and remained shut until Thursday afternoon. Prices continued to fall.

In spite of the prevailing gloom, there were still some who voiced confidence. They included John D Rockefeller, the oil multi-millionaire, who boldly announced that he and his family were buying ‘sound common stocks’. On learning of this, the entertainer Eddie Cantor – who declared that he had ‘lost everything’ in the crash - quipped: “He can afford to. Who else had any money left!”

What caused the crash? Loss of confidence in the stock market

The stock market contained the seeds of its own collapse. America had gone ‘Wall Street Crazy’. Brokers, bankers and financiers were very confident in the strength of the economy. People were encouraged to invest and ordinary citizens were caught up in the fever. Many overextended themselves thinking they could not lose. With prices rising constantly throughout 1929, few paused to consider what might happen if prices fell. People chose to ignore the fact that prices could collapse as well as soar.
The desire for quick profits affected those who were rich and those who wanted to be. To meet the demand for the latest financial news, hotels installed ticker-tape machines that relayed share prices in their lobbies and the liner Ile De France sailed from New York for Europe fully equipped with a ticker tape and brokerage office. The stock market stood at an all-time high. But on September 5 the economist Roger W Babson warned people: “Sooner or later a crash is coming.” Following on his words, confidence began to crumble.

  • Buy stock to the value of £100.

  • Pay a deposit of $20. Outstanding account is $80.

  • Intention of the customer is to sell the shares before the outstanding account has to be paid. The customer will sell when the value of shares has reached $160, settle account and have made $60 profit.

  • However, if the value of the stocks collapses before the customer had a chance to sell this will have a dramatic effect.

  • Stock that was worth $100 falls in value to $50 but still owes $80.

  • Customer sells shares to settle outstanding account. Pays the $50 to the broker but has to find another $30 from another source.

The stock market structure was maintained by the confidence that people had in it. That confidence collapsed in October 1929. Rumours spread that big players such as Joseph Kennedy were selling stocks – this led others to sell. Banks called in loans; people had to sell stock to pay. Brokers told their clients to sell. Only when the stock is being sold does the problem arise. The problem in 1929 was that so much stock had to be sold to pay brokers bills, credit debts and/or mortgages.

The crash of October 1929 signified an end to confidence in the stock market. National confidence fell; there began a period of depression and unemployment without precedent in modern times.

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