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diff --git a/.gitattributes b/.gitattributes new file mode 100644 index 0000000..6833f05 --- /dev/null +++ b/.gitattributes @@ -0,0 +1,3 @@ +* text=auto +*.txt text +*.md text diff --git a/29443-8.txt b/29443-8.txt new file mode 100644 index 0000000..049053b --- /dev/null +++ b/29443-8.txt @@ -0,0 +1,3012 @@ +The Project Gutenberg EBook of The New York Stock Exchange in the Crisis +of 1914, by Henry George Stebbins Noble + +This eBook is for the use of anyone anywhere at no cost and with +almost no restrictions whatsoever. You may copy it, give it away or +re-use it under the terms of the Project Gutenberg License included +with this eBook or online at www.gutenberg.org + + +Title: The New York Stock Exchange in the Crisis of 1914 + +Author: Henry George Stebbins Noble + +Release Date: July 18, 2009 [EBook #29443] + +Language: English + +Character set encoding: ISO-8859-1 + +*** START OF THIS PROJECT GUTENBERG EBOOK NY STOCK EXCH--CRISIS OF 1914 *** + + + + +Produced by Richard J. Shiffer and the Online Distributed +Proofreading Team at https://www.pgdp.net (This file was +produced from images generously made available by The +Internet Archive/American Libraries.) + + + + + +[Transcriber's Note: Every effort has been made to replicate this +text as faithfully as possible, including obsolete and variant +spellings and other inconsistencies. Text that has been changed to +correct an obvious error is noted at the end of this ebook.] + + + + + THE NEW YORK + STOCK EXCHANGE IN + THE CRISIS OF 1914 + + + BY + H. G. S. NOBLE + PRESIDENT + + + [Illustration] + + + GARDEN CITY NEW YORK + THE COUNTRY LIFE PRESS + 1915 + + _Copyright, 1915_ + THE COUNTRY LIFE PRESS + + + + +INTRODUCTION + + +The year 1914 has no precedent in Stock Exchange history. At the +present time (1915), when the great events that have come to pass are +still close to us, even their details are vivid in our minds and we +need no one to rehearse them. Time, however, is quick to dim even +acute memories, and Wall Street, of all places, is the land of +forgetfulness. The new happenings of all the World crowd upon each +other so fast in the financial district that even the greatest and +most far-reaching of them are soon driven out of sight. This being the +case, it has seemed to the writer of these pages that some record +should be kept among the brokerage fraternity of what was so great an +epoch in their history, and that this record could best be written +down by one who happened to be very favorably placed to know the story +in its entirety. + +Of course the archives of the Exchange will always contain the minutes +of Committees and other documentary material embodying the story of +the past, but this dry chronicle is never likely to see the light +except when unearthed by law courts or legislative committees. It +seems worth while, therefore, to disentangle the essential thread of +the tale of 1914 from the mass of unreadable detail in the minute +books, and put it in a shape where those who are interested may look +it over. + +This is not an easy task. To differentiate the interesting and the +essential from the mass of routine material is, perhaps, not very +difficult, but to present this segregated matter in a form that will +not be monotonous is much more of a problem. The proceedings of a +Committee that has been in continuous session must, when written down, +partake of the nature of a diary, and to that extent be tiresome +reading. We shall, therefore, have to ask the indulgence of any one +who happens to look into these pages, and beg him to pass over the +form for the sake of the substance. That the substance itself is of +deep interest goes without saying. It was given to the Stock Exchange +to play a great part in a momentous world crisis, and it must be of +profound interest to know how that part was played. + +Stock Exchanges are a relatively recent product of modern +civilization, and like new comers in every field they are suspected +and misunderstood. The most complex of all problems are economic +problems, and the functions of Stock Exchanges form a most intricate +part of political economy. It has, consequently, been a noticeable +phenomenon in all contemporary industrial society that the activities +of the stock markets have been a constant subject of agitation and +legislative meddling. Most of this meddling has been based upon +ignorance and misunderstanding, but in a broad view this ignorance and +misunderstanding are excusable owing to the novelty and above all the +great complexity of the factors at work. One of the needs of the time, +therefore, is that the public, and their representatives in the +Legislatures, should be enlightened as fast as possible with regard to +the immensely important uses of these institutions, and to the +operation of their very delicate machinery. + +The World crisis of 1914 forced upon us an object lesson on the +question of speculative exchanges in general which ought to be of +lasting profit. For years agitators had been hard at work all over the +country urging the suppression of the Cotton Exchanges, and claiming +that they contained gamblers who depressed the price of the cotton +growers' product. In the summer of 1914 the dreams of these agitators +were realized. The Cotton Exchanges were all closed and the cotton +grower was given an opportunity of testing the benefits of a situation +where there was no reliable agency to appraise the value of cotton. +The result may be summed up in the statement that the reopening of the +Cotton Exchanges met with no opposition. A similar object lesson was +furnished in the case of the Stock Exchanges. They were all closed, +and for a few weeks some profound thinkers in the radical press stated +that the country was showing its ability to dispense with them. When +the time for their reopening came, however, there was no agitation to +prevent it. On the contrary it was hailed as a sign of the resumption +of normal financial conditions in the United States. + +This evidence that the experience of 1914 has cast a much needed light +on the public value of speculative exchanges, gives a further excuse +for describing in some detail how the experience was passed through by +that greatest of all these institutions, the New York Stock +Exchange. + + + + +THE NEW YORK STOCK EXCHANGE IN THE CRISIS OF 1914 + + + + +The New York Stock Exchange + + + + +CHAPTER I + +THE CLOSING OF THE EXCHANGE + + +The Stock Exchange is in the second century of its existence and in +that long period of time (long relatively to the number of years +during which Stock Exchanges have been known to the world) it has been +forced to close its doors only twice. The first occasion was the great +panic of 1873, the after effect of civil war when trading was +suspended for ten days; the second came with the outbreak of the world +War in the close of July, 1914. These two remarkable events differ +profoundly in the gravity of the circumstances which brought them +about. In 1873, although the financial disturbance was one of the +greatest the United States has ever experienced, the trouble was +mainly local and did not seriously involve the entire world. The +Exchange was not closed in anticipation of a catastrophe but was +obliged to shut down after the crash had taken place, in order to +enable Wall Street to gather up its shattered fragments. The measure +of this crisis was the ten days during which trading was suspended. + +Far different from these were the circumstances surrounding July 31st, +1914. On that eventful date a financial earthquake of a violence +absolutely without precedent shook every great center of the +civilized world, closing their markets one by one until New York, the +last of all, finally suspended in order to forestall what would have +surely been a ruinous collapse. The four and a half months during +which this suspension continued stand to the ten days closing of 1873 +in a proportion which fitly illustrates the relative gravity of the +two historic upheavals. + +In the light of these facts we are justified in asserting that the +events of 1914 are the most momentous that have so far constituted the +life and history of the New York Stock Exchange, and consequently that +some record of, and commentary upon, these facts may be of value to +the present members of that body and of interest and profit to its +future members. + +It is in the nature of panics to be unforeseen, but the statement may +be truly made that some of them can be more unforeseen than others. +The panic of 1907 was preceded by anxious forebodings in the minds of +many well informed people, whereas the Venezuela panic in 1895, being +due to the sudden act of an individual, came out of a clear sky. To +the latter class distinctively belongs the great convulsion of 1914. +While the standing armies of Europe were a constant reminder of +possible war, and the frequent diplomatic tension between the Great +Powers cast repeated war shadows over the financial markets, the +American public, at least, was entirely unprepared for a world +conflagration. Up to the final moment of the launching of ultimata +between the European governments no one thought it possible that all +our boasted bonds of civilization were to burst over night and plunge +us back into mediæval barbarism. Wall Street was therefore taken +unaware, and so terrific was the rapidity with which the world passed, +in the period of about a week, from the confidence of long enduring +peace to the frightful realization of strife, that no time was given +for men to collect their thoughts and decide how to meet the +on-rushing disaster. + +Added to the paralyzing effect of this unheard of speed of action, +there came the disconcerting thought that the conditions produced were +absolutely without precedent. Experience, the chart on which we rely +to guide ourselves through troubled waters, did not exist. No world +war had ever been fought under the complex conditions of modern +industry and finance, and no one could, for the moment, form any +reliable idea of what would happen or of what immediate action should +be taken. These circumstances should be kept clearly in mind by all +who wish to form a clear conception of this great emergency, and to +estimate fairly the conduct of the financial community in its efforts +to save the day. + +The conditions on the Stock Exchange, when the storm burst, were in +some respects very helpful. Speculation for several years had been at +a low ebb, so that values were not inflated nor commitments extended. +Had such a war broken out in 1906, with the level of prices then +existing, one recoils at the thought of what might have happened. +Furthermore, the unsettled business outlook due to new and untried +legislation had fostered a heavy short interest in the market, thereby +furnishing the best safeguard against a sudden and disastrous drop. +This short interest was a leading factor in producing the +extraordinary resistance of prices in New York which caused so much +favorable comment during the few days before the closing. It were well +if ill-informed people who deprecate short selling would note this +fact. + +During the week preceding July 31st, therefore, in the face of a +practical suspension of dealings in the other world markets, the New +York market stood its ground wonderfully. The decline in prices, +though it became violent on July 30th, showed no evidence of collapse. +There was a continuous market everywhere up to the last moment, and +call money was obtainable at reasonable prices. Here was a perplexing +problem when the closing of foreign Bourses raised the question of how +long we should strive to keep our own Exchange open. + +To close the recognized public market for securities, the market which +is organized and safeguarded and depended upon as a standard of +values, is an undertaking of great responsibility in any community. To +take this step in New York, which is one of the four preeminent +financial centers of the world, involved a responsibility of a +magnitude difficult adequately to estimate. Upon the continuity of +this market rest the vast money loans secured by the pledge of listed +securities; numberless individuals depend upon it in times of crisis +to enable them to raise money rapidly by realizing on security +investments and thus safeguarding other property that may be +unsaleable; the possessor of ready money looks to it as the quickest +and safest field in which to obtain an interest return on his funds; +and the business world as a whole depends upon it as a barometer of +general conditions. + +Add to this the fact that speculative commitments by individuals from +all over the world, which have been based upon the expectation of an +uninterrupted market, are left in hopeless and critical suspense if +this market is suddenly removed, and it becomes apparent that to close +the Exchange is manifestly to inflict far-reaching hardship upon vast +numbers of people. It is also sure to be productive of much injustice. +In bad times sound and solvent firms are anxious to enforce all their +contracts promptly so as to protect themselves against those that are +overextended; an obligatory suspension of business compels these +solvent firms, in many cases, to help carry the risks of the insecure +ones and deprives the provident man of the safety to which he is +entitled. + +When such facts as these are duly weighed by the agencies having the +authority to close the stock market, it becomes clear that duty +dictates a policy of hands off as long as a continuous market persists +and purchasers continue to buy as the decline proceeds. This was well +illustrated in the acute panic of 1907 when an enormous open market +never ceased to furnish the means by which needy sellers constantly +liquidated, and the possessors of savings made most profitable +investments. To have closed the Exchange during that crisis--assuming +it to have been possible--would have been an unmixed evil. The violent +decline in prices was the natural and only remedy for a long period of +over-speculation, and it would have been worse had it been +artificially postponed. + +Considerations of this general character, up to July 30th, caused the +authorities of the New York Stock Exchange to take no action, although +the other world markets had all virtually suspended dealings. On July +30th, the evidences of approaching panic showed themselves. An +enormous business was done accompanied by very violent declines in +prices, and, although money was still obtainable throughout the day, +at the close of business profound uneasiness prevailed. + + * * * * * + +On the afternoon of July 30th, the officers of the Stock Exchange met +in consultation with a number of prominent bankers and bank +presidents, and the question of closing the Exchange was anxiously +discussed. While the news from abroad was most critical, and the day's +decline in prices was alarming, it was also true that no collapse had +taken place and no money panic had yet appeared. The bankers' opinion +was unanimous that while closing was a step that might become +necessary at any time, it was not clear that it would be wise to take +it that afternoon, and it was agreed to await the events of the +following day. Meanwhile, several members of the Governing Committee +of the Exchange had become convinced that closing was inevitable and, +in opposition to the opinion of the bankers, urged that immediate +steps be taken to bring it about. It may seem strange to people +outside of Wall Street that the night before the Exchange closed such +apparent indecision and difference of opinion existed. It was, +however, a perfectly natural outcome of an unprecedented situation. +The crisis had developed so suddenly, and the conditions were so +utterly without historic parallel, that the best informed men found +themselves at a loss for guidance. + +During the evening of July 30th the conviction that closing was +imperative spread with great speed among the large brokerage firms. Up +to a late hour of the night the President of the Exchange was the +recipient of many messages and telegrams from houses not only in New +York, but all over the country, urging immediate action. The paralysis +of the world's Stock Exchanges had meanwhile become general. The +Bourses at Montreal, Toronto and Madrid had closed on July 28th; those +at Vienna, Budapest, Brussels, Antwerp, Berlin, and Rome on July 29th; +St. Petersburg and all South American countries on July 30th, and on +this same day the Paris Bourse was likewise forced to suspend +dealings, first on the Coulisse and then on the Bourse itself. On +Friday morning, July 31st, the London Stock Exchange officially +closed, so that the resumption of business on that morning would have +made New York the only market in which a world panic could vent +itself. + +The Governing Committee of the Exchange were called to meet at nine +o'clock (the earliest hour at which they could all be reached, for it +was summer and many were out of town) and at that hour they assembled +in the Secretary's office ready to consider what action should be +taken. In addition to the Committee many members of prominent firms +appeared in the room to report that orders to sell stocks at ruinous +prices were pouring in upon them from all over the world and that +security holders throughout the country were in a state of panic. It +would be hopeless to try to describe the nervous tension and +excitement of the group of perhaps fifty men who consulted together +under the oppressive consciousness that within forty-five minutes (it +was then a quarter past nine) an unheard of disaster might overtake +them. It was determined that the Governing Committee should go into +session at once as there was so little time to spare. Just as they +started for their official meeting room a telephone message was +received from a prominent banking house stating that the bankers and +bank presidents were holding a consultation and suggesting that the +Exchange authorities await the conclusion of their deliberations. + +There is an employee of the Exchange whose duty it is to ring a gong +upon the floor of the big board room at ten o'clock in the morning. +Until that gong has rung the market is not open and contracts are not +recognized. This employee was instructed not to ring the gong until he +had received personal orders to do so from the President; a permanent +telephone connection was established with the office in which the +bankers were conferring, and amid a horrible suspense the outcome of +their conference was awaited. For twenty minutes this strain +continued. It was a quarter before ten and only fifteen minutes +remained in which to act. Meanwhile the brokers were fast assembling +upon the board room floor, orders were piling in upon them to sell at +panic prices, ten o'clock was approaching, and although all felt that +the opening should not be permitted no one had a word from the +Governing Committee as to what was going to be done. + + * * * * * + +At a quarter of ten, no word having come from the bankers, the +receiver of the telephone which had been connected with their meeting +place was hung up, and the Governing Committee were called in session +to take action. As they took their seats two messages reached them. +One was brought by a prominent member of their body who had gone to +the office of the President of the bank Clearing House and had been +told by him, after consulting with some of his fellow officers, "We +concur; under no circumstances is it our suggestion, but if the +Exchange desires to close, we concur." The other was sent, through a +member of the Exchange, from one of the leading bank Presidents who +stated that closing would be a grave mistake and that he was opposed +to it. + +The roll was called and thirty-six out of the forty-two members +answered to their names. The Chair having announced the purpose of the +meeting, Mr. Ernest Groesbeck moved that the Exchange be closed until +further notice. This motion was carried, not unanimously but by a +large majority. Mr. Groesbeck then moved that the delivery of +securities be suspended until further notice, and, this being carried +unanimously, made a third motion that a special Committee consisting +of four members of the Governing Committee and the President be +appointed to consider all questions relating to the suspension of +deliveries and report to the Governing Committee at the earliest +possible moment. The third motion, like the second was carried +unanimously and the Committee adjourned. It was then four minutes of +ten. On the instant that the first motion closing the Exchange was +passed, word was sent to the ticker operators to publish the news on +the tape. In this way the seething crowd of anxious brokers on the +floor got word of the decision before ten o'clock struck. Immediately +upon the adjournment of the Committee Mr. George W. Ely the Secretary +of the Exchange ascended the Chairman's desk in the board room and +made the formal announcement, which was greeted with cheers of +approbation. The President promptly appointed Messrs. H. K. Pomroy, +Ernest Groesbeck, Donald G. Geddes, and Samuel F. Streit to +constitute, with himself, the Committee of Five, and the long suspense +and anxiety of four months and a half began. + +These events, which were crowded into a few feverish hours, and which +seemed to those who participated in them more like a nightmare than +like a reality, present some aspects that are especially worthy of +detailed description. It is noticeable that the vote to close the +Exchange was not unanimous. This shows the immense complexity of a +situation, which, even at the last moment, left some two or three +conscientious men undecided. It is a fact of profound importance, and +one that never should be forgotten by stock brokers or by the public, +that the Exchange closed itself on its own responsibility and without +either assistance or compulsion from any outside influence. Many false +assertions by professional enemies of the institution have been made +to the effect that the banks forced the closing, or that its members +were unwillingly coerced by outside pressure. The facts are that the +influential part of the membership, the heads of the big commission +houses, made up their minds on the evening of July 30th that closing +was imperative, and that on the morning of July 31st their +representatives in the Governing