The New York Stock Exchange in the Crisis of 1914 by Henry George Stebbins Noble (portable ebook reader .txt) 📕

ray of humor into these otherwise serious

and anxious discussions. A certain private banker presented his scheme

in approximately the following words: "Before you can reopen the

Exchange you must be in a position to know to what extent Europe is

going to throw our securities upon this market, and the only way to

obtain this information is to send some members of your Committee

abroad. This delegation should go first to London and settle there for

a long enough time to get intimately acquainted with leading persons

in the financial world. This could be done by cultivating social

intercourse, dining and consorting with these people until a frank

statement from them could be obtained concerning the probable volume

of American securities for sale."

 

As this statement proceeded visible signs of painful emotions

manifested themselves among the Committee. The Exchange had already

been closed three months, and they were being informed that a plan

requiring a lapse of some six months more must be carried out before

the happy day of resumption would be in sight. The banker having

paused for a few minutes' reflection, resumed: "Then there is France.

Many American securities are held there, and as under their system the

action of individual investors is largely controlled by the financial

institutions, it will be quite feasible to determine the probable

selling of French investors when you have got in intimate touch with

these institutions." Another additional six months' delay loomed to

the vision of the demoralized Committee, and sad words of reproachful

protest were about to burst from some of them when their mentor again

broke the chilly silence of the meeting room. "Now that I think of it

there is Switzerland. The Swiss are a thrifty and saving people and

undoubtedly have much money in our properties. In spite of her

neutrality Switzerland will feel the economic pinch of this war and

her people will have to liquidate many of their foreign holdings. It

will be wise, therefore, for you to extend your inquiries from France

into Switzerland."

 

Here the reaction came, the heart-sick feeling which had plunged the

respectfully attentive Committee into gloom vanished, and mirthful

emotions so possessed them that it was a hard task to maintain proper

dignity and decorum. The temptation to inquire whether this

contemplated trip around the globe was to include an effort to trace

some American railroad bond into the sacred precincts of Thibet, or a

dash to the South Pole to search the abandoned luggage of some

deceased explorer, was resisted, and the worthy banker whose

imagination had taken such distant flights retired unconscious of the

very mixed emotions he had aroused. In the light of the actual

reopening that took place only six weeks later this interview becomes

a curiosity worth preserving.

 

       *       *       *       *       *

 

Along with other prominent men who consented to meet and consult with

the Committee there came Sir George Paish and Mr. Basil G. Blackett.

These two gentlemen had come over from England to consult our

government and our banking fraternity with regard to the abnormal

exchange situation created by the outbreak of war. Before the

Committee of Five they, of course, dwelt mainly upon the question of

reopening the market. Sir George Paish, being by nature an optimist,

took a very roseate view of the outlook, so much so that some members

of the Committee were at first disposed to fear (his mission being

that of a collector of debts who sought prompt payment) that his

diagnosis of the situation was prompted more by his hopes than by his

convictions. He proceeded to Washington, where he spent a considerable

time negotiating with the national authorities, and on his way home he

again appeared before the Committee, on November 23rd, and stated his

belief that the Exchange could be reopened at once.

 

In the light of what followed it is plain that Sir George Paish's

views were very nearly correct and not by any means over-optimistic.

The rapidity with which the readjustment of exchange solved the

problem presented to the American market was entirely in harmony with

his predictions and very flattering to his judgment. His companion,

Mr. Basil G. Blackett, was a reticent young man who seldom intruded

himself into the discussion, but it was noticeable that whenever he

was asked for an expression of opinion he showed himself to be

thoroughly informed as to facts and sound in judgment. The Committee

was certainly under an obligation to these gentlemen for the time they

were willing to give to its deliberations. In this connection it is a

pleasure to record that the authorities of the London Stock Exchange

showed a similarly friendly disposition. All through the period of

crisis communications passed between the London and New York Exchanges

and were accompanied by a most friendly spirit of mutual assistance.

 

       *       *       *       *       *

 

While plans for reopening the Exchange were discussed from an early

date, nothing definite took shape up to the end of October, and at

that time the Committee of Five were still in the dark as to how long

business would continue to be suspended. Whether the New Year would

find Wall Street still bound and muzzled was an open question on

November 1st. As the month advanced, however, a very rapid change in

conditions began to manifest itself. On November 10th two significant

steps were taken. Mr. Smithers, Chairman of the Unlisted Stocks

Committee, appeared and stated that his Committee intended making a

report recommending their own discontinuance. He was followed, on the

same day, by Mr. E. R. McCormick, Chairman of the Board of

Representatives of the Curb Market Association, who urged that the

time for a formal reopening of the Curb was at hand. On the following

day the Committee on Unlisted Stocks, having submitted a proposed

circular which they wished to issue in announcement of their

dissolution, the Committee of Five adopted the following rule:

 

     "The Special Committee of Five being of the opinion that the

     market for unlisted stocks has arrived at a condition that makes

     supervision of dealings no longer necessary, hereby approve the

     act of the Committee on Unlisted Stocks in dissolving their

     organization.

 

     "Ruling No. 23, dated September 24, 1914, is hereby rescinded."

