All the great men of import gathered around the table. Lunch had broken and the help swiftly took the service away so the captains of industry could tackle the task at hand. They were veritable whose who of plutocrats.
At the head of the table sat Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank. Lesser men flanked them down each side of the dark chestnut table. There was levity in the air. The Republic was in crisis.
They remember the Panic of 1907, the fourth panic in three score years. It was JP Morgan who stepped in then, the great man himself. He organized a team of bank and trust executives that secured international lines of credit and bought plummeting stocks of healthy corporations. The free market had saved itself that day, save the help from international friends.
Or that’s how they chose to remember it.
After brief rebout, they choose Richard Whitney to be there man who was to be their new Morgan. He would lead their resources into battle. They would buy large blocks of the falling stock of U.S. Steel. Then they would move onto other blue chip stocks. Unfortunately, there was no foreign capital to be had. So they decided to move forward as one, coordinated like the fingers of a hand.
This was at 1 p.m. on Friday, October 25.
Over the weekend, this meeting of the financial gods was splashed on every newspapers across the United States. The plutocrats were the Britney Spears of their day, and these group of elite was all but certain that their actions would fix public trust in the market. By Sunday, these men had convinced them that they were finally around the bend and good times were here again. The credit crisis of the late 1920s was over!
On Monday, October 28, the people bought none of what the plutocrats were selling, and even less stock. In fact, the public who had stock along with almost all other investors decided to get out of the market. At the end of the day, the Dow was down by 13%.
There were rumors that the Rockefeller family and other financial giants were set to buy large quantities of stocks. Even William C. Durant was on board. Surely the public would see that they had confidence in the market, so the public should to.
The next day was “Black Tuesday”, October 29, 1929, 16.4 million shares were traded.
The Dow lost another 12%.
The ticker did not stop running until about 7:45 that evening.
The lost for the week was $30 billion, ten times more than the annual budget of the federal government.
It was more than America had spent in World War 1.
The masters of Wall Street meet and discussed went wrong. They released that it was the foreign capital that JP Morgan had connected with domestic spending capabilities that had won the day in 1907. It was outside investors who bought the American credit. Without outside stimulus, the credit cycle would cannibalize itself until it was not only unruly, but also worthless.
The men laughed, realizing their folly. One junior raised a specter, “What if the country had already burned through its entire line of foreign investment and credit?”
Lamont looked up from his bourbon and muttered, “Not only would that be impossible, it would be sheer and utter madness. JP Morgan would never do anything as foolish as to prop up some industry again, unless there is a vast supply of cheap foreign investments. Mark my words young man, that would never happen.”
A cheer went up from the gaggle, and merriment. Sure, the country would be in a bind for quite awhile, but the absurdity of the junior executives comments gave them thanks that at least they were not that over a barrel.
Or wearing barrels, which would surely be the case.
Bonus:
Richard M. Salsman:
“As late as April 1942, U.S. stock prices were still 75% below their 1929 peak and would not revisit that level until November 1954-almost a quarter of a century later.”