Committee took the responsibility +into their own hands, the bankers having been unable as yet to reach a +conclusion. + +Immediately after the closing the President of the Exchange visited +the prominent bank president who had served notice at the last moment +of his disapproval of this procedure. He was found in his office in +consultation with a member of one of the great private banking houses. +Both the bank president and the private banker agreed that, in their +opinion, the closing had been a most unfortunate mistake. It was an +opportunity thrown away to make New York the financial center of the +world. The damage was done and would have to be made the best of, but +had the market been allowed to open the banks would have come to the +rescue and all would have gone well. These gentlemen admitted that the +Exchange was to some extent excusable owing to the negligence of the +bankers in not notifying them that they were ready to protect the +money market. + +It may safely be stated that within twenty-four hours after this +interview neither the two bankers in question nor any one else in Wall +Street entertained these opinions. The rise of exchange on London to +$7--a rate never before witnessed; the marking of the Bank of +England's official discount rate to 10%, accompanied by a run on that +institution which resulted in a loss of gold in one week of +$52,500,000; the decline of the Bank's ratio of reserve from the low +figure of 40% to the paralyzing figure of 14-5/8%; together with the +fact that the surplus reserves of our New York Clearing House banks +fell $50,000,000 below their legal requirements, were reasons enough +in themselves to convince the most skeptical of the necessity of what +had been done. + +The frightful gravity of the situation which had arisen became clearer +and more defined in people's minds a few days after the first of +August than it was on the morning of July 31st. European selling had +been proceeding for some time before the outbreak of War and in the +last few days before closing had been temporarily arrested by the +prohibitive level of exchange and the risk of shipment at sea. The +American public itself, however, was seized with panic on the evening +of July 30th, and on the morning of July 31st brokers' offices were +flooded with orders to sell securities for what they would bring and +without reference to values. Had the market been permitted to open on +that Friday morning the familiar Wall Street tradition of "Black +Friday" would have had a meaning more sinister than ever had been +dreamed of before. + +In all previous American panics the foreign world markets were counted +upon to come to the rescue and break the fall. Imports of gold, +foreign loans, and foreign buying were safeguards which in past crises +had been counted upon to prevent utter disaster. On this occasion our +market stood by itself unaided; an unthinkable convulsion had seized +the world; panic had spread; even the bargain hunter was chilled by +the unprecedented conditions; there were practically no buyers. A half +hour's session of the Exchange that morning would have brought on a +complete collapse in prices; a general insolvency of brokerage houses +would have forced the suspension of all business; the banks, holding +millions of unsaleable collateral, would have become involved; many +big institutions would have failed and a run on savings banks would +have begun. It is idle to speculate upon what the final outcome might +have been. Suffice it to say that these grave consequences were +prevented in the nick of time by the prompt and determined action of +the Stock Exchange, and by that alone. + + * * * * * + +Any decisive step whether right or wrong always finds its critics. +There were a few people who criticised the Exchange for closing too +soon and thought that the feeling of panic was increased by this +action. These few were mostly converted from their opinions as the +situation became clearer. There was a larger number who took the +ground that the Exchange had not closed soon enough, and urged that +had the step been taken a few days sooner a considerable decline in +values would have been prevented. It is strange that the latter +critics did not stop to reflect on how great an advantage it was, all +through the anxious days of August, to have had the New York market +liquidated as far as it could be without disaster, and the level of +closing prices relatively low. How vastly greater would have been the +task of safeguarding the situation in the face of declining prices in +the "New Street Market" had the closing prices on the Exchange been +ten or fifteen points higher. The truth is that the Exchange was +closed at the very best possible moment. The market was kept open as +long as liquidation could safely be carried on (thus immensely +diminishing the pressure to be withstood during the suspension) and it +was closed at the very instant that a collapse was threatened. + +The above facts suggest some reflections with regard to the agitation +for governmental interference with or control of the Exchange. The act +of closing necessitated the prompt decision of men thoroughly familiar +with the circumstances in a period of time actually measured by +minutes. If it had been necessary to reach government officials +unfamiliar with details, convince them of the necessity of action, and +overcome the invariable friction of public machinery, the financial +world would have been prostrated before the first move had been made. +If the Exchange had been an incorporated body, and had been closed in +the face of the difference of opinion and possible conflict of +interests that existed at the time, it would have been possible for a +temporary injunction to have been brought against its management +restraining its freedom to meet the emergency. Long before the merits +of such an injunction could have been argued in court the harm would +have been done, and ruin would have overtaken many innocent people. +The full power of a group of individuals thoroughly familiar with the +conditions to act without delay or restraint prevented a calamity +which can safely be described as national. + +It is a fact, which will probably never be appreciated outside of the +immediate confines of Wall Street, that the Exchange was unexpectedly +thrown into a position where the interests of the whole country were +put in its hands, and that through the prompt and energetic action of +the thirty-six men who faced the awful responsibility on July 31st +financial America was saved. It is true that in saving the community +they saved themselves, but so do the soldiers who win upon the +battle-field, and in neither case is the obligation cancelled by the +selfish considerations involved. When in future the perennial outcry +against the Exchange is being fostered by those whose minds are +exclusively occupied with the evils that are inseparable from every +human institution, let us hope that once in a while some friendly +voice may be raised to remind the world of July thirty-first, nineteen +hundred and fourteen. + + + + +CHAPTER II + +THE PERIOD OF SUSPENSION + + +During the same morning on which the momentous action of closing was +taken the Committee of Five met and elected the President of the +Exchange as their Chairman. The acute crisis was over, the danger of a +cataclysm had been averted, but the situation that remained was big +with problems full of menace and uncertainty. + +Just what effect the closing of the market would have was a matter of +doubt. On all previous occasions when the facilities of the Exchange +had been inadequate, or had been shut off, an unregulated market had +established itself in public places and proceeded uncontrolled. Thus +during the Civil War, when the volume of speculation had completely +outgrown the limited machinery of the old Board of Brokers, a +continuous market developed partly in the street and partly in a +basement room called the "Coal Hole" and flourished during the day, +while in the evening it was continued in the lobby of the Fifth Avenue +Hotel. This market did more business than was done upon the Exchange +itself, and a few years after the War, many of its members, who had +organized into the "Open Board of Brokers," were admitted to the Stock +Exchange in a body. The suspension of business in 1873 was too brief +to allow of the formation of a market such as the above, but, while it +continued, cash transactions for securities were being carried on +every day in the financial district. + +Would results such as these obtain on this occasion? Much depended +upon the length of time before the Exchange could re-open, but this in +itself was a problem for which no one could venture a solution. Again, +a vast volume of contracts made on July 30th had been suspended. How +long could the enforcement of these contracts be successfully +prohibited, and above all how long would the banks and financial +institutions which were lending money on Stock Exchange collateral +refrain from calling loans when they were deprived of any measure of +the value of their security? Over its own members the New York Stock +Exchange might exercise a rigid control, and it could safely be +assumed that the other Stock Exchanges of the country would coöperate +with it, but numberless outside agencies existed such as independent +dealers unaffiliated with exchanges, and auctioneers, any of whom +might establish a market. If declining prices were made through media +of this description, and the press felt called upon to furnish them to +the public, the closing of the Exchange might not suffice to prevent +panic and disaster. + +Oppressed by these considerations, and by an appalling sense of +responsibility, the new Committee of Five began its labors in the +morning of July 31st. The first step decided upon was to communicate +with the Bank Clearing House Committee. Mr. Francis L. Hine, President +of the Clearing House, was invited to meet the Committee of Five which +he did, a little later in the day, and presented to them the +following statement of the action taken by the Clearing House. + + "There was a meeting of the Clearing House Committee this morning + in view of the closing of the New York Stock Exchange. It was the + opinion of the Committee that the business and financial + condition of New York and the entire country was sound but that + the situation in Europe justified extreme prudence and + self-control on the part of the United States; that the closing + of the Stock Exchange was a wise precaution by reason of the + disposition of all Europe to make it the market for whatever it + wished to sell, and that in this country there was no occasion + for any serious interruption of the regular course of business, + either financial or mercantile." + +After the retirement of Mr. Hine, the Chairman of the Committee on +Clearing House of the Exchange stated that all the checks given to the +Clearing House had been certified, and a notice was thereupon sent out +instructing members to call for their drafts at the usual hour. Thus +all the differences due on the day's transactions of July 30th were +settled, and a first encouraging step was taken. It was also decided +to permit the offering of call money on the floor of the Exchange. + +The Committee held its second meeting on August 1st and the first of +the long series of problems growing out of the closing of the market +was at once presented to it. A letter from a brokerage house doing +business with Europe was received in which it was pointed out that +"arbitrageurs" who had sold stocks in New York and bought them in +London during the previous fortnight had made their deliveries by +borrowing stock in New York; that the stock purchased in London was +due to arrive on this side, and that the usual process of financing +it by returning the previously borrowed stock had been cut off through +the suspension of unfulfilled contracts. This was likely to lead to +very grave embarrassment because call money had practically +disappeared and houses to whom this foreign stock was consigned might +not be able to meet their obligation to pay for it as it arrived. +There being no arrivals of foreign stock expected that day, the +Committee deferred action, and thus gained time to think out ways and +means of meeting the difficulty. + +The second problem presented came in the form of a request for +permission to sell securities outside of the Exchange. The firm of S. +H. P. Pell & Co. had suspended, and a house which had been lending +them money wished to be authorized to sell out the collateral. This +was the first of many cases brought before the Committee, during its +long tenure of office, in which individuals sought for a special +privilege to sell securities they were anxious to market while trading +in general was forbidden. In this case the applicants were referred to +that section of the Constitution of the Exchange in which it is +provided that members having contracts with insolvents shall close out +these contracts in the Exchange when the securities involved are +listed. The Exchange being closed, this provision answered the +question without necessitating any independent action on the part of +the Committee. + + * * * * * + +From the moment of the closing of the Exchange a growing pressure +arose to determine just when and how it should be re-opened. The +desire for information on this point was widespread, and when the +gravity of the situation became clearer to the community, a great +anxiety developed that the re-opening should, above all, not be +premature. Realizing that the fear of sudden and ill considered action +on this question was becoming dangerous to the restoration of +confidence, the Committee of Five, at its meeting of August 3rd +authorized the following statement. + + "Announcement is made by the President of the Stock Exchange, in + answer to inquiries as to when the Exchange will open, that ample + notice of such opening will be given." + +In spite of this notice fear that the Stock Exchange might act +injudiciously lingered for some time longer until the constant +reiteration by its officers of their intention to act only in +conjunction and in consultation with the banks permanently allayed it. + +By Monday, August 3rd, a steady stream of letters had begun to pour in +upon the Committee asking advice and direction upon any number of +questions raised by the closing of the market, and offering every kind +of suggestion and advice. In addition to this it soon became evident +that interviews would have to be held with large numbers of people for +the purpose of securing their cooperation, influencing their conduct, +and obtaining information. The resolution of the Governing Committee +by virtue of which the Committee of Five was brought into being merely +stated that questions such as these should be considered and reported +back "at the earliest possible moment." Clearly here was an impossible +situation. The immense detail of the work which was beginning to +unfold itself could never be handled by so large a body as the +Governing Committee itself. Realizing that this difficulty must be met +without a moment's delay the Committee of Five requested the calling +of a special meeting of the Governors for twelve o'clock the same day +and presented to them the following resolution, which was unanimously +adopted. + + "RESOLVED: That the Special Committee of Five, appointed by the + Governing Committee on July 31st, be, and it hereby is, + authorized during the present closing of the Exchange, to decide + all questions relating to the business of the Exchange and its + members." + +This action of the Governing Committee, while it was rendered +necessary by the peculiar requirements of the situation, was +unprecedented in the history of the Exchange, for never before had +such powers and such responsibilities been put in the hands of so few +individuals. It was one of a series of "war measures" by means of +which ends were achieved that would not have been reached in any other +way. + +Clothed with complete authority the Committee met again in the +afternoon of August 3rd and was at once confronted with a request for +a ruling on the question of how far members were to be restrained from +dealing outside of the Exchange. After a lengthy discussion the +following was approved as their opinion. + + "It was the intention in closing the Stock Exchange that trading + should be stopped and it is the duty of loyal members to comply. + If cases come into your office where it is absolutely necessary + to trade, do so as quietly as possible and prevent the quotation + from being published." + +It will be noticed that the policy adopted here was less stringent +than what came later when the growth of an outside market increased +the dangers of the situation. + + * * * * * + +With the question of outside dealings there at once arose the closely +connected question of the danger arising from having price quotations +of such dealings made public. The quotation machinery of the Exchanges +had been silenced by the closing of those institutions, but there +remained the public auctioneers whose sales, if they took place, would +be disseminated by the press and might spread panic among security +holders and money lenders. The auctioneers in New York, Boston, +Philadelphia, and Chicago were at once approached, not only directly +but through their bankers and other advisers. It was a disagreeable +task as these auctioneers had to be urged to cease doing business, but +it was rendered unexpectedly easy by the courtesy and friendliness +with which they coöperated for the general welfare. So loyal were +these various agencies that not a single sale, either of listed or +unlisted securities, occurred in any auction room of the country until +the urgent phases of the crisis had passed. + +It was not in auction rooms alone, however, that prices might be made; +dealings were liable to occur in any unexpected locality, and it was +urgent that prices of an alarming character should be kept from the +public. For this most important purpose the coöperation of the press +was absolutely necessary. To obtain this, at the outset, was no easy +matter. The closing of the Stock Exchange placed the financial news +writers of the daily press in a curious position. With them were +allied that group of financial writers connected with the various Wall +Street news agencies, the several financial journals that are +exclusively devoted to Wall Street affairs, and the financial +correspondents of out of town newspapers. All told there were about +one hundred salaried men in these various groups, men experienced in +financial affairs, widely known and respected, engaged in a work which +had never been interrupted and which, as far as could be foreseen, +promised to furnish them with a continuous vocation. + +The first effect of the war was a general curtailment of newspaper +advertising, a rise in the price of paper, and a greatly increased +cost of the news of the day owing to excessive cable charges for +foreign dispatches. Thus the newspapers suffered a rapidly diminishing +revenue, and they found it necessary to discharge many of their +employees and to reduce the salaries of others. With the Stock +Exchange closed, naturally the salaried financial writers were among +the first to feel this hardship. + +Those whose services were retained throughout this crisis were +confronted with divided responsibilities. It was their duty to +interpret a mass of more or less fantastic rumors at a time when +nerves were overwrought and points of view magnified and distorted. +They wished to prevent the publication of anything of an incendiary +nature, while at the same time a necessity arose for presenting to the +public the news to which it was entitled. Placed in such a position +there was a very natural impatience here and there to have the +Exchange reopened, while now and then a tendency became manifested to +publish certain news of the day which, while interesting to the +public, tended to handicap the efforts of those bent only on +reassurance and calm counsel. At times it became somewhat difficult to +prevent the publication of some of these matters, particularly of the +prices made in the so called "gutter" market which sprang up in New +Street. And yet on the whole nothing could have exceeded the fairness +and the spirit of coöperation of these gentlemen in this trying time. +One newspaper even went so far as to cease the publication of a +remunerative page of small advertisements having to do with dealings +in outside securities. This was done at the request of the Committee +without hesitation. Others coöperated in the suppression of +advertising on the part of questionable people, while correspondents +of out of town newspapers, both foreign and domestic, cheerfully +acceded to requests to suppress all disturbing financial reports. In a +word, the financial department of the whole newspaper press accepted +the situation philosophically, bearing their losses without complaint +and supporting without cavil the restrictive measures which it was +necessary to employ. + +This loyal conduct of the press and of the auctioneers was one of the +great factors without which the critical days of the suspension of +business could not have been successfully surmounted. + + * * * * * + +It will be remembered that in the morning of July 31st, the Governing +Committee not only voted to close the Exchange but also declared that +the delivery of securities should be suspended until further notice. +The motive of this latter action was to prevent the possible +insolvencies that were likely to be forced if purchasers were +compelled to pay for their securities in the absence of a call money +market. At the earliest moment that attention could be given to it the +Committee of Five requested the Chairman of the Stock Exchange +Clearing House to place before it the exact figures of the outstanding +contracts. These figures when presented showed that there were stock +balances open on Clearing House order amounting to $38,700,000 and +Ex-Clearing House contracts amounting to about $61,000,000. Roughly +speaking there had been about $100,000,000 of stock sold in the +Exchange on July 30th, the delivery of which to the purchasers had +been suspended by the action of the Governing Committee. Obviously a +first great step toward clearing up the situation and preparing the +ground for the ultimate