 

It is needless to say that this action, together with its ratification

by the Committee of Five, was first submitted to and approved by the

Clearing House banks. Unlisted stocks comprised a group of properties

which were practically not held abroad, and the reason for holding

them under close restraint at first was the danger of the sentimental

effect on a panicky situation in case their prices should undergo a

violent decline. It having been demonstrated that such a decline was

not to be feared, the Committee in charge were only too glad to

relinquish the difficult duty of supervising the trading and open a

free market. It was further decided that the restraint upon free

quotation and publication of prices be simultaneously removed from the

unlisted dealings.

 

As a natural sequence to the above action, on November 12th, the Curb

Association issued the following notice:

 

     "To the Members of the New York Curb Market Association:

 

     "GENTLEMEN:

 

     "It has been decided that the improvement in the general

     financial situation has removed the necessity for restrictions

     over trading in unlisted stocks, therefore you are hereby

     notified that the New York Curb Market will officially resume

     business on Monday, November 16th, 1914, at 10 o'clock A.M.

 

     "This action on the part of the Chairman of the New York Curb

     Market Association has received the approval and sanction of the

     Committee of Five of the New York Stock Exchange.

 

                                             "E. R. MCCORMICK,

                                                     "_Chairman_."

 

On November 13th, the Committee of Five ruled that:

 

     "Unrestricted trading in Listed Municipal and State Bonds for

     domestic account may now be resumed, but that all transactions

     for future delivery must be submitted for approval, as

     heretofore, to the Sub-Committee of Three on Bonds at the

     Clearing House of the New York Stock Exchange."

 

On November 16th, Mr. Frank W. Thomas, Vice-President of the Chicago

Stock Exchange and also Chairman of their "Trading Committee,"

appeared before the Committee of Five and stated that it was the

intention of the authorities of their Exchange to meet on the coming

Wednesday to discuss the advisability of opening on Monday, November

23rd. He asked for information regarding the attitude of the New York

Stock Exchange in the matter of securities listed on both exchanges.

The Committee requested him not to permit dealings in Chicago, in such

securities, at prices below the minimum prices established in New

York.

 

Thus one after another came the evidences of a sudden transformation

in the financial conditions and of a consequent movement toward the

resumption of business, all of which rested fundamentally on an

immense increase of our exports and the resulting favorable movement

of foreign exchange.

 

Encouraged by these happenings the Committee of Five actively took up

numerous plans for letting down the bars. There had been for some time

considerable pressure exerted by those members of the Exchange who

were distinctively bond brokers, to have the bond business transferred

from the Clearing House to the floor of the Exchange. They thought

that this step would make a wider and more satisfactory market for

bonds and that the supervision of the Committee of Three could be

exerted in one locality as well as in the other. In view of the rapid

improvement in conditions, and the fact that unlisted bonds had been

given an unrestrained market by the dissolution of the Committee of

Seven, it was thought that the moment had come for taking this step in

advance. Preparations were at once set on foot to restore the

restricted bond market to the floor and thereby insure that partial

opening of the doors of the Exchange which would be the entering wedge

to ultimate resumption.

 

       *       *       *       *       *

 

Unfortunately the plans of the Committee in this regard were not

sufficiently safeguarded. Through some unforeseen leak the news of

their intentions got abroad, and brought on some awkward consequences.

The first of these was the appearance of a private banker, the same

one who early in August had predicted a long period of suspension, to

protest against greater freedom in bond dealings. He foresaw terrible

results if this rash act were permitted and claimed to have

information that European holders of bonds were awaiting this chance

to swamp the market. The Committee were not much alarmed by this

gentleman's warnings and were proceeding with their nefarious scheme

when a further warning was addressed to them. There was a certain

member of a Stock Exchange firm who was on friendly terms with some of

the Washington authorities, and who seems to have felt it his duty to

see that the Exchange did nothing to give offense in these high

quarters. When this individual learned what the Committee had in mind

he sent word that it would be prudent for them to let a particular

government officer know their plans before putting them into

execution. Thinking that this warning must be based on some special

information the Committee at once authorized this gentleman to inform

his friend in the Government of their plan. This was on Wednesday,

November 18th, and the intention of the Committee was to place the

bond market upon the floor of the Exchange on the following Monday. On

Thursday this well meaning but somewhat misguided go-between reported

that he had communicated with Washington and that his friend there had

expressed the desire to see some member of the Committee before any

further steps were taken.

 

This news hit the plans of the Committee somewhat after the manner of

a submarine torpedo. They had everything in readiness for Monday, and

the newspapers, which had also got wind of their intentions, had

already announced to the public unequivocally that a restricted bond

market would be started on that day. With such limited time to act in

there was nothing to resort to but postponement and a notice was

immediately given to the press in the following words:

 

     "The Special Committee of Five states that while the plan

     outlined by the newspapers concerning a further extension of the

     present method of dealing in bonds was substantially that under

     consideration by the Committee, the magnitude of the interests

     affected has led to unforeseen difficulties which will

     necessitate further consideration. When a decision is reached

     ample notice will be given to the public officially."

 

A letter was at once sent to the Government official notifying him of

the readiness of the Committee to visit him at his convenience, and

the following day, Saturday, he very courteously sent them a telegram

explaining that the suggestion of an interview had in no way emanated

from him but that he had misunderstood the intermediary (who had

communicated by telephone) and supposed that the interview was being

sought by the Exchange. So this mighty tempest in a tea pot resulted

from the excessive