1929 Crash and Bankers

Tuesday, July 18, 2006 | 11:58 AM

An anonymous emailer asks: "You're pretty harsh on these execs, What should they have done?"

Fair enough question. When in doubt, I like to look to the past to find analogous situations. One can let history be your guide.

Here's how in past crisises, certain men, now knwon as patriots, have behaved:

Time_1929_2 "Thursday Oct. 24, 1929: For so many months so many people had saved money and borrowed money and borrowed on their borrowings to possess themselves of the little pieces of paper by virtue of which they became partners in U. S. Industry. Now they were trying to get rid of them even more frantically than they had tried to get them. Stocks bought without reference to their earnings were being sold without reference to their dividends. At around noon there came the no-bid menace. Even in a panic-market, someone must buy the "dumped" shares, but stocks were dropping from 2 to 10 points between sales—losing from 2 to 10 points before a buyer could be found for them. Sound stocks at shrunk prices—and nobody to buy them. It looked as if U. S. Industries' little partners were in a fair way to bankrupt the firm.

Then at 1:30 p. m., a popular broker and huntsman named Richard F. Whitney strode through the mob of desperate traders, made swiftly for Post No. 2 where, under the supervision of specialists like that doughty warrior, General Oliver C. Bridgeman, the stock of the United States Steel Corp., most pivotal of all U. S. stocks, is traded in. Steel too, had been sinking fast. Having broken down through 200, it was now at 190. If it should sink further, Panic with its most awful leer, might surely take command. Loudly, confidently at Post No. 2, Broker Whitney made known that he offered $205 per share for 25,000 shares of Steel—an order for $5,000,000 worth of stock at 15 points above the market. Soon tickers were flashing the news: "Steel, 205 bid.'' More and more steel was bought, until 200,000 shares had been purchased against constantly rising quotations. Other buyers bought other pivotal stocks. In an hour General Electric was up 21 points, Montgomery Ward up 23, Radio up 16, A. T. & T. up 22. How far the market would have gone downward on its unchecked momentum is difficult to say. But brokers and traders alike agreed that the man who bid 205 for 25,000 shares of Steel had made himself a hero of a financially historic moment.

That hero, Richard Whitney, head of Richard Whitney & Co., was brother of George Whitney, Morgan Partner. Back of his action lay a noontime meeting held at No. 23 Wall St., Home of the House of Morgan. Although an excited Hearst reporter would have it that the Head of the House was present, actually, John Pierpont Morgan was in Europe. It was Partner Thomas W. Lament with whom conferred Charles E. Mitchell, National City Bank; William C. Potter, Guaranty Trust; Albert H. Wiggin, Chase National Bank; Seward Prosser, Bankers Trust. These men controlled resources of more than $6,000,000,000. They met briefly; they issued no formal statement. But to newsmen, Mr. Lamont remarked that brokerage houses were in excellent condition, that the liquidation appeared technical rather than fundamental. He also conveyed, without specifically committing himself, the impression that the banks were ready to support the market. And the meeting was hardly over before Hero Whitney had become Heroic.

Traders, talking over the Morgan meeting, failed to remember any previous occasion on which a stock market conference had been called while a trading session was still in progress. They did recall, however, that in 1907, with call money at 125%. Secretary of the Treasury Cortelyou conferred with J. P. Morgan, put $25,000,000 of Government funds into Manhattan banks, halted the Panic. They remembered too the Northern Pacific crash of 1901. when, after Northern Pacific stock had gone overnight from $150 to $1,000 a share, the House of Morgan, representing the late great James J. Hill and the House of Kuhn, Loeb, representing the late great Edward H. Harriman, compromised at $150 a share, saved from ruin many a short. Then there was the U. S.-England war scare of 1895 when, with money at 80%, J. P. Morgan offered money at 6%, averted a threatened crash.

Thus bankers have for a long time recognized their responsibilities as panic-preventers, and when the glass house of speculation has cracked and splintered, it has most often been the strong House of Morgan that has assumed the responsibility of fame and brought order out of confusion." (emphasis added)

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Note that was $6 billion dollars -- in 1929. I can't even figure out what it is adjusted for inflation.

For those who had a hard time seeing this difference between Great Americans and assclowns, I hope this clarifies matters somewhat.

The full Time magazine is linked below . . .

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Update: July 19, 2006 12:45pm

Yes, as a commenter pointed out, Whitney's life ended badly -- scandal and embezzlement, and fighting against the Securities Exchange Act and the establishment of the SEC -- but the reference was to the bankers -- JPMorgan and others, and not merely the one man executing the order.

You can read more about Whitney in the book Once in Golconda.


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Update 2: July 19, 2006 1:52pm

A reader provides the following political angle on this mess:

The Tom Lamont partner from Morgan (mentioned in para 3, above), by the way, is the grandfather of the Ned Lamont who’s running against Senator Lieberman in the Democratic Senate primary here in Connecticut. Tom Lamont was JPM's #2 guy. His mother was my mother’s roommate in college. We always got Christmas cards from them when I was growing up, with photos from Caneel Bay, Oyster Bay—always some very nice bay. There's also a Lamont Library at Harvard. My parents always told me how wealthy they were, and somehow that translated (in my 14 year old mind) into maybe $15, $20 million. Ned L gave a net worth range in his filings, which went from $90-$300 million. 


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Source:
Bankers v. Panic
Business & Finance
Nov. 4, 1929
http://time-proxy.yaga.com/time/archive/preview/0,10987,787517,00.html

Tuesday, July 18, 2006 | 11:58 AM | Permalink | Comments (27) | TrackBack (0)
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Comments

barry, barry. nice try but as i'm sure u know, there are few Great Americans among the Wall St crowd. after the Crash, Richard Whitney was charged w embezzlement and served time in Sing Sing. he was a Blue Blood (bro' was head of Morgan at the time) but lost on his speculations and basically borrowed and effectively stole money from friends, family and those who wanted to be associated w such an august name. more like Ken Lay. WW2 bailed this country out of Depression, not FDR and certainly not Wall St or captains of industry. we're probly staring down the same gun a couple years hence.

Posted by: scorpio | Jul 18, 2006 12:11:29 PM

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