reopening of the market was to get this great +volume of contracts settled, so that if any failures were inevitable +they would be disposed of beforehand. + +It being probable that many of the purchasers of stock on July 30th +were in a position to finance their purchases even in the midst of the +crisis the Committee deemed it wise to offer every possible facility +for the immediate settlement of contracts when the purchaser was in +this position. They therefore issued the following notice on August +4th: + + "The Special Committee of Five appointed to consider questions + connected with the closing of the Exchange state that the + resolution of the Governing Committee suspending deliveries + until further notice does not mean that settlement may not be + made by mutual consent wherever feasible. The Clearing House of + the Exchange is prepared to advise and assist, and inquiries + should be made in person there." + +At the request of the Committee of Five the Committee on Clearing +House at once undertook the task of assisting members of the Exchange +in closing up these contracts and used its clerical force for that +purpose, thus involving much careful and detailed work. They held +daily continuous meetings, giving their personal attention in +assisting members, and using a care that involved both tact and +arduous labor. Through their efforts such extraordinary progress was +made, in this complex and difficult task, that by September 22nd +announcement was made that the delivery of all Clearing House balances +had been completed with the exception of those of the few firms whose +affairs were in the hands of receivers. These were settled shortly +afterwards and at the same time the great volume of Ex-Clearing House +contracts were also completely fulfilled. + +This is one of the most extraordinary and gratifying experiences of +the great crisis. In about seven weeks, at a time when money was +unobtainable and the condition of panic was at its height, this huge +volume of unsettled contracts was met and consummated by voluntary +coöperation and without compulsion of any kind. In some few cases +selfishness or indifference delayed action on the part of individuals, +but these were all brought to a final adjustment by the influence and +persuasion of the Committee. + +This achievement not only reflects undying credit upon the members of +the Exchange by showing both the sound condition of their business and +their zeal to act for the general welfare, and creates a deep sense of +obligation to the Clearing House Committee who for many long weeks +worked unceasingly to overcome the difficulties that beset the path, +but it justifies and confirms the wisdom of the New York Stock +Exchange in adhering to the practice of daily settlements. In all the +great European centers, where trading on the fortnightly settlement +basis is in vogue, the restoration of dealings was terribly +complicated by the herculean task of clearing up back contracts that +extended over many days. In New York, when conditions so shaped +themselves as to warrant reopening the Exchange, the back contracts of +its members had all been settled up _two months_ before. Had our +system, like the European, involved "trading for the account," every +additional day of back contracts added to the $100,000,000 worth of +July 30th would have stood in the way of a final settlement, and the +reopening of the market (which was long postponed as it was) would +have been much further delayed. + + * * * * * + +On August 4th, a problem which had loomed upon the horizon the day +after the closing of the Exchange, was brought squarely before the +Committee. A delegation of houses dealing in securities for European +account appeared and stated that approximately $40,000,000 to +$50,000,000 of securities were to arrive "this week, beginning +to-morrow, Wednesday," and that they would be accompanied by sight +drafts which would have to be financed. This alleged great volume of +securities had been sold in this market for foreign account and +borrowed in New York in order to make the immediate deliveries that +our day to day system requires. The suspension of the fulfillment of +contracts declared by the Exchange made it impossible to return this +borrowed stock, and the houses doing this business were therefore +obliged either to allow the drafts to go to protest or finance the +incoming stock until the free enforcement of contracts was again +permitted. + +With money practically unobtainable, and general panic prevailing, it +is needless to say that these statements of the delegation of houses +doing foreign business were a severe shock to the Committee of Five. A +remedy proposed by one or two of these banking houses was that the +people from whom they were borrowing stock should be required to take +it back. This simple expedient, while eminently satisfactory from the +standpoint of the borrower of stock, was not very helpful to the +Committee, as it would merely have shifted the problem of financing +the stock from one set of brokers to another, and would have raised +the dangerous question of a general enforcement of contracts in +borrowed securities. It was an interesting illustration, among some +others to be subsequently experienced, of the manner in which certain +minds can become entirely absorbed in that aspect of a question which +deals solely with personal interest. After careful discussion it was +determined that the coöperation of the Clearing House banks should be +sought in solving the difficulty. The Committee of Five thereupon +sent a communication to the Bank Clearing House committee setting +forth all the circumstances connected with the expected consignment of +securities as stated by the delegation of banking houses and requested +an appointment to meet them, or a sub-committee of their members, and +discuss the matter. The appointment was obtained for the following +morning, August 5th, and the Chairman and Mr. H. K. Pomroy were +appointed a sub-committee to confer with the Bankers and directed to +take Mr. Richard Sutro with them as a representative of the houses +doing foreign business. + +At the meeting with the Clearing House bankers it was very properly +decided that a solution of the problem could only be reached when an +exact knowledge of the amount of money required to pay for the +incoming securities had been obtained, the figures stated by the +banking houses which were seeking assistance being only estimates. The +representatives of the Stock Exchange agreed to obtain this exact +information at once, and having returned and stated the circumstances +to the Committee of Five, it was directed that the following +communication be sent to a list of members of the Exchange who, it was +understood, were to have foreign drafts presented to them:-- + + "The Special Committee of Five requests that by three o'clock + to-day they may have in their possession from you information as + to the number and amount of drafts which you expect will be + presented to you from Europe on any steamers arriving to-day or + subsequently. They would particularly like to know how much you + expect on each steamer. In case any of these have already been + financed please so state in your communication. + + "The Committee would also like to have you tabulate in your + reply, so far as you can, the banks, trust companies or bankers + from whom you expect drafts to be presented. + + "This communication is confidential and it is requested that you + do not discuss this matter with any one outside your own firm. + Your answer is expected by bearer, in order that the financing of + these drafts may be facilitated." + +By three o'clock, the same afternoon, replies had been received from +thirteen houses that they expected securities on the _Olympic_ and +_Mauretania_, and had also received advices of other securities +forwarded but did not know on what steamers; the drafts to be +presented they said would be approximately for four and one half +millions. Replies from twelve other houses stated it as a possibility +but not a certainty that securities might reach them on the steamers +above mentioned to the amount of about four millions; and, finally, +twelve firms sent replies stating that they either expected no +securities or had made the necessary arrangements to finance what was +coming. These facts--so far below the estimate at first presented to +the Committee--came as a great relief, and were at once taken before +the Bank Clearing House Committee. After a careful discussion with +these gentlemen the Committee of Five again met and sent the following +communication to the firms who had reported that securities and drafts +were about to be tendered to them. + + "Members of the Exchange to whom foreign drafts are presented for + payment, are requested to confer with the Committee of Five at 9 + A.M. to-morrow, Thursday, the 6th inst., in the Secretary's + office, with details of such transactions in hand, when efforts + will be made to facilitate the adjustment." + +The next morning the few firms who had drafts to meet on that day were +provided with the necessary loans by two banks and a trust company at +8 per cent. The amount of securities due from Europe was undoubtedly +large, but the great bulk of it had not been shipped and the shipment +of it was postponed for many weeks afterward. The extraordinary +statement that $40,000,000 or $50,000,000 were about to be landed in +New York is interesting as showing the hysterical state of mind to +which many business men had been reduced at that time. The actual +amount of stocks sold to arrive, against which borrowings had been +effected in New York, was finally shown to amount to $20,000,000. That +this amount was not increased at an embarrassing period in these +important negotiations was due in large measure to the action of the +Committee in calling together the various foreign arbitrage houses, +and securing from them an agreement to cable to their correspondents +in Europe not to make further shipments of securities, because +borrowed stocks could not be returned and deliveries effected. This as +it turned out was an important step in the right direction. + + * * * * * + +Owing to the sudden and severe pressure of business to which the +Committee of Five was subjected almost from the moment of its +organization, some matters were unavoidably overlooked which should +have had immediate attention. Conspicuous among these was the question +of the rate of interest to be charged upon open contracts which the +action of the Governing Committee had suspended. This matter was not +reached until the meeting of August 4th, when the following ruling +was made: + + "The Special Committee rules that interest on the delivery at the + rate of 6 per cent. shall accrue from August 5th on all unsettled + contracts for delivery of securities, except that interest shall + cease when a receiver of securities gives one day's notice to a + deliverer that he is ready to receive and pay for same. + + "The Special Committee further rules that sales of bonds on July + 30th carry interest at the rate specified in the bond to July + 31st, and that between July 31st and August 5th they are 'flat'; + interest thereafter to be 6 per cent. on the amount of money + involved, subject to the exemption stated in the previous + ruling." + +In view of the fact that no action had been taken up to August 4th and +that a number of private settlements had been arranged in the meantime +the Committee thought it wise to avoid a retroactive ruling, and +imposed the 6 per cent. rate from August 5th. Injustice was done, in +some cases, by permitting a lapse of five days when no interest charge +was required, but this injustice was cheerfully borne owing to the +unusual exigencies of the situation. + +On this same day the Committee received the first communication which +indicated that some members of the Exchange had not yet appreciated +the necessities and dangers of the situation. This came in the form of +a letter from the Baltimore Stock Exchange which contained the +following passage:-- + + "A representative New York Stock Exchange house has been guilty + of going directly to one of the Trust Companies here, and made + offerings of bonds dealt in on both your Exchange and our own, at + a large concession." + +The Committee directed the Secretary to make the following reply:-- + + "In the matter of your letter of August 1, 1914, I am instructed + by the Special Committee appointed by the Governing Committee on + July 31, 1914, to inform you that in the opinion of said + Committee the offering down of securities in places where money + is loaned on securities is most reprehensible, and that members + of this Exchange ought not to engage therein. If possible, I + would like the name of the member of the New York Stock Exchange + who made such offer." + +It may be urged in extenuation of the act of the Stock Exchange house +that, August 1st being only one day after the closing, a thorough +appreciation of the gravity of the situation had not yet become +general. + + * * * * * + +By August 5th the work of the Committee had assumed the form that was +to continue unremittingly until the Exchange reopened four and one +half months later. A constant stream of communications either by +letter or by personal appearance filled the days sometimes from nine +o'clock in the morning until six in the afternoon. The communications +asked advice and made suggestions of every conceivable kind, but, +above all, they were loaded with problems and difficult situations +which had grown out of the breakdown of the financial machinery in +general. + +The labors of the Committee in striving to straighten out this +formidable tangle of business affairs led to their issuing a series of +rulings, which were binding upon all members of the Exchange. These +rulings were sent over the "Ticker" whenever they were passed, but on +August 5th it was decided to supplement the "Ticker" by distributing +the rulings in circular form, and thus insure the possession by every +member of a full copy of the entire number. It is a gratifying fact, +both from the standpoint of the Committee and of the Stock Exchange, +that no one of the very numerous rulings was a failure or had to be +rescinded, and that they were all accepted without cavil or serious +criticism by the members. In the relatively few cases where an +indisposition to live up to these rulings was brought to the attention +of the Committee, an appeal from them to loyalty and good judgment +never failed to bring a recalcitrant member to terms. + +On this day, August 5th, a special circular was sent out to answer the +constant inquiries as to whether purchases or sales of securities were +in any way permissible during the period of closing. It contained the +following: + + "When the Governing Committee ordered the Exchange closed it was + their intention that all dealings in securities should cease, + pending the adjustment of the financial situation and the + reopening of the Exchange. + + "It is possible that cases may occur where an exception would be + warranted provided such dealings were for the benefit of the + situation, and in no sense of a speculative character, or + conducted in public. Any member, however, taking part in such + transactions must have in mind, his loyalty to the Exchange, + whether or not he is living up to the spirit of the laws, and + that he is not committing an act detrimental to the public + welfare." + +On August 7th the question of the reopening of the Exchange again came +to the front. A letter from Baltimore was received urging that the +Exchange reopen for dealings in bonds only, and the newspapers were +so urgent for some statement on the subject that the Committee +authorized the following: + + "The Special Committee of Five will not recommend to the + Governing Committee the reopening of the Exchange until in their + judgment the financial situation warrants it, and as before + stated, ample notice will be given of the proposed opening." + +The question of borrowed and loaned stocks came up at this time in two +aspects, one the interest rate to be charged, and the other the +determination of the market price at which such loans should stand. +With regard to the former the Committee ruled on August 5th that +"until further notice, from and after this date, the interest rate on +all borrowed and loaned stocks shall be 6%." In the latter case they +ruled (August 10th) that "borrowed and loaned stocks must be marked to +the closing prices on Thursday, July 30th, 1914, at the request of +either party to the loan." + +The effect of this second ruling was to establish the policy of +regarding the closing prices of July 30th, as the market for +securities, so that all loans, whether cash loans or stock loans, +should be figured at this level. The making of any prices below those +of July 30th was to be resisted by every available means, and the +money-lending institutions were to be urged to coöperate by +recognizing them as a basis for exacting margins. As long as this +policy could be successfully carried out the danger of financial +collapse would be averted. + +It having been ruled that a lender of stock, by notifying the borrower +of his willingness to take the stock back, could stop the interest +charge on the contract, a considerable demand arose for new stock +loans to replace those in which this privilege had been exercised. The +matter of facilitating these new stock loans was taken up by the Stock +Exchange Clearing House, and this together with the negotiations for +voluntary settlement of back contracts now brought upon the Clearing +House Committee that great volume of work which increased steadily +until the reopening of the Exchange. + +One step tending to increase this work was taken on August 11th, when +the Committee ruled as follows: + + "Whenever a loaner of stocks gives one day's notice of + willingness to have the same returned and the borrower fails to + so return, the interest thereon shall cease. The Clearing House + of the Exchange is prepared to advise and assist in making new + stock loans and inquiries should be made in person there." + +The effect of this ruling was to create a borrowing demand for stocks +at current interest rates and the Clearing House Committee became the +agency through which these stock loans were negotiated. + +A further ruling, on August 11th, relative to the interest rate was to +this effect: + + "That on all loans of stock made between members after this date + the rate of interest is subject to agreement between the parties + to the transactions, but should not exceed 6 per cent." + +By the eleventh of August the question of the growth of an outside +unregulated market began to force itself upon the attention of the +Committee. All the organized Stock Exchanges of the country were +closed, the auctioneers had loyally agreed to abstain from making +sales, the "Curb" or recognized outside market was faithfully +coöperating to prevent dealing, the unaffiliated bankers and money +institutions were refraining even from the private sale of bonds in +which they were interested, so that for a brief period there was a +practically complete embargo on the marketing of securities. Naturally +enough, so absolute a restraint brought on a pressure which was bound +to force a vent somewhere. At first an occasional group of mysterious +individuals were seen loitering in New Street behind the Exchange. A +member of the Committee of Five, who was prone to see the humorous +side of things even in those dark days, remarked as he observed them +late one afternoon "the outside market seems to consist of four boys +and a dog." + +Before long, however, this furtive little group developed into a good +sized crowd of men who assembled at ten o'clock in the morning and +continued in session until three in the afternoon. At first they met +immediately outside of the Exchange, but later they took up a position +south of Exchange Place and close to the office of the Stock Exchange +Clearing House. Their dealings increased gradually as time went on and +never ceased entirely until the Exchange reopened. In all probability +the existence of this market was a safeguard as long as its dimensions +could be kept restricted. An absolute prohibition of the sale of +securities, if continued too long, might have brought on some kind of +an explosion and defeated the very end which it was sought to +achieve. + +This irregular dealing, as long as it remained within narrow limits +and was not advertised in the press, furnished a safety valve by +permitting very urgent liquidation. It was, however, continually +accompanied by the great danger that it might grow to large and +threatening proportions. If, in consequence of the facilities which +these unattached brokers were offering, responsible interests should +begin to take part in and help to create an open air market, the very +disasters which the closed Exchange was intended to prevent might be +brought about. + +It was necessary, therefore, that the Stock Exchange authorities +should do all in their power to hold the development of this market in +check. With this end in view they not only prohibited their own +members from resorting to it, but they exerted what influence they +could upon others not to lend it their support. The banks and money +lenders were urged not to recognize the declining prices which were +established there as a basis for margining loans, as such recognition +might tend to increase the dealings. One or two large institutions +which, at first, were disposed to finance the operations conducted in +the Street were persuaded to refrain from continuing to do so, and the +press, while giving publicity now and then to the very low figures at +which some leading stocks were quoted, was induced to avoid the +practice of regularly tabulating these prices. + +It having become apparent that some members of the Exchange, while +obeying the mandate to do no trading in New Street, were indirectly +helping the practice along by clearing stocks for the parties who +were making the market there, the Committee ruled (August 11th) "that +members of the Exchange are prohibited from furnishing the facilities +of their offices to clear transactions made by non-members while the +Exchange remains closed." + +The final outcome was that the New Street market did more good than +harm. It relieved the situation by facilitating some absolutely +necessary liquidation, and never grew to such proportions as to +precipitate disaster, but during the long suspense and uncertainty of +the closing of the Exchange it was a constant and keen source of +anxiety to the Committee of Five. + + * * * * * + +Toward the end of the first fortnight after the closing of the +Exchange, the communications received by the Committee made it plain +that there were quite a large number of purchasers, attracted by the +low figures reached in the last day's trading, who were ready and +anxious to buy securities at or above the closing prices. Obviously +purchases of this kind by investors who happened to be in a position +to take securities out of the market, promised to bring relief to +interests whose position was critical and thus to fortify the general +situation. This facility could not be extended in the form of a +general permission to the members of the Exchange to make transactions +privately at or above closing prices. To have permitted as far +reaching a relaxation of restraint as this in so critical a time would +have entailed too great a risk. If any one of the eleven hundred +members had proved disloyal in the exercise of so dangerous a +privilege and privately negotiated sales at prices below those of the +closing, the whole plan of sustaining values might have been +jeopardized. + +After considering the matter very carefully the Committee concluded +that the machinery and clerical force of the Stock Exchange Clearing +House could be advantageously used to supervise and control +transactions of this character, and, on August 12th, they issued the +following ruling: + + "Members of the Exchange desiring to buy securities for cash may + send a list of same to the Committee on Clearing House, 55 New + Street, giving the amounts of securities wanted and the prices + they are willing to pay. + + "No offer to buy at less than the closing prices of Thursday, + July 30, 1914, will be considered. + + "Members of the Exchange desiring to sell securities, but only in + order to relieve the necessities of themselves or their + customers, may send a list of same to the Committee on Clearing + House, giving the amounts of securities for sale. + + "No prices less than the closing prices of Thursday, July 30th, + 1914, will be considered." + +Thus was established a market in the Stock Exchange Clearing House +which was kept in operation until the complete reopening of the +Exchange. Immense labor and difficulty were brought upon the Clearing +House Committee in order to handle and supervise this unusual method +of trading, and the extraordinary success with which it was carried +through has entitled them to the lasting gratitude of their fellow +members. The business was conducted by having a large clerical force +tabulate the orders received and bring purchasers and sellers together +who were willing to trade in similar amounts and at similar prices. In +order to consummate a trade the Clearing House would notify both +parties, leaving it to them to carry out the delivery and payment, and +requiring them to inform the Clearing House when the transaction had +been completed. + + * * * * * + +The first effect of furnishing this means for establishing a +restricted market was very encouraging. A very considerable amount of +business began at once to be entered into. Many people with ready +money, who felt that securities had fallen to bargain prices, appeared +as purchasers and relieved the necessities of those who had been +embarrassed by the war crisis. A little later, however, when the +progress of the war took on a more discouraging aspect, this "Clearing +House Market" fell to the arbitrary minimum of the closing prices with +a large excess of selling as compared to buying orders, and the "New +Street Market" grew in proportion. During the darkest days of +depression the prices of a few leading stocks such as U. S. Steel and +Amalgamated Copper dropped in the Street ten points or more below +their July 30th closings, and business in the Clearing House almost +ceased, but in the later Autumn, when the rapid rise in the volume of +American exports began to foreshadow a readjustment in foreign +exchange, the New Street prices rose again to the Clearing House level +and a relatively small business in the "outlaw" market was transformed +into a relatively large business conducted under the supervision of +the Exchange. + +It is an interesting detail, worth mentioning, that the ruling of the +Committee quoted above, which established a market in the Clearing +House, used the permissive word "may" in stating that orders to buy +and sell might be sent to that institution. This was soon taken +advantage of by a few individuals who proceeded to conduct private +transactions among themselves. Their excuse was that if transactions +were merely permitted in the Clearing House it became optional as to +whether they should take place there or elsewhere. Within a few days +thereafter the Committee amended the ruling by substituting the word +"must" for the word "may." The great responsibility attached to +promulgating rulings, which were to be the law during this critical +period, is made more apparent when it is realized that the ill +considered use of a single word might bring on unforeseen and perhaps +dangerous consequences. + +During the month of August a constantly increasing pressure from every +conceivable direction was exerted to break down the dam with which the +Committee was striving to hold back the natural flow of dealings in +securities. By letter and by personal appearance before the Committee +individuals, in and out of the Exchange, strove to induce them to +countenance transactions at prices below the arbitrary level of the +closing. In addition to this agitation among individuals and firms, +restlessness began to show itself in some of the other Exchanges. At +one time the Stock Exchange of a great neighboring city, which had +permitted restricted dealings exactly similar to those carried on in +New York, wished to have those dealings regularly quoted in the +newspapers; at another time a movement developed on the Consolidated +Stock Exchange to establish some kind of restricted public dealing on +their floor. The Committee of Five were obliged to labor hard and +assiduously to hold this pressure back and keep the dam intact, and +its efforts were ably and loyally seconded by the Committee of the +Bank Clearing House whose great influence was unremittingly exerted to +prevent the danger of premature action of any kind. + +On September 1st the Clearing House banks were anxious to determine +what was the amount, measured in money, of securities sold in New York +by Europe and not yet received. The object of obtaining this +information was to know what demand would be made upon the loan market +if, at any time, these securities should be shipped. At the +suggestions of the bankers the Committee of Five summoned before them +representatives of all the houses doing a foreign business and +requested them to send answers, as promptly as possible, to the +following two questions: + + _First:_ "Amount due Europe for securities received to date and + not yet paid." + + _Second:_ "Amount due Europe for securities already sold but not + received from Europe." + +On the following morning answers were handed in showing that the +amount received and not yet paid for was $699,576.11, and that the +amount due Europe on securities sold but not yet received was +$18,236,614.15. The rapidity and accuracy with which this important +information was obtained, without any publicity or disturbance of +confidence, is interesting as showing the efficiency of the intimate +coöperation between the banks and the Stock Exchange. + + * * * * * + +Among the many agencies for dealing in securities, whose activities +were suddenly cut off on July 31st, the first in importance next to +the Stock Exchanges themselves were the so-called bond houses. These +firms, which included in their number many prominent private bankers, +were dealers on a great scale in investment bonds, and when the +thunderbolt of war struck they were carrying large lines of those +bonds on borrowed money which, in the ordinary course of events, would +have been placed among their numerous clients. When the crisis of +early August had developed, all these houses (some of them not being +members of the Stock Exchange) loyally coöperated in closing up the +market, and abstained from negotiating their securities even in the +most private manner. By the middle of August, however, a number of +them began to show decided restlessness over the embargo upon their +business. The cutting off of their accustomed income, while expenses +continued as usual, was not what influenced them, for this hardship +was shared by all Wall Street, but the enforced carrying of securities +in bank loans at so critical a time when they felt that these +securities might be disposed of became a grievance. + +It was urged by many of them that the careful placing of these +securities would be a great aid to the situation because every +investor who made a purchase would facilitate the liquidation of their +loans, ease the strain on the money market, and diminish the volume +of securities for sale. There was undoubtedly much to be said in favor +of this view when looked at from the standpoint of the effect upon the +bond houses themselves or upon the loan market, but there was another +aspect of the question which was less reassuring. If these houses +started, at this terribly critical time, to place their securities +among their clients at declining prices, and if these prices became +known, which they certainly would, no one could foretell what the +consequences might be. Many large institutions, such as Insurance +Companies and Savings Banks, had funds invested in bonds, and many +money lenders held loans upon bonds as security; what would be the +effect upon these interests if a declining market even in unlisted +bonds should be publicly quoted? + +Influenced by this grave uncertainty the Committee of Five resisted +the pressure brought upon them by certain representatives of the bond +dealers who raised this question first on the nineteenth of August. +Several of these gentlemen represented important firms and +institutions which were not members of the Exchange, and their freedom +from any obligation to be controlled by the Committee created a +situation which threatened to become strained. In all cases of this +kind, where an independent outsider and the Committee could not come +to an understanding, the practice had become established of appealing +to the Clearing House Bankers to act as a court of last resort. The +banks, with their power to call loans, exerted an influence which +could reach every nook and corner of the business world, and, at the +same time, their immense facilities for feeling the financial pulse +made them the best judges of what risks it was as yet safe to take. A +series of meetings consequently took place between the Bank Clearing +House Committee, the representatives of the bond houses, and the +Committee of Five. At the first of these meetings the bank Presidents +leaned very decidedly to the views of the Stock Exchange, and it was +decided to postpone any consideration of a departure from the status +quo for at least a fortnight. + +The general situation remaining very critical all through August, no +further steps were taken until September 8th. By that date a new +factor had intruded itself into the situation. Certain corporate +obligations were about to come due and the refunding of these +obligations, whether in fresh issues of bonds or in short term notes, +was going to make it necessary to withdraw the prohibition against +placing investment securities upon the market. When this necessity +became clear it was decided that some strict supervision and +safeguarding of the sale of bonds and notes was necessary and the +so-called "Committee of Seven," appointed by the bond dealers, were +requested to formulate a plan for this purpose. This Committee of +Seven consisted of members of the firms of: Brown Brothers & Co.; +Guaranty Trust Co.; Harris, Forbes & Co.; Kissel, Kinnicutt & Co.; Wm. +A. Read & Co.; Remick, Hodges & Co., and White, Weld & Co. + +On September 9th, this Committee issued the following notice to bond +dealers: + + "Your Committee is pleased to report that New York City's + financial needs have been taken care of satisfactorily, thereby + considerably clearing the foreign exchange situation which + existed when our communication of September 3d was sent out. + + "The Committee is therefore of the opinion that the placing of + securities owned by dealers with their private customers should + be approved where the securities can be sold without disturbing + the collateral loan situation and your Committee will be glad to + continue to advise whenever such opportunities arise. Anything + tending toward public quotations or the creating of the + impression of an active or even semi-active market would + unquestionably seriously disturb the loan situation. + + "Transactions with bargain hunters should not be countenanced and + your Committee will not approve the closing of transactions + coming under this head. Prices should conform to the spirit which + has prevailed during the past few weeks. + + "Recognizing the support which banks and other lenders of money + have given to dealers in securities, it should be the policy of + such dealers when securities are sold to apply the proceeds + toward the liquidation of loans. + + "The Committee has considered questions of maturing obligations + of cities and corporations and believes that the present + situation does not warrant any attempt to issue long time bonds, + but that such refunding should be accomplished through short time + financing. + + "The Clearing House Committee and the Stock Exchange Committee + have expressed appreciation of the coöperation shown by the + dealers in listed and unlisted securities and if all will + endeavor to live up to the spirit of the policy thus far adhered + to we are sure there will be no cause for criticisms on the part + of the banks or the Stock Exchange Committee. + + "Your Committee of Seven will continue to meet in the Directors' + Room of the Chase National Bank daily, from 11 A.M. to 12 M., for + advice on any cases where we can be of any assistance whatever." + +The practical plan adopted was as follows: + +Bond houses having securities of their own for sale could place them +with their clients at prices approved by the Committee of Seven. All +purchasers and sellers of bonds, acting as brokers only, were required +to file their orders with the Committee of Seven when dealing in +unlisted bonds, and with the Stock Exchange Clearing House when +dealing in listed bonds, and these two agencies were empowered to +determine minimum prices below which sales could not be made. + +It will be seen that a very important step in the direction of +relaxation of restraints was here taken. Not only was the prohibition +of all dealings which had marked the beginning of the crisis +withdrawn, but prices below the closing sales of July 30th were to be +permitted subject to the supervision of a Committee. + + * * * * * + +As has already been stated, the Committee on Clearing House had their +hands full from the time the Exchange closed, first with bringing +about the settlement of the contracts of July 30th, and secondly with +carrying on the business of making new contracts for members wishing +to trade in securities at or above the closing prices. It was +impossible, therefore, for the members of that Committee to give +personal attention to the difficult problem of determining the prices +below which listed bonds should not be sold. To meet this difficulty +it was decided that a small additional Committee of men known to be +thoroughly familiar with the bond business should be organized, and +that it should be their duty to control the liquidation of listed +bonds. + +The carrying out of this plan at first met with a technical obstacle. +The power to appoint a Special Committee rested exclusively with the +Governing Committee of the Exchange; in order to secure action a +special meeting of that body would have to be called; in the early +weeks of September sentiment was still in so critical a state and +every act of the Exchange was so keenly watched that it was feared the +holding of an extraordinary meeting might start rumors and cause +alarm. In view of these considerations the Committee of Five hit upon +the makeshift of inviting three members of the Governing Committee, +who possessed the desired qualifications, to volunteer their services +as an advisory body in the matter of fixing prices for listed bonds. +The three members selected were Messrs. C. M. Newcombe, Vice President +of the Exchange, W. H. Remick, and W. D. Wood. + +On the 19th of September these three gentlemen cheerfully undertook +the difficult and onerous task urged upon them, and for three months +they abandoned their own private interests and devoted their entire +time to it. Owing to the intelligent and judicious manner in which +they handled the delicate problem of conducting a liquidation in +listed bonds that should at once be effective and yet not lead to +demoralization, they placed themselves among the foremost of those to +whom the financial community owes a debt of gratitude. + + * * * * * + +By the latter part of September methods, as described above, had been +found for facilitating a restricted liquidation of listed stocks, and +of listed and unlisted bonds. Nothing, however, had been done to make +an outlet for unlisted stocks. The "Curb" market and certain prominent +unaffiliated houses dealing in these securities had loyally played +their part in suspending dealings, but symptoms began to show +themselves of possible revolt, and the Committee of Five set to work +to find a safety valve for this department also. The device of a +supervisory Committee had proven so efficacious in other directions, +that it was naturally turned to in this instance. The circumstances +differed, however, in one particular. The bond dealers had +spontaneously created for themselves the very efficient Committee of +Seven who took their affairs in hand, but the interests involved in +unlisted stocks did not show the same solidarity, and it was necessary +for the Committee of Five to take a hand in initiating action. + +With this end in view they consulted Mr. Herbert B. Smithers, of the +firm of F. S. Smithers & Co., concerning the feasibility of having a +committee formed to pass upon and control a resumption of dealings in +unlisted stocks. Mr. Smithers was singled out for the reason that he +was a member of the Stock Exchange whose firm was among the most +prominent dealers in these securities, and the prompt and energetic +way in which he undertook the task proposed to him soon convinced the +Committee that they had not erred in resorting to him. He set about +organizing a Committee at once and on September 24th he appeared +before the Committee of Five accompanied by Messrs. A. C. Gwynne, F. +H. Hatch, A. H. Lockett, and E. K. McCormick. These gentlemen +announced that they were willing to act, with Mr. Smithers as their +Chairman, and a plan for the control of the market in unlisted stocks +was agreed upon. + +In order to clothe this Committee (which included two Stock Exchange +members, two representatives of prominent outside dealers, and the +President of the Curb Association) with authority, the Committee of +Five directed members of the Exchange to submit proposed dealings in +unlisted stocks to them and abide by their rulings. The Stock Exchange +Committee could, of course, only control its own members, but it being +a fact that a very large part of the unlisted business emanated from +Stock Exchange houses, it was probable that their action would +determine that of unattached dealers. This expectation was, in the +main, borne out, and business in unlisted stocks began to be carried +on actively under the jurisdiction above described. + +It is necessary to record, however, in the interest of preserving a +correct picture of the happenings of this momentous time, that the +smooth and gratifying operation of the various other Committees, which +sprang into being to handle the numerous problems presented, was not +entirely repeated in this case. + +The conditions surrounding unlisted stocks seemed on the surface to be +identical with those pertaining to unlisted bonds. In both cases a +business that was partly in the hands of Stock Exchange members and +partly in those of outside concerns was to be presided over by a mixed +Committee representing both interests. In the case of the Bond +Committee of Seven this supervision was accepted and cheerfully lived +up to by practically all concerned. A different situation soon +developed in unlisted stocks. Almost immediately certain individuals +in the business began to assert that the unlisted Committee was a self +appointed body which did not represent the people most concerned, and +that being themselves dealers in the properties the trades in which +were under their supervision, these gentlemen could not be trusted to +act fairly in making their rulings. After much preliminary growling +which vented itself in interviews with the Committee of Five, this +antagonistic sentiment crystallized into a written protest. + +On October 1st, the following statement was presented to the Committee +of Five. + + + "GENTLEMEN: + + "Owing to a general feeling of dissatisfaction amongst members + and non-members of the New York Stock Exchange resulting from the + formation of a Committee of Five to supervise dealings in + Unlisted Securities, we, the undersigned, desire to suggest the + following recommendations for your consideration: + + "_First_: The personnel of the Committee be changed to the effect + that same be composed of parties not identified as dealers. + + "_Second_: That in stocks which have an open or active market, + transactions may be made without restriction or necessity of + report to the Committee, when at or above the closing prices of + July 30, 1914. + + "_Third_: That where securities have not had an active or open + market the bid prices as published in the _Chronicle_ of August + 1st, be accepted as the closing prices. + + "_Fourth_: That in the case of securities where the Committee may + deem it possible to trade at prices below those prevailing on + July 30th, they establish minimum prices good for as long a time + as the Committee deems practical, and that a list of these prices + be furnished to those making application for same." + + "We think that if the above recommendations are put into force, + it will do away with the criticism which has been made as to the + Committee as at present constituted, and by so doing increase the + efficiency of this Committee on Unlisted Securities, by securing + thorough and hearty coöperation on the part of all brokers and + dealers in these issues." + +In reply to this appeal the Committee of Five pointed out that +whenever, in other cases, the action of a Committee had been invoked +to supervise the transaction of business, confidence in the integrity +of that Committee had been general and unquestioned. The Committee of +Seven, the Committee on Clearing House, the Committee of Three, and +the Committee of Five themselves had all been vested with dictatorial +powers over a business in which their members were personally engaged. +In order to render trading in unlisted stocks a possibility, at the +time, similar powers must be granted and similar confidence must be +given to some one. The Unlisted Stock Committee were not +self-appointed because they came into being at the instigation and +suggestion of the Committee of Five, and to disband them after they +had started upon their work, substituting other individuals in their +places, would merely stimulate fresh antagonism that might wreck the +entire project. The fact that these men were dealers in outside +properties especially fitted them to pass upon the reasonableness of +the prices that were to be made, and there was no more reason to +question their integrity of purpose than there would be to doubt that +of any individuals who might take their place. + +A firm stand was thus taken in defence of this new Committee, and they +succeeded in carrying on their work successfully up to the time when +the amelioration of conditions enabled them to disband. It must be +regretfully recorded, however, that the petty jealousy and distrust +which had appeared in connection with this episode continued to show +themselves in a desultory way until the end. A few individuals threw +what impediments they could in the path of this Committee, and thereby +furnished the only exception to the wonderful exhibition of loyalty +and self effacement that manifested itself in every other department. + + * * * * * + +When the Exchange suddenly closed its doors, an immense number of +people, consisting of employees of the Exchange itself and the +clerical forces of all the many brokerage houses, were rendered idle. +As soon as it became evident that the suspension of business was going +to be indefinitely prolonged, the grave question arose as to the +extent to which these people would be thrown out of employment. The +Stock Exchange at once set the generous example of deciding to retain +its entire force without reduction of wages, and this decision was +carried through for the entire four and one half months of suspension. +A more difficult problem, however, confronted the brokerage houses. +Many of these firms had very heavy office rents and fixed charges of +various kinds; their business had been showing meager profits and even +losses for some years and, the length of the period of closing being +impossible to forecast, they did not dare to undertake burdens that +might get them into difficulties. The result was that a few strong +houses, with philanthropic proclivities, carried their clerical forces +through on full pay, but the majority were obliged to cut them down in +various ways. In some cases the full force was retained on greatly +reduced salaries, in others salaries were reduced and part of the +force discharged, and the net result was that a great number of +unfortunates were either thrown into unemployment altogether or placed +in very straightened circumstances. + +It is an interesting fact, bearing on the popular superstition that +Wall Street is peopled by unprincipled worshippers of the dollar who +are incapable of those finer qualities of character which are confined +exclusively to other walks of life, that there is no region in which a +quicker response to the call of the needy can be obtained than on the +floor of the Stock Exchange. Even though the brokers were facing an +indefinite period of starvation themselves, with expenses running on +one side and receipts cut off on the other, the moment it became clear +that severe suffering had come upon the clerical forces of the Street +a movement was at once set on foot to start measures of relief and +assistance. Perhaps the best way to convey an idea of the form which +this assistance took is to quote from a report on the subject made by +one of those who generously gave his time to the work. What follows is +in his own words. + +"A phase of the extraordinary and unprecedented conditions prevailing +in the Financial District, commonly known as 'Wall Street,' was the +necessity for cutting down office expenses, and though many firms +carried their salary list intact, a considerable number laid off from +one half to two thirds of their employees, and subsequent events +developed the fact that some of them discharged practically their +entire force. + +"About the middle of September, the distress said to exist among the +Wall Street employees, who had lost their positions as a result of the +war in Europe, prompted Mr. C. E. Knoblauch to suggest that some +concerted action be taken to meet this emergency, if only as a +temporary expedient. A number of informal discussions of the subject +with fellow members of the Exchange, and further evidences of the +existence of a wider field for the work than was at first realized, +culminated in a call for a meeting in the office of Tefft & Company +and immediate organization. + +"Officers having been duly elected, the personnel of the Committee was +declared to be as follows:--James B. Mabon, W. H. Remick, Graham F. +Blandy, R. H. Thomas, W. W. Price, G. V. Hollins, C. E. Knoblauch, C. +J. Housman, G. M. Sidenberg, Townsend Lawrence, T. F. Wilcox, Erastus +T. Tefft, Chairman; Charles L. Burnham, Secretary; Edward Roesler, +Treasurer. + +"The title of the Committee was formally agreed upon as 'The Wall +Street Employees' Relief Committee.' + +"Through the courtesy of Mr. Clarence Mackey, the offer of a suite of +rooms on the second floor of the Commercial Cable Building, 20 Broad +Street, for the use of the Committee, at no charge for rent, was +gratefully accepted, and arrangements for occupation were made at +once. Mr. Oswald Villard, through a member of the Committee, evidenced +his interest by offering temporary use of rooms in the _Evening Post_ +Building for the purposes of the Committee. + +"It was determined that the principal object of the Committee would be +to act as an Employment Bureau, to find positions for unemployed and +to relieve distress where it was found to exist. It was understood and +arranged for, that any Wall Street employee who had lost a position as +a result of the war was eligible, and that no fees whatever be +charged. A circular letter was sent to Stock Exchange members and +firms appealing for subscriptions, and the matter of selection of a +depository of the funds was referred to the Treasurer with power. The +work of receiving and recording registration blanks commenced with a +rush, over one hundred and fifty were filed the first day, and in a +few weeks they numbered over one thousand. + +"A very pleasant feature of the work was the cordial coöperation +encountered on all sides. Helping hands were extended everywhere. The +newspapers gave many 'reading notices,' and special advertising rates, +and the news bureaus printed any and all notices as and when +requested. The Stock Exchange Library Committee and the Secretary's +Office placed their typewriting, multigraph and circular printing +facilities at the Committee's disposal, furnished the rooms with +desks, chairs, etc., and supplied all necessary stationery. The Stock +Exchange force of telegraphers and other employees practically in a +body volunteered their services, and those selected were of great +assistance in preparing the card index system, which was used and +found to be practical and eminently satisfactory. Appreciated +assistance was promptly tendered by The Telephone Clerks' Association, +The Association of Wall Street Employees, and The Wall Street +Telegraphers' Association. + +"Several cases of sickness, some very serious, were taken care of by +Dr. L. A. Dessar, who gave free medical service to all applicants +recommended by the Committee, and provided hospital treatment when +required. The declarations made by the applicants demonstrated beyond +any question that the number of men, women, girls and boys for whom +prompt assistance in procuring employment was imperatively necessary +had been greatly under-estimated, and evidenced an absolute argument +endorsing the reasons for the Committee's existence. + +"Many who applied were not in immediate need of money, but wanted +employment, which the members of the Committee sought for them by +individual solicitation of everyone they knew, or knew of, who were +employers, and also by careful, judicious and timely advertising in +the daily papers. Such satisfactory results were attained, that up to +date of this writing, (May 15, 1915), of over seventeen hundred +applications received, permanent positions were secured for about +seven hundred at rates of compensation that were distinctly +gratifying, all conditions considered. Two hundred and thirty were +placed in temporary jobs for periods ranging from a few days to +several weeks, a number of them being re-employed two or three times. +Four hundred and ninety, having been taken back by their former +employers, withdrew their applications. + +"Numerous positions obtained for applicants while the Exchange was +closed were in lines other than Stock Exchange business, and Wall +Street clerks notwithstanding their recognized efficiency being, so to +speak, specially trained, it was often found to be difficult, even +impossible to make them fit the kind of work to which they were more +or less strangers. In view of the fact that this circumstance made +the accomplishment desired necessarily slow, the outcome demonstrated +that it was reasonably sure. + +"The request for subscriptions to the fund met with a hearty and +generous response. Some apprehension was felt in this regard, but the +splendid result proved to be an agreeable surprise. Appeals for +subscriptions to the fund were made only to Stock Exchange members and +firms, nevertheless, thanks to the general interest manifested, and +the widespread advertising consequent thereto, contributions were +received from generous friends outside of Wall Street, to an extent +that was simply astonishing. Checks for $1,000 each were not unusual +items, and as a rule the request was made, 'please do not publish my +name.' A well known artist, in addition to a cash subscription, +presented one of his paintings to the Committee. Through the kind +assistance of the Chairman of The Stock Exchange Luncheon Club, the +picture was sold for the substantial sum of $500. + +"The Treasurer, with ample funds at his disposal, was able to meet +calls for financial help that were frequent and pressing, and +recognizing the desirability of experienced and competent assistance +in making the necessarily intimate inquiries, to determine if +applicants for relief were worthy, he applied to Mr. Robert W. +DeForest, President of The Charity Organization Society, for expert +advice in the matter, and was referred by Mr. DeForest to Mr. Frank +Persons, Manager of the New York Bureau, and Miss Byington, in charge +of the Brooklyn Branch, who rendered invaluable services in +connection with many of the applications, all of which were carefully +investigated. Much suffering and distress, and some cases of actual +destitution were found to exist, and while a detailed statistical +statement would seem uncalled for and not desired at this time, the +following brief résumé of the Committee's 'relief work' will +undoubtedly prove to be of interest. + +"Financial assistance was extended to about one hundred individuals +and families; rent was paid for thirty-nine; food purchased for +forty-six; clothing was furnished in seven instances; five persons +were placed in hospitals; there were a considerable number of cases +where the Committee in whole or in part took care of funeral expenses; +old debts for medical attendance and drugs; agency fees and surety +bonds; life insurance premiums, board and lodging, etc., etc. Many +applicants for assistance proved to be merely temporarily embarrassed, +they were willing and anxious to be helped but did not want charity, +so to meet that emergency a form of voucher was used, which +acknowledged the receipt of a 'loan' without interest, to be repaid at +the convenience of the 'borrower.' That applied to _cash_ of course, +payments for groceries, rent, etc., were simply receipted for. + +"The results achieved, in the opinion of many, would seem to warrant +an amendment to the original idea that a return to normal conditions +would involve the dissolution of the Committee, and the proposition +that it be made a permanent organization is being seriously +considered." + +This record is deeply gratifying to the brokerage fraternity because +it discloses the fact that, even in the midst of a calamity so great +that no individual could feel himself beyond the reach of insolvency, +the impulse to succor the unfortunate remained as strong as ever among +them. + + + + +CHAPTER III + +THE REOPENING OF THE EXCHANGE + + +The fact that the Stock Exchange closed on July 31st and did not +reopen fully until December 15th, might lead to the supposition that +the question of reopening was not taken up before December. Far from +this being the case, the truth is that reopening began to be discussed +immediately after the institution was closed. Within twenty-four hours +of the closing the minority, who had not been at first convinced of +the wisdom of that action, joined with the majority in urgently +advising that the Exchange be not reopened soon. All through the month +of August a growing anxiety over the possibility of some hasty action +by the Exchange authorities showed itself among brokers, bankers, and +even some government officials. For this anxiety there was never any +basis, because the officers of the Exchange having exceptional means +of knowing what the dangers were, had no intention of assuming the +immense responsibilities of re-establishing the market without the +backing and approval of the entire banking fraternity. Gradually the +excited solicitude about a premature reopening subsided as the +ultra-conservative attitude of the Exchange was understood, and this +was followed ere long by the first symptoms of agitation for the +establishment of some form of restricted market. + +As we have already shown the restraints of July 31st were relaxed one +by one with the lapse of time. First a market at or above the closing +prices was organized under the Committee on Clearing House; then +Committees to facilitate trading in listed and unlisted bonds were +formed; and finally a market was provided for unlisted stocks. All +these devices, however, while they brought about readjustment and +diminution of strain, did not constitute a reopening of the Stock +Exchange, and the restoration of that great primary market, in some +restricted way, became more and more a subject of public interest and +concern. + +As we have seen, the fundamental reason for closing the Exchange was +that America, when the war broke out, was in debt to Europe, and that +Europe was sure to enforce the immediate payment of that debt in order +to put herself in funds to prosecute this greatest of all wars. To use +an illustration popular in Wall Street at the time, there was to be an +unexpected run on Uncle Sam's Bank and the Stock Exchange was the +paying teller's window through which the money was to be drawn out, so +the window was closed to gain time. How to reopen this window in such +a way as not to pay out any more money to the foreign creditor than +would suit our own convenience was the problem which soon began to +agitate many ingenious minds. As time went on plans for performing +this difficult feat poured in upon the Committee of Five in constantly +increasing volume, and they were frequently accompanied by a request +on the part of their authors that, when adopted, the credit for their +success be publicly attributed to them. An edifying confidence was +thus shown in what were usually the most visionary of these schemes. + + * * * * * + +Space does not permit the presentation of all these multitudinous +suggestions, but as a matter of information we shall quote extracts +from some of them. In point of time, the first communication to the +Committee on this subject came on August 4th when a prominent banker +appeared in person, and gave vent to the following oracular utterance: +"When the Exchange reopens it should not do business from ten till +three, but should open from ten o'clock to one. All transactions +should be for cash, and must be delivered and paid for the same day, +no contract to be allowed to stand over night." He also made the +prediction, which was amply verified, that many weeks would elapse +before the Exchange could be reopened at all. Some little time elapsed +before anything further was presented on the subject, but by the end +of August the flood of plans began and went on increasing until the +Exchange resumed business. + +On August 31st a communication was received from a well known +"Statistical Organization" for "Merchants, Bankers and Investors" +which said, in part: "In behalf of my clients, who are exceedingly +interested in making it possible for the Stock Exchanges to open +safely, I am getting the opinion of important bodies relative to the +proposed legislation suggested on the enclosed slip, or any other +which you think would serve the purpose." On the enclosed slip was the +following proposed legislation "to enable the Stock Exchanges to +open." + + "Be it enacted: That until the President considers European + conditions fairly normal it shall be a misdemeanor in this + country to buy, sell, transfer, give, or accept as collateral, + shares of stock or evidences of indebtedness extending over one + year, unless accompanied by a certificate showing that the owner + is a United States citizen, together with such evidence as the + Secretary of the Treasury may require that the securities have + been owned by United States citizens since July 30th, 1914." + +In answer to this proposition the Secretary of the Stock Exchange sent +the following reply: + + "Answering your letter of August 29th, 1914, I am instructed by + the Special Committee of Five appointed by the Governing + Committee to say that in its opinion such legislation as referred + to would be ruinous to the credit of the United States throughout + the world for many years to come." + +In September a letter was received from a Western banker suggesting +that the slogan "Buy a share of stock" if started "would achieve +success, and by so doing would greatly benefit the stock market +situation. This movement would have to be started so as not to create +the impression among the many thousands of people it would reach, that +it was merely a movement for the purpose of benefiting the stock +brokers, but that it would be instrumental in relieving the strain on +every conceivable business. Were such a movement accepted, and should +it meet with results worthy of the plan it would be found out when the +smoke clears away that American people would own American railway and +industrial shares. This could be only for the great benefit of this +country but for Europe as well, for the reason that if Europe knew +that there was a good absorbing power here it necessarily would not +dump its stocks at frightful sacrifices." + +In October a junior member of one of the big private banking houses +appeared personally and stated that, in his opinion, both domestic and +foreign security holders should be treated alike; that sales should be +conducted as usual; that on reopening transactions should be +restricted and only sales be published and no bids or offers. His idea +of restriction at the start was that all stock purchased should be +paid for on the basis of 10% cash and the balance in certificates of +deposit for cash, which certificates were to be non-negotiable except +between banks. A Committee could, from time to time, remove the +restrictions from such securities as seemed no longer to require them. +The banks should be asked to agree not to call any present loans and +to be very sparing in calling for margins. + +Close upon the heels of this plan came a letter signed "A Friend of +the People" which said "Let the Stock Exchange be opened strictly for +the sale of American securities held by foreign stock holders. If they +wish to throw their stocks over we can buy them at our own price. +After six or eight days' selling from Europe the Exchange could be +open to the world. By that time the market should be on a rising scale +and safe for all." + +This gentleman showed some originality in his view that the foreigner +should be invited to sell at once, instead of being legislated out of +the market as so many other advisers proposed. He seemed to be quite +oblivious of the difficulties, however, that would have been +encountered in inducing American security holders to stand by in +pensive calm while the foreigners unloaded to their heart's content. + +Early in November a Philadelphia banker wrote a long and intricate +letter the full details of which we have not space to reproduce, but +it contained the following fragment which is interesting in its way: + + "Could not a plan be formulated between the Stock Exchanges, + investment bankers and Federal Reserve Banks, by which the + securities could be valued on their intrinsic and market values + at such prices that would be considered reasonable to be obtained + in the next two or three years; that the lenders be guaranteed + against any losses from recession below the stipulated point at + which the securities might later be liquidated, say sometime + during the year 1917, if it had not been voluntarily liquidated + without loss before. Loans so insured would have to be in force + on securities carried prior to a certain date, probably before + the Exchange opened, if not last July 30th, and that an insurance + premium would be charged which would be considered slightly more + than adequate. Any surplus could be eventually pro-rated to the + policy holders. There would need to be no obligation to take out + such insurance unless the borrowers preferred. The banks might, + however, force them to do so in many cases or pay off loans." + +At about this time many letters and suggestions were received +centering round the main idea that the market be opened exclusively +for such stocks as were not much held in Europe. Just as a +correspondent cited above seemed to believe that American security +holders could be compelled to remain inactive while foreigners sold +their holdings, so these people imagined that holders of one class of +securities could be kept quiet while the prices of some other class +were declining in a free market. + +With the above came a letter from a correspondent whose thoughts +carried him back to the old days of buyers' and sellers' options, when +most of the security business was done on 30 or 60 day contracts. He +proposed that the Exchange be reopened so that "all trades made be +'buyer 60'. No other bids or offers to be valid." This would postpone +for two months the settling day for the expected liquidation, and he +felt certain that by that time there could be no trouble in meeting +obligations. Unfortunately at the time he wrote there was no way of +obtaining assurance of this happy outcome. The same idea in a somewhat +different form came from another correspondent who, instead of +deferring payment by a buyer's option, proposed that stocks and bonds +be sold on a 10 per cent. basis "That is, the seller of 100 shares of +Union Pacific at 112 will deliver to buyer 10 per cent. of amount +sold, and receive a check for $1,120, together with a contract in +which the buyer agrees to take 10 per cent. more, or say 10 shares at +the end of six months, 10 shares in 9 months, 10 shares in 12 months, +10 shares in 15 months," etc., etc., at the original price of $112 per +share. This plan seemed to contemplate a bequest of unsettled +contracts to future generations of unsuspecting brokers. The author of +it was particularly solicitous that, in the event of its adoption, his +name should be handed down to posterity along with the unfulfilled +contracts. + +An idea of very wide prevalence, which was touched upon in nearly all +communications to the Committee and which even some bankers approved, +was that a preliminary step to reopening should be an agreement by +the banks not to call loans made prior to July 31st, 1914, for some +specified period of time. This idea was very thoroughly discussed and +looked into by the Committee. It was found to present great practical +difficulties, but was never definitely abandoned until the resumption +of business was shown to be possible without it. + + * * * * * + +The advice which was received by the Committee of Five with regard to +reopening was divided into two classes. There was that large body of +suggestions, some of which we have described above, which were +volunteered either in letters or in interviews, and there was the +advice of well known bankers and men of financial prominence which the +Committee itself solicited. In the latter class figured a member of +one of the largest private banking houses in New York whose opinions +and counsel were of inestimable value. This gentleman, gifted with +clear insight and a thorough grasp of the situation, and generously +anxious to be of service to the Committee, pointed out from the start +that the reopening of the Exchange hung upon a favorable swing in the +balance of trade. When the indebtedness of the United States to Europe +could be offset by our exports the danger of reëstablishing our market +would become negligible, and this shrewd adviser predicted that the +desired reaction in foreign exchange was much closer at hand than was +generally supposed. The most valuable of his admonitions, and the +words which did most to strengthen the courage and resolve of the +Committee were these: "You will be given all kinds of advice by all +kinds of people, but remember that in the end the responsibility will +fall upon you, therefore listen attentively to everything you are told +but act on your own independent judgment." This wise course was +successfully followed, and the change in the trend of foreign exchange +came, as he predicted, much sooner than was expected. + +Numerous other prominent men who were turned to for assistance showed +the greatest willingness to render every service within their power, +and placed the Committee under heavy obligations. There was one case +where the zealous desire to work out a very detailed solution of the +reopening problem brought a 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 zeal of an outsider who while trying to pilot the +Committee into safe waters succeeded in running it on a reef of his +own creation. + +Immediately on ascertaining the true situation the following notice +was sent out on Saturday: + + "The Special Committee of Five announces that having consummated + its plan for bond transactions on the Exchange under certain + specified restrictions, the same will, in accordance with the + Constitution of the Exchange, be submitted to the Governing + Committee at the regular meeting to be held on the 24th inst. If + the recommendations of the Special Committee are adopted by the + Governing Committee the plan will go into operation at an early + date." + +Some of the newspapers having announced positively that this new move +with regard to bonds would take place on Monday, the 23rd, they were +very indignant that it should be postponed without supplying them with +a good and sufficient reason. The Committee, on its part, feeling +that it was undesirable to publish the details of an awkward +misunderstanding with a public official, who would not want his name +dragged into a matter that he had in no way concerned himself with, +refused to furnish the reason. This at once let loose upon them those +vials of reportorial wrath which, up to that time, they had been +fortunate in escaping. One journal amicably stated that this incident +merely emphasized a fact which had all along been obvious, namely that +the Committee were, and had been from the start, totally incompetent +to perform the task intrusted to them. + +While a gentle shower of epithets fell upon their devoted heads the +Committee proceeded with their work and, having obtained the necessary +authority from the Governing Committee, they sent out the following +ruling on November 24th: + + "That so much of rule No. 21 as applies to dealings in listed + bonds through the Clearing House be rescinded, to take effect at + the close of business on Friday, November 27th, 1914. Beginning + on Saturday, November 28, 1914, dealings in bonds listed on the + Exchange will be permitted on the floor of the Exchange between + the hours of ten and three o'clock each day except Saturday, when + dealings shall cease at twelve o'clock noon. Such dealings to be + under the supervision and regulation of the Committee, and to be + for 'cash' or 'regular way' only and not below the minimum prices + as authorized by the Committee from time to time. Transactions at + prices other than those allowed by the Committee, or in evasion + of the Committee's rules, are prohibited. All rules of the + Exchange governing delivery and default on contracts covered by + this resolution shall be in force on and after Saturday, November + 28th, 1914, but the closing of contracts 'under the rule' shall + be subject to the foregoing provisions." + +Thus on Saturday, November 28th, the doors of the Stock Exchange were +once more thrown open and a restricted market in listed bonds was +established on the floor under the watchful eye of the Committee of +Three. There was some hesitancy at first as to whether these bond +transactions should be quoted on the ticker in the accustomed way, but +before the day of opening came it was decided to report them as usual. +By requiring that all trades should be for "cash" or "regular way" +and, in a subsequent ruling, by instructing all purchasers of bonds to +report to the Committee when such bonds were not delivered by 2.15 +P.M. on the day following the purchase, it was hoped to impede any +sudden or violent liquidation of foreign securities. + + * * * * * + +The restoration of the bond market to the floor was a complete +success, and at about the same time a general revival of public +confidence showed itself in a rise in prices first in the street +market and then in the Stock Exchange Clearing House itself. +Encouraged by these symptoms the Committee of Five at once formulated +a plan for carrying the reopening a step farther. A list of stocks +which were not international in character was made out and submitted +to the Bank Clearing House Committee, and with their concurrence it +was decided to place these upon the floor of the Exchange to be traded +in at or above certain prescribed minimum prices. + +At a meeting of the Governing Committee on December 7th the following +resolution was adopted: "That the Committee of Five is hereby +empowered to permit dealings on the floor of the Exchange in such +stocks as it may designate under restrictions prescribed by it. That +the Committee of Five is hereby authorized to enforce stock loan +contracts whenever in its judgment it may deem best so to do, and that +the resolution of July 31st, 1914, be modified in this respect." + +A list of minimum prices was fixed upon that averaged some two or +three points below the closing prices of July 31st, and on December +11th the Committee issued a ruling prescribing the conditions for the +partial resumption of stock dealings on the Exchange. We here present +it in full: + + "The Special Committee of Five rules that Rule 13 be rescinded, + in so far as it applies to stocks admitted to dealings in the + Exchange from time to time by the Committee of Five, said + rescission to take effect at the close of business on Friday, + December 11, 1914. + + "Beginning on Saturday, December 12, 1914, dealings in certain + specified stocks listed on the Exchange will be permitted on the + floor of the Exchange between the hours of ten and three o'clock + each day except Saturday, when dealings shall cease at twelve + o'clock noon. + + "Dealings in such stocks as shall be specified by, and be under + the supervision and regulation of the Committee, shall be for + 'cash' or 'regular way' _only_ and not below the minimum prices + authorized by the Committee from time to time. Transactions at + prices below those allowed by the Committee, or in evasion of its + rules are prohibited. + + "A list of stocks to be admitted to dealings on the Exchange + accompanies these rulings. Minimum prices on same will be + announced on December 11, 1914. + + "All stocks quoted on July 30th at or below 15 per cent., or $15 + per share, may be dealt in without restriction as to price, but + are included in the list for your guidance, and will be marked + 'Free' in the price column. + + "All stocks admitted to dealings as above, which were being + cleared through the Stock Exchange Clearing House at the close of + business on July 30, 1914, will be similarly cleared from the + opening of business on the 12th day of December, 1914. + + "All stocks admitted to dealings, which were being dealt in + 'Ex-Clearing House' at the close of business on July 30, 1914, + will be similarly dealt in from the opening of business on the + 12th day of December, 1914. + + "Stocks admitted to dealings on the Exchange will cease to be + dealt in through the Stock Exchange Committee on Clearing House. + Stocks not so admitted will continue to be dealt in through the + Committee on Clearing House until further notice. + + "All rules of the Exchange governing delivery and default on + contracts covered by these rules shall be in force on and after + the 12th day of December, 1914, but the closing of contracts + 'Under the Rule' shall be subject to the foregoing provisions. + + + STOCKS LOANED + + "The Loan Market for stocks will reopen at ten o'clock, A.M. on + the 12th day of December, 1914, for such stocks _only_ as are + admitted to dealings on the Exchange, from and after which date + all rules of the Exchange governing the borrowing and loaning of + such stocks shall be in force, but the closing of contracts + 'Under the Rule' shall be subject to the foregoing provisions. + + "The above rule shall apply to stocks borrowed and loaned prior + to and since July 30, 1914. + + "Borrowed and loaned stocks will be cleared as before July 30th + last, but only in cases where such stocks are admitted to + dealings on the Exchange. + + "Loans of stocks _not_ admitted to dealings on the Exchange will + continue to stand until further notice, unless otherwise agreed + to by both parties to the contract." + +On Monday, December 14th, the next business day after the limited list +of stocks had been placed upon the floor of the Exchange, it was +reported to the Committee that the volume of transactions taking place +in the Stock Exchange Clearing House, in the stocks not yet admitted +to the floor, had risen to such proportions as seriously to embarrass +that institution. As this activity was taking place on a rising market +and signs of increasing confidence were constantly multiplying, the +Committee quickly resolved, on the same day, to transfer all stocks to +the floor on the following morning, and notice to that effect was at +once sent out. The unexpected appearance of this notice on the tape +was greeted with cheers of approbation in the Exchange, and on +December 15th the long hoped for reopening of the entire market had +become a reality. + + * * * * * + +The Committee of Five by this act brought their own rule to a close. +Arbitrary power had been put in their hands to be exercised while the +Exchange remained closed, but now that it was reopened authority +naturally returned to its legitimate channels. The Committee therefore +presented the following report to the Governing Committee on December +15th: + + "The Special Committee of Five beg leave to report that in as + much as the crisis that existed on July 31st, 1914, has passed, + and financial affairs in this country have resumed a practically + normal condition, the necessity for the Committee's continuance + no longer exists and hence they request to be discharged. Before + being discharged they desire to express their appreciation of the + trust and confidence placed in them by the Governing Committee. + They also wish to express to the members of the Exchange their + appreciation of the manner in which their rulings have been + respected, even though in many cases it involved great + sacrifices. + + Resolved, That the report of the Special Committee of Five be + received, and the Committee be discharged." + +Thus, like the sudden and unexpected shifting of a dream, the +Committee of Five who so recently had almost despaired of fixing a +date for reopening the Exchange, found the Exchange open and +themselves a memory of the past. The abruptness of their exit was +tempered, however, in the following manner. As above described, the +reopening was accompanied by the restraint of certain arbitrary +minimum prices below which securities could not be sold. It was felt +that, owing to the critical and indecisive state of the war, there was +a continuing possibility of some news that might renew a crisis in the +market. While this possibility lasted the maintenance of minimum +prices furnished an automatic check upon sudden panic which would +avoid raising the question of a second closing of the Exchange. In +order to regulate these minimum prices and so change them from time to +time as to keep in accord with normal supply and demand, it was +necessary to appoint a Committee, and the original Five were continued +in office with this sole regulative power. As bonds were similarly +restricted, the Committee of Three also lingered on the scene for the +same purpose. The two Committees performed this unusual function up to +the first of April, 1915, when the very marked improvement in +conditions led to the abandonment of this last vestige of artificial +restraint. + +It is instructive, as showing the workings of some minds, that +although the Committee of Five, in its capacity of regulator of +minimum prices, issued a public statement that they were under no +circumstances going to valorize or sustain prices but merely expected +to maintain a safeguard against some unforeseen shock to confidence, +many people wrote them urgent letters asking that in certain +properties a minimum should be maintained which would render selling +impossible. It was quite futile to try to disabuse some of these +correspondents of the idea that no decline should be allowed in +properties that they were interested in. + + * * * * * + +To one who meditates upon the singular experience which was thus +abruptly brought to a close, there are a few features of it which +stand out as meriting the especial attention of all members of the +Stock Exchange. First of all it was most impressively shown what +apparently hopeless tasks can be accomplished by loyal coöperation. If +at any time up to July, 1914, any Wall Street man had asserted that +the stock market could be kept closed continually for four and +one-half months he would have been laughed to scorn, and yet this +supposed impossibility was performed by the joint and determined +action of the financial community. On the other hand, and as a +counterpart to this valuable experience, it must never be lost sight +of that the extraordinary war measures of 1914 may be a danger to the +future if they are misinterpreted. There is a possibility (even a +probability) that when ordinary crises arise in times to come, people +who find themselves financially embarrassed will bring enormous +pressure upon the authorities of the Exchange to renew the drastic +expedients of the famous thirty-first of July. It is to be sincerely +hoped that there will always be firmness enough in the Governing +Committee to resist this pressure. The great world war coming, as it +did, without warning was a rare and epoch-making event that warranted +unheard of action and to indulge in such action for any lesser cause +would be utterly disastrous. + +The Committee of Five seems to have been brought into existence under +a lucky star. That five men called together so suddenly in such an +emergency should have worked with absolute harmony for so long a time +is quite remarkable. Their unanimity was never troubled but once. On +one of the first few days of their career a rather positive and +aggressive member, arguing with a colleague, said "you must remember +that you are only one of this Committee." The Committeeman thus +addressed responded with calm determination "and you must not forget +that you are not the other four." This encounter excited much +amusement among the remaining members and was the one and only +occasion where anything resembling a serious difference appeared. + +In addition to being blessed with harmony they were very fortunate in +having passed rulings for so long a time without giving forth anything +that had to be recalled. In view of the complexity of the conditions, +fortune must have aided in this as well as judgment. They were, of +course, treated to much wisdom (after the event) by their critics. +They were told that they might have opened the Exchange sooner after +the actual opening had proved a success, and they were informed in +the editorial columns of a prominent journal that their fear of +foreign liquidation had been an "obsession" which lacked +justification. These critics never were heard from while the event was +in doubt, and consequently the Committee did not profit much by their +learned sayings. + +It can be stated with confidence that the intelligent resourcefulness +of the Stock Exchange, in conjunction with the splendid public +spirited work of the New York banks and the press, warded off a +calamity the possible magnitude of which it would be difficult to +measure. The success of this undertaking should be a source of pride +and emulation to those future generations of brokers who will have to +solve the problems of the great financial market when in the words of +Tyndall, "you and I, like streaks of morning cloud, shall have melted +into the infinite azure of the past." + + + + +THE END + + +[Illustration] + +THE COUNTRY LIFE PRESS GARDEN CITY, N. Y. + + +[Transcriber's Notes: + +The transcriber made these changes to the text to correct obvious +errors: + + 1. p. 49, from 11 A.M. to 12 M. (note missing "A" or "P"), + left as published + 2. p. 54, "We think that if ... (added opening quote) + 3. p. 83, rescision --> rescission + 4. p. 87, unforseen --> unforeseen + +End of Transcriber's Notes] + + + + + +End of the Project Gutenberg EBook of The New York Stock Exchange in the +Crisis of 1914, by Henry George Stebbins Noble + +*** END OF THIS PROJECT GUTENBERG EBOOK NY STOCK EXCH--CRISIS OF 1914 *** + +***** This file should be named 29443-8.txt or 29443-8.zip ***** +This and all associated files of various formats will be found in: + https://www.gutenberg.org/2/9/4/4/29443/ + +Produced by Richard J. 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Noble. + </title> + <style type="text/css"> + body {margin-left: 10%; margin-right: 10%;} + p {margin-top: 1em; margin-bottom: 0em; + text-align: justify;} + /* Text Blocks ------------------------------------------ */ + blockquote {text-align: justify; font-size: 0.9em;} + .blockquot {margin-left: 5%; margin-right: 10%;} + pre {font-size: 0.9em;} + pre.note {font-size: 1.0em;} + .note {margin-left: 10%; + margin-right: 10%; + font-size: 0.9em;} + div.trans-note { + margin: 10%; + padding: 1.0em; + font-size: 0.9em; + background-color: #E6F0F0; + color: inherit; + } + /* Headers ---------------------------------------------- */ + h1,h2,h3,h4,h5,h6 {text-align: center; clear: both; font-weight: normal;} + h1 {letter-spacing: 0.1em;} + .close {margin-top: 0.0em; margin-bottom: 0.0em;} + /* Horizontal Rules ------------------------------------- */ + hr {width: 65%; + margin-left: auto; margin-right: auto; + margin-top: 2.0em; margin-bottom: 2.0em; + clear: both;} + hr.full {width: 100%;} + hr.short {width: 20%;} + hr.tiny {width: 10%;} + hr.tight {margin-top: 1.0em; margin-bottom: 1.0em;} + /* General Formatting ---------------------------------- */ + .sc {font-variant: small-caps;} + .smcap {font-variant: small-caps;} + .spacious {letter-spacing: 0.2em;} + span.pagenum {position: absolute; + right: 1%; + color: gray; background-color: inherit; + letter-spacing:normal; + text-indent: 0em; text-align:right; + font-style: normal; + font-variant:normal; + font-weight: normal; + font-size: 8pt;} + p.right {text-align: right; margin-right: 5%;} + p.close {margin-top: 0.0em;} + p.center {text-align: center;} + p.heading {text-align: center; font-weight: bold;} + .center {text-align: center;} + /* Figures ---------------------------------------------- */ + .figure, .figcenter {padding: 1em; + margin: 0; + text-align: center; + font-size: 0.8em;} + .figure img, .figcenter img {border: none;} + .figure p, .figcenter p {margin: 0; + text-indent: 1em;} + .figcenter {margin: auto; clear: both;} + /* Links ------------------------------------------------ */ + a:link {color: blue; background-color: inherit; text-decoration: none} + link {color: blue; background-color: inherit; text-decoration: none} + a:visited {color: blue; background-color: inherit; text-decoration: none} + a:hover {color: red; background-color: inherit} + </style> +</head> +<body> + + +<pre> + +The Project Gutenberg EBook of The New York Stock Exchange in the Crisis +of 1914, by Henry George Stebbins Noble + +This eBook is for the use of anyone anywhere at no cost and with +almost no restrictions whatsoever. You may copy it, give it away or +re-use it under the terms of the Project Gutenberg License included +with this eBook or online at www.gutenberg.org + + +Title: The New York Stock Exchange in the Crisis of 1914 + +Author: Henry George Stebbins Noble + +Release Date: July 18, 2009 [EBook #29443] + +Language: English + +Character set encoding: ISO-8859-1 + +*** START OF THIS PROJECT GUTENBERG EBOOK NY STOCK EXCH--CRISIS OF 1914 *** + + + + +Produced by Richard J. Shiffer and the Online Distributed +Proofreading Team at https://www.pgdp.net (This file was +produced from images generously made available by The +Internet Archive/American Libraries.) + + + + + + +</pre> + + +<div class="trans-note"> +<p class="heading">Transcriber's Note</p> +<p>Every effort has been made to replicate this text as +faithfully as possible, including obsolete and variant spellings and other +inconsistencies. Text that has been changed to correct an obvious error +is noted at the <a href="#END">end</a> of this ebook.</p> +</div> + + +<h1>THE NEW YORK<br /> +STOCK EXCHANGE IN<br /> +THE CRISIS OF 1914</h1> + +<p><br /></p> + +<h4>BY</h4> +<h3>H. G. S. NOBLE<br /> +<small>PRESIDENT</small></h3> + + +<div class="figcenter" style="width: 130px;"> +<img src="images/i001.png" width="130" height="150" alt="" title="" /> +</div> + +<p><br /></p> + +<h4 class="close">GARDEN CITY NEW YORK</h4> +<h3 class="spacious close">THE COUNTRY LIFE PRESS</h3> +<h4 class="close">1915</h4> + +<p><br /></p> + +<h4><i>Copyright, 1915</i><br /> +<span class="sc">The Country Life Press</span></h4> + +<hr /> +<p><span class="pagenum"><a name="Page_i" id="Page_i">[Pg i]</a></span></p> +<h2>INTRODUCTION</h2> + + +<p>The year 1914 has no precedent in Stock Exchange history. At the +present time (1915), when the great events that have come to pass are +still close to us, even their details are vivid in our minds and we +need no one to rehearse them. Time, however, is quick to dim even +acute memories, and Wall Street, of all places, is the land of +forgetfulness. The new happenings of all the World crowd upon each +other so fast in the financial district that even the greatest and +most far-reaching of them are soon driven out of sight. This being the +case, it has seemed to the writer of these pages that some record +should be kept among the brokerage fraternity of what was so great an +epoch in their history, and that this record could best be written +down by one who happened to be very favorably placed to know the story +in its entirety.</p> + +<p>Of course the archives of the Exchange will always contain the minutes +of Committees and other documentary material embodying the story of +the past, but this dry chronicle is never likely to see the light +except when unearthed by law courts or legislative committees. It +seems worth while, therefore, to disentangle the essential thread of +the tale of 1914 from the mass of unreadable detail in the minute +books, and put it in a shape where those who are interested may look +it over.</p> + +<p><span class="pagenum"><a name="Page_ii" id="Page_ii">[Pg ii]</a></span></p><p>This is not an easy task. To differentiate the interesting and the +essential from the mass of routine material is, perhaps, not very +difficult, but to present this segregated matter in a form that will +not be monotonous is much more of a problem. The proceedings of a +Committee that has been in continuous session must, when written down, +partake of the nature of a diary, and to that extent be tiresome +reading. We shall, therefore, have to ask the indulgence of any one +who happens to look into these pages, and beg him to pass over the +form for the sake of the substance. That the substance itself is of +deep interest goes without saying. It was given to the Stock Exchange +to play a great part in a momentous world crisis, and it must be of +profound interest to know how that part was played.</p> + +<p>Stock Exchanges are a relatively recent product of modern +civilization, and like new comers in every field they are suspected +and misunderstood. The most complex of all problems are economic +problems, and the functions of Stock Exchanges form a most intricate +part of political economy. It has, consequently, been a noticeable +phenomenon in all contemporary industrial society that the activities +of the stock markets have been a constant subject of agitation and +legislative meddling. Most of this meddling has been based upon +ignorance and misunderstanding, but in a broad view this ignorance and +misunderstanding are excusable owing to the novelty and above all the +great complexity of the factors at work. One of the needs of the time, +therefore, is that the public, and their representatives in the +Legislatures, should be enlightened as fast as possible with regard to +<span class="pagenum"><a name="Page_iii" id="Page_iii">[Pg iii]</a></span>the immensely important uses of these institutions, and to the +operation of their very delicate machinery.</p> + +<p>The World crisis of 1914 forced upon us an object lesson on the +question of speculative exchanges in general which ought to be of +lasting profit. For years agitators had been hard at work all over the +country urging the suppression of the Cotton Exchanges, and claiming +that they contained gamblers who depressed the price of the cotton +growers' product. In the summer of 1914 the dreams of these agitators +were realized. The Cotton Exchanges were all closed and the cotton +grower was given an opportunity of testing the benefits of a situation +where there was no reliable agency to appraise the value of cotton. +The result may be summed up in the statement that the reopening of the +Cotton Exchanges met with no opposition. A similar object lesson was +furnished in the case of the Stock Exchanges. They were all closed, +and for a few weeks some profound thinkers in the radical press stated +that the country was showing its ability to dispense with them. When +the time for their reopening came, however, there was no agitation to +prevent it. On the contrary it was hailed as a sign of the resumption +of normal financial conditions in the United States.</p> + +<p>This evidence that the experience of 1914 has cast a much needed light +on the public value of speculative exchanges, gives a further excuse +for describing in some detail how the experience was passed through by +that greatest of all these institutions, the New York Stock +Exchange.</p> + + + +<hr /> +<h2>THE NEW YORK STOCK EXCHANGE IN THE CRISIS OF 1914</h2> + +<p><br /></p> + +<p><span class="pagenum"><a name="Page_3" id="Page_3">[Pg 3]</a></span></p> + +<h2>The New York Stock Exchange</h2> + +<p><br /></p> + +<h2>CHAPTER I</h2> + +<h3>THE CLOSING OF THE EXCHANGE</h3> + + +<p>The Stock Exchange is in the second century of its existence and in +that long period of time (long relatively to the number of years +during which Stock Exchanges have been known to the world) it has been +forced to close its doors only twice. The first occasion was the great +panic of 1873, the after effect of civil war when trading was +suspended for ten days; the second came with the outbreak of the world +War in the close of July, 1914. These two remarkable events differ +profoundly in the gravity of the circumstances which brought them +about. In 1873, although the financial disturbance was one of the +greatest the United States has ever experienced, the trouble was +mainly local and did not seriously involve the entire world. The +Exchange was not closed in anticipation of a catastrophe but was +obliged to shut down after the crash had taken place, in order to +enable Wall Street to gather up its shattered fragments. The measure +of this crisis was the ten days during which trading was suspended.</p> + +<p>Far different from these were the circumstances surrounding July 31st, +1914. On that eventful date a financial earthquake of a violence +absolutely without<span class="pagenum"><a name="Page_4" id="Page_4">[Pg 4]</a></span> precedent shook every great center of the +civilized world, closing their markets one by one until New York, the +last of all, finally suspended in order to forestall what would have +surely been a ruinous collapse. The four and a half months during +which this suspension continued stand to the ten days closing of 1873 +in a proportion which fitly illustrates the relative gravity of the +two historic upheavals.</p> + +<p>In the light of these facts we are justified in asserting that the +events of 1914 are the most momentous that have so far constituted the +life and history of the New York Stock Exchange, and consequently that +some record of, and commentary upon, these facts may be of value to +the present members of that body and of interest and profit to its +future members.</p> + +<p>It is in the nature of panics to be unforeseen, but the statement may +be truly made that some of them can be more unforeseen than others. +The panic of 1907 was preceded by anxious forebodings in the minds of +many well informed people, whereas the Venezuela panic in 1895, being +due to the sudden act of an individual, came out of a clear sky. To +the latter class distinctively belongs the great convulsion of 1914. +While the standing armies of Europe were a constant reminder of +possible war, and the frequent diplomatic tension between the Great +Powers cast repeated war shadows over the financial markets, the +American public, at least, was entirely unprepared for a world +conflagration. Up to the final moment of the launching of ultimata +between the European governments no one thought it possible that all +our boasted bonds of civilization were to burst<span class="pagenum"><a name="Page_5" id="Page_5">[Pg 5]</a></span> over night and plunge +us back into mediæval barbarism. Wall Street was therefore taken +unaware, and so terrific was the rapidity with which the world passed, +in the period of about a week, from the confidence of long enduring +peace to the frightful realization of strife, that no time was given +for men to collect their thoughts and decide how to meet the +on-rushing disaster.</p> + +<p>Added to the paralyzing effect of this unheard of speed of action, +there came the disconcerting thought that the conditions produced were +absolutely without precedent. Experience, the chart on which we rely +to guide ourselves through troubled waters, did not exist. No world +war had ever been fought under the complex conditions of modern +industry and finance, and no one could, for the moment, form any +reliable idea of what would happen or of what immediate action should +be taken. These circumstances should be kept clearly in mind by all +who wish to form a clear conception of this great emergency, and to +estimate fairly the conduct of the financial community in its efforts +to save the day.</p> + +<p>The conditions on the Stock Exchange, when the storm burst, were in +some respects very helpful. Speculation for several years had been at +a low ebb, so that values were not inflated nor commitments extended. +Had such a war broken out in 1906, with the level of prices then +existing, one recoils at the thought of what might have happened. +Furthermore, the unsettled business outlook due to new and untried +legislation had fostered a heavy short interest in the market, thereby +furnishing the best safeguard against a sudden and<span class="pagenum"><a name="Page_6" id="Page_6">[Pg 6]</a></span> disastrous drop. +This short interest was a leading factor in producing the +extraordinary resistance of prices in New York which caused so much +favorable comment during the few days before the closing. It were well +if ill-informed people who deprecate short selling would note this +fact.</p> + +<p>During the week preceding July 31st, therefore, in the face of a +practical suspension of dealings in the other world markets, the New +York market stood its ground wonderfully. The decline in prices, +though it became violent on July 30th, showed no evidence of collapse. +There was a continuous market everywhere up to the last moment, and +call money was obtainable at reasonable prices. Here was a perplexing +problem when the closing of foreign Bourses raised the question of how +long we should strive to keep our own Exchange open.</p> + +<p>To close the recognized public market for securities, the market which +is organized and safeguarded and depended upon as a standard of +values, is an undertaking of great responsibility in any community. To +take this step in New York, which is one of the four preeminent +financial centers of the world, involved a responsibility of a +magnitude difficult adequately to estimate. Upon the continuity of +this market rest the vast money loans secured by the pledge of listed +securities; numberless individuals depend upon it in times of crisis +to enable them to raise money rapidly by realizing on security +investments and thus safeguarding other property that may be +unsaleable; the possessor of ready money looks to it as the quickest +and safest field<span class="pagenum"><a name="Page_7" id="Page_7">[Pg 7]</a></span> in which to obtain an interest return on his funds; +and the business world as a whole depends upon it as a barometer of +general conditions.</p> + +<p>Add to this the fact that speculative commitments by individuals from +all over the world, which have been based upon the expectation of an +uninterrupted market, are left in hopeless and critical suspense if +this market is suddenly removed, and it becomes apparent that to close +the Exchange is manifestly to inflict far-reaching hardship upon vast +numbers of people. It is also sure to be productive of much injustice. +In bad times sound and solvent firms are anxious to enforce all their +contracts promptly so as to protect themselves against those that are +overextended; an obligatory suspension of business compels these +solvent firms, in many cases, to help carry the risks of the insecure +ones and deprives the provident man of the safety to which he is +entitled.</p> + +<p>When such facts as these are duly weighed by the agencies having the +authority to close the stock market, it becomes clear that duty +dictates a policy of hands off as long as a continuous market persists +and purchasers continue to buy as the decline proceeds. This was well +illustrated in the acute panic of 1907 when an enormous open market +never ceased to furnish the means by which needy sellers constantly +liquidated, and the possessors of savings made most profitable +investments. To have closed the Exchange during that crisis—assuming +it to have been possible—would have been an unmixed evil. The violent +decline in prices was the natural and only remedy for a long period of +over-speculation,<span class="pagenum"><a name="Page_8" id="Page_8">[Pg 8]</a></span> and it would have been worse had it been +artificially postponed.</p> + +<p>Considerations of this general character, up to July 30th, caused the +authorities of the New York Stock Exchange to take no action, although +the other world markets had all virtually suspended dealings. On July +30th, the evidences of approaching panic showed themselves. An +enormous business was done accompanied by very violent declines in +prices, and, although money was still obtainable throughout the day, +at the close of business profound uneasiness prevailed.</p> + +<hr class="short" /> + +<p>On the afternoon of July 30th, the officers of the Stock Exchange met +in consultation with a number of prominent bankers and bank +presidents, and the question of closing the Exchange was anxiously +discussed. While the news from abroad was most critical, and the day's +decline in prices was alarming, it was also true that no collapse had +taken place and no money panic had yet appeared. The bankers' opinion +was unanimous that while closing was a step that might become +necessary at any time, it was not clear that it would be wise to take +it that afternoon, and it was agreed to await the events of the +following day. Meanwhile, several members of the Governing Committee +of the Exchange had become convinced that closing was inevitable and, +in opposition to the opinion of the bankers, urged that immediate +steps be taken to bring it about. It may seem strange to people +outside of Wall Street that the night before the Exchange closed such +apparent indecision and difference of opinion existed. It was, +however, a perfectly<span class="pagenum"><a name="Page_9" id="Page_9">[Pg 9]</a></span> natural outcome of an unprecedented situation. +The crisis had developed so suddenly, and the conditions were so +utterly without historic parallel, that the best informed men found +themselves at a loss for guidance.</p> + +<p>During the evening of July 30th the conviction that closing was +imperative spread with great speed among the large brokerage firms. Up +to a late hour of the night the President of the Exchange was the +recipient of many messages and telegrams from houses not only in New +York, but all over the country, urging immediate action. The paralysis +of the world's Stock Exchanges had meanwhile become general. The +Bourses at Montreal, Toronto and Madrid had closed on July 28th; those +at Vienna, Budapest, Brussels, Antwerp, Berlin, and Rome on July 29th; +St. Petersburg and all South American countries on July 30th, and on +this same day the Paris Bourse was likewise forced to suspend +dealings, first on the Coulisse and then on the Bourse itself. On +Friday morning, July 31st, the London Stock Exchange officially +closed, so that the resumption of business on that morning would have +made New York the only market in which a world panic could vent +itself.</p> + +<p>The Governing Committee of the Exchange were called to meet at nine +o'clock (the earliest hour at which they could all be reached, for it +was summer and many were out of town) and at that hour they assembled +in the Secretary's office ready to consider what action should be +taken. In addition to the Committee many members of prominent firms +appeared in the room to report that orders to sell stocks at ruinous +prices were<span class="pagenum"><a name="Page_10" id="Page_10">[Pg 10]</a></span> pouring in upon them from all over the world and that +security holders throughout the country were in a state of panic. It +would be hopeless to try to describe the nervous tension and +excitement of the group of perhaps fifty men who consulted together +under the oppressive consciousness that within forty-five minutes (it +was then a quarter past nine) an unheard of disaster might overtake +them. It was determined that the Governing Committee should go into +session at once as there was so little time to spare. Just as they +started for their official meeting room a telephone message was +received from a prominent banking house stating that the bankers and +bank presidents were holding a consultation and suggesting that the +Exchange authorities await the conclusion of their deliberations.</p> + +<p>There is an employee of the Exchange whose duty it is to ring a gong +upon the floor of the big board room at ten o'clock in the morning. +Until that gong has rung the market is not open and contracts are not +recognized. This employee was instructed not to ring the gong until he +had received personal orders to do so from the President; a permanent +telephone connection was established with the office in which the +bankers were conferring, and amid a horrible suspense the outcome of +their conference was awaited. For twenty minutes this strain +continued. It was a quarter before ten and only fifteen minutes +remained in which to act. Meanwhile the brokers were fast assembling +upon the board room floor, orders were piling in upon them to sell at +panic prices, ten o'clock was approaching, and although all felt that +the opening should not be permitted<span class="pagenum"><a name="Page_11" id="Page_11">[Pg 11]</a></span> no one had a word from the +Governing Committee as to what was going to be done.</p> + +<hr class="short" /> + +<p>At a quarter of ten, no word having come from the bankers, the +receiver of the telephone which had been connected with their meeting +place was hung up, and the Governing Committee were called in session +to take action. As they took their seats two messages reached them. +One was brought by a prominent member of their body who had gone to +the office of the President of the bank Clearing House and had been +told by him, after consulting with some of his fellow officers, "We +concur; under no circumstances is it our suggestion, but if the +Exchange desires to close, we concur." The other was sent, through a +member of the Exchange, from one of the leading bank Presidents who +stated that closing would be a grave mistake and that he was opposed +to it.</p> + +<p>The roll was called and thirty-six out of the forty-two members +answered to their names. The Chair having announced the purpose of the +meeting, Mr. Ernest Groesbeck moved that the Exchange be closed until +further notice. This motion was carried, not unanimously but by a +large majority. Mr. Groesbeck then moved that the delivery of +securities be suspended until further notice, and, this being carried +unanimously, made a third motion that a special Committee consisting +of four members of the Governing Committee and the President be +appointed to consider all questions relating to the suspension of +deliveries and report to the Governing Committee at the earliest +possible moment. The third motion, like the second was carried +unanimously<span class="pagenum"><a name="Page_12" id="Page_12">[Pg 12]</a></span> and the Committee adjourned. It was then four minutes of +ten. On the instant that the first motion closing the Exchange was +passed, word was sent to the ticker operators to publish the news on +the tape. In this way the seething crowd of anxious brokers on the +floor got word of the decision before ten o'clock struck. Immediately +upon the adjournment of the Committee Mr. George W. Ely the Secretary +of the Exchange ascended the Chairman's desk in the board room and +made the formal announcement, which was greeted with cheers of +approbation. The President promptly appointed Messrs. H. K. Pomroy, +Ernest Groesbeck, Donald G. Geddes, and Samuel F. Streit to +constitute, with himself, the Committee of Five, and the long suspense +and anxiety of four months and a half began.</p> + +<p>These events, which were crowded into a few feverish hours, and which +seemed to those who participated in them more like a nightmare than +like a reality, present some aspects that are especially worthy of +detailed description. It is noticeable that the vote to close the +Exchange was not unanimous. This shows the immense complexity of a +situation, which, even at the last moment, left some two or three +conscientious men undecided. It is a fact of profound importance, and +one that never should be forgotten by stock brokers or by the public, +that the Exchange closed itself on its own responsibility and without +either assistance or compulsion from any outside influence. Many false +assertions by professional enemies of the institution have been made +to the effect that the banks forced the closing, or that its members +were unwillingly<span class="pagenum"><a name="Page_13" id="Page_13">[Pg 13]</a></span> coerced by outside pressure. The facts are that the +influential part of the membership, the heads of the big commission +houses, made up their minds on the evening of July 30th that closing +was imperative, and that on the morning of July 31st their +representatives in the Governing Committee took the responsibility +into their own hands, the bankers having been unable as yet to reach a +conclusion.</p> + +<p>Immediately after the closing the President of the Exchange visited +the prominent bank president who had served notice at the last moment +of his disapproval of this procedure. He was found in his office in +consultation with a member of one of the great private banking houses. +Both the bank president and the private banker agreed that, in their +opinion, the closing had been a most unfortunate mistake. It was an +opportunity thrown away to make New York the financial center of the +world. The damage was done and would have to be made the best of, but +had the market been allowed to open the banks would have come to the +rescue and all would have gone well. These gentlemen admitted that the +Exchange was to some extent excusable owing to the negligence of the +bankers in not notifying them that they were ready to protect the +money market.</p> + +<p>It may safely be stated that within twenty-four hours after this +interview neither the two bankers in question nor any one else in Wall +Street entertained these opinions. The rise of exchange on London to +$7—a rate never before witnessed; the marking of the Bank of +England's official discount rate to 10%, accompanied by a run on<span class="pagenum"><a name="Page_14" id="Page_14">[Pg 14]</a></span> that +institution which resulted in a loss of gold in one week of +$52,500,000; the decline of the Bank's ratio of reserve from the low +figure of 40% to the paralyzing figure of 14-5/8%; together with the +fact that the surplus reserves of our New York Clearing House banks +fell $50,000,000 below their legal requirements, were reasons enough +in themselves to convince the most skeptical of the necessity of what +had been done.</p> + +<p>The frightful gravity of the situation which had arisen became clearer +and more defined in people's minds a few days after the first of +August than it was on the morning of July 31st. European selling had +been proceeding for some time before the outbreak of War and in the +last few days before closing had been temporarily arrested by the +prohibitive level of exchange and the risk of shipment at sea. The +American public itself, however, was seized with panic on the evening +of July 30th, and on the morning of July 31st brokers' offices were +flooded with orders to sell securities for what they would bring and +without reference to values. Had the market been permitted to open on +that Friday morning the familiar Wall Street tradition of "Black +Friday" would have had a meaning more sinister than ever had been +dreamed of before.</p> + +<p>In all previous American panics the foreign world markets were counted +upon to come to the rescue and break the fall. Imports of gold, +foreign loans, and foreign buying were safeguards which in past crises +had been counted upon to prevent utter disaster. On this occasion our +market stood by itself unaided; an unthinkable convulsion had seized +the world; panic had<span class="pagenum"><a name="Page_15" id="Page_15">[Pg 15]</a></span> spread; even the bargain hunter was chilled by +the unprecedented conditions; there were practically no buyers. A half +hour's session of the Exchange that morning would have brought on a +complete collapse in prices; a general insolvency of brokerage houses +would have forced the suspension of all business; the banks, holding +millions of unsaleable collateral, would have become involved; many +big institutions would have failed and a run on savings banks would +have begun. It is idle to speculate upon what the final outcome might +have been. Suffice it to say that these grave consequences were +prevented in the nick of time by the prompt and determined action of +the Stock Exchange, and by that alone.</p> + +<hr class="short" /> + +<p>Any decisive step whether right or wrong always finds its critics. +There were a few people who criticised the Exchange for closing too +soon and thought that the feeling of panic was increased by this +action. These few were mostly converted from their opinions as the +situation became clearer. There was a larger number who took the +ground that the Exchange had not closed soon enough, and urged that +had the step been taken a few days sooner a considerable decline in +values would have been prevented. It is strange that the latter +critics did not stop to reflect on how great an advantage it was, all +through the anxious days of August, to have had the New York market +liquidated as far as it could be without disaster, and the level of +closing prices relatively low. How vastly greater would have been the +task of safeguarding the situation in the face of declining<span class="pagenum"><a name="Page_16" id="Page_16">[Pg 16]</a></span> prices in +the "New Street Market" had the closing prices on the Exchange been +ten or fifteen points higher. The truth is that the Exchange was +closed at the very best possible moment. The market was kept open as +long as liquidation could safely be carried on (thus immensely +diminishing the pressure to be withstood during the suspension) and it +was closed at the very instant that a collapse was threatened.</p> + +<p>The above facts suggest some reflections with regard to the agitation +for governmental interference with or control of the Exchange. The act +of closing necessitated the prompt decision of men thoroughly familiar +with the circumstances in a period of time actually measured by +minutes. If it had been necessary to reach government officials +unfamiliar with details, convince them of the necessity of action, and +overcome the invariable friction of public machinery, the financial +world would have been prostrated before the first move had been made. +If the Exchange had been an incorporated body, and had been closed in +the face of the difference of opinion and possible conflict of +interests that existed at the time, it would have been possible for a +temporary injunction to have been brought against its management +restraining its freedom to meet the emergency. Long before the merits +of such an injunction could have been argued in court the harm would +have been done, and ruin would have overtaken many innocent people. +The full power of a group of individuals thoroughly familiar with the +conditions to act without delay or restraint prevented a calamity +which can safely be described as national.<span class="pagenum"><a name="Page_17" id="Page_17">[Pg 17]</a></span></p> + +<p>It is a fact, which will probably never be appreciated outside of the +immediate confines of Wall Street, that the Exchange was unexpectedly +thrown into a position where the interests of the whole country were +put in its hands, and that through the prompt and energetic action of +the thirty-six men who faced the awful responsibility on July 31st +financial America was saved. It is true that in saving the community +they saved themselves, but so do the soldiers who win upon the +battle-field, and in neither case is the obligation cancelled by the +selfish considerations involved. When in future the perennial outcry +against the Exchange is being fostered by those whose minds are +exclusively occupied with the evils that are inseparable from every +human institution, let us hope that once in a while some friendly +voice may be raised to remind the world of July thirty-first, nineteen +hundred and fourteen.</p> + + + +<hr /> +<p><span class="pagenum"><a name="Page_18" id="Page_18">[Pg 18]</a></span></p> +<h2>CHAPTER II</h2> + +<h3>THE PERIOD OF SUSPENSION</h3> + + +<p>During the same morning on which the momentous action of closing was +taken the Committee of Five met and elected the President of the +Exchange as their Chairman. The acute crisis was over, the danger of a +cataclysm had been averted, but the situation that remained was big +with problems full of menace and uncertainty.</p> + +<p>Just what effect the closing of the market would have was a matter of +doubt. On all previous occasions when the facilities of the Exchange +had been inadequate, or had been shut off, an unregulated market had +established itself in public places and proceeded uncontrolled. Thus +during the Civil War, when the volume of speculation had completely +outgrown the limited machinery of the old Board of Brokers, a +continuous market developed partly in the street and partly in a +basement room called the "Coal Hole" and flourished during the day, +while in the evening it was continued in the lobby of the Fifth Avenue +Hotel. This market did more business than was done upon the Exchange +itself, and a few years after the War, many of its members, who had +organized into the "Open Board of Brokers," were admitted to the Stock +Exchange in a body. The suspension of business in 1873 was too brief<span class="pagenum"><a name="Page_19" id="Page_19">[Pg 19]</a></span> +to allow of the formation of a market such as the above, but, while it +continued, cash transactions for securities were being carried on +every day in the financial district.</p> + +<p>Would results such as these obtain on this occasion? Much depended +upon the length of time before the Exchange could re-open, but this in +itself was a problem for which no one could venture a solution. Again, +a vast volume of contracts made on July 30th had been suspended. How +long could the enforcement of these contracts be successfully +prohibited, and above all how long would the banks and financial +institutions which were lending money on Stock Exchange collateral +refrain from calling loans when they were deprived of any measure of +the value of their security? Over its own members the New York Stock +Exchange might exercise a rigid control, and it could safely be +assumed that the other Stock Exchanges of the country would coöperate +with it, but numberless outside agencies existed such as independent +dealers unaffiliated with exchanges, and auctioneers, any of whom +might establish a market. If declining prices were made through media +of this description, and the press felt called upon to furnish them to +the public, the closing of the Exchange might not suffice to prevent +panic and disaster.</p> + +<p>Oppressed by these considerations, and by an appalling sense of +responsibility, the new Committee of Five began its labors in the +morning of July 31st. The first step decided upon was to communicate +with the Bank Clearing House Committee. Mr. Francis L. Hine, President +of the Clearing House, was invited to meet the Committee of Five which +he did, a little<span class="pagenum"><a name="Page_20" id="Page_20">[Pg 20]</a></span> later in the day, and presented to them the +following statement of the action taken by the Clearing House.</p> + +<blockquote><p>"There was a meeting of the Clearing House Committee this morning +in view of the closing of the New York Stock Exchange. It was the +opinion of the Committee that the business and financial +condition of New York and the entire country was sound but that +the situation in Europe justified extreme prudence and +self-control on the part of the United States; that the closing +of the Stock Exchange was a wise precaution by reason of the +disposition of all Europe to make it the market for whatever it +wished to sell, and that in this country there was no occasion +for any serious interruption of the regular course of business, +either financial or mercantile."</p></blockquote> + +<p>After the retirement of Mr. Hine, the Chairman of the Committee on +Clearing House of the Exchange stated that all the checks given to the +Clearing House had been certified, and a notice was thereupon sent out +instructing members to call for their drafts at the usual hour. Thus +all the differences due on the day's transactions of July 30th were +settled, and a first encouraging step was taken. It was also decided +to permit the offering of call money on the floor of the Exchange.</p> + +<p>The Committee held its second meeting on August 1st and the first of +the long series of problems growing out of the closing of the market +was at once presented to it. A letter from a brokerage house doing +business with Europe was received in which it was pointed out that +"arbitrageurs" who had sold stocks in New York and bought them in +London during the previous fortnight had made their deliveries by +borrowing stock in New York; that the stock purchased in London was +due to arrive on this side, and that the usual process of<span class="pagenum"><a name="Page_21" id="Page_21">[Pg 21]</a></span> financing +it by returning the previously borrowed stock had been cut off through +the suspension of unfulfilled contracts. This was likely to lead to +very grave embarrassment because call money had practically +disappeared and houses to whom this foreign stock was consigned might +not be able to meet their obligation to pay for it as it arrived. +There being no arrivals of foreign stock expected that day, the +Committee deferred action, and thus gained time to think out ways and +means of meeting the difficulty.</p> + +<p>The second problem presented came in the form of a request for +permission to sell securities outside of the Exchange. The firm of S. +H. P. Pell & Co. had suspended, and a house which had been lending +them money wished to be authorized to sell out the collateral. This +was the first of many cases brought before the Committee, during its +long tenure of office, in which individuals sought for a special +privilege to sell securities they were anxious to market while trading +in general was forbidden. In this case the applicants were referred to +that section of the Constitution of the Exchange in which it is +provided that members having contracts with insolvents shall close out +these contracts in the Exchange when the securities involved are +listed. The Exchange being closed, this provision answered the +question without necessitating any independent action on the part of +the Committee.</p> + +<hr class="short" /> + +<p>From the moment of the closing of the Exchange a growing pressure +arose to determine just when and how it should be re-opened. The +desire for information<span class="pagenum"><a name="Page_22" id="Page_22">[Pg 22]</a></span> on this point was widespread, and when the +gravity of the situation became clearer to the community, a great +anxiety developed that the re-opening should, above all, not be +premature. Realizing that the fear of sudden and ill considered action +on this question was becoming dangerous to the restoration of +confidence, the Committee of Five, at its meeting of August 3rd +authorized the following statement.</p> + +<blockquote><p>"Announcement is made by the President of the Stock Exchange, in +answer to inquiries as to when the Exchange will open, that ample +notice of such opening will be given."</p></blockquote> + +<p>In spite of this notice fear that the Stock Exchange might act +injudiciously lingered for some time longer until the constant +reiteration by its officers of their intention to act only in +conjunction and in consultation with the banks permanently allayed it.</p> + +<p>By Monday, August 3rd, a steady stream of letters had begun to pour in +upon the Committee asking advice and direction upon any number of +questions raised by the closing of the market, and offering every kind +of suggestion and advice. In addition to this it soon became evident +that interviews would have to be held with large numbers of people for +the purpose of securing their cooperation, influencing their conduct, +and obtaining information. The resolution of the Governing Committee +by virtue of which the Committee of Five was brought into being merely +stated that questions such as these should be considered and reported +back "at the earliest possible moment." Clearly here was an impossible +situation. The immense detail of the work which was<span class="pagenum"><a name="Page_23" id="Page_23">[Pg 23]</a></span> beginning to +unfold itself could never be handled by so large a body as the +Governing Committee itself. Realizing that this difficulty must be met +without a moment's delay the Committee of Five requested the calling +of a special meeting of the Governors for twelve o'clock the same day +and presented to them the following resolution, which was unanimously +adopted.</p> + +<blockquote><p>"<span class="smcap">Resolved</span>: That the Special Committee of Five, appointed by the +Governing Committee on July 31st, be, and it hereby is, +authorized during the present closing of the Exchange, to decide +all questions relating to the business of the Exchange and its +members."</p></blockquote> + +<p>This action of the Governing Committee, while it was rendered +necessary by the peculiar requirements of the situation, was +unprecedented in the history of the Exchange, for never before had +such powers and such responsibilities been put in the hands of so few +individuals. It was one of a series of "war measures" by means of +which ends were achieved that would not have been reached in any other +way.</p> + +<p>Clothed with complete authority the Committee met again in the +afternoon of August 3rd and was at once confronted with a request for +a ruling on the question of how far members were to be restrained from +dealing outside of the Exchange. After a lengthy discussion the +following was approved as their opinion.</p> + +<blockquote><p>"It was the intention in closing the Stock Exchange that trading +should be stopped and it is the duty of loyal members to comply. +If cases come into your office where it is absolutely necessary +to trade, do so as quietly as possible and prevent the quotation +from being published."</p></blockquote><p><span class="pagenum"><a name="Page_24" id="Page_24">[Pg 24]</a></span></p> + +<p>It will be noticed that the policy adopted here was less stringent +than what came later when the growth of an outside market increased +the dangers of the situation.</p> + +<hr class="short" /> + +<p>With the question of outside dealings there at once arose the closely +connected question of the danger arising from having price quotations +of such dealings made public. The quotation machinery of the Exchanges +had been silenced by the closing of those institutions, but there +remained the public auctioneers whose sales, if they took place, would +be disseminated by the press and might spread panic among security +holders and money lenders. The auctioneers in New York, Boston, +Philadelphia, and Chicago were at once approached, not only directly +but through their bankers and other advisers. It was a disagreeable +task as these auctioneers had to be urged to cease doing business, but +it was rendered unexpectedly easy by the courtesy and friendliness +with which they coöperated for the general welfare. So loyal were +these various agencies that not a single sale, either of listed or +unlisted securities, occurred in any auction room of the country until +the urgent phases of the crisis had passed.</p> + +<p>It was not in auction rooms alone, however, that prices might be made; +dealings were liable to occur in any unexpected locality, and it was +urgent that prices of an alarming character should be kept from the +public. For this most important purpose the coöperation of the press +was absolutely necessary. To obtain this, at the outset, was no easy +matter. The closing of the Stock Exchange placed the financial news +writers<span class="pagenum"><a name="Page_25" id="Page_25">[Pg 25]</a></span> of the daily press in a curious position. With them were +allied that group of financial writers connected with the various Wall +Street news agencies, the several financial journals that are +exclusively devoted to Wall Street affairs, and the financial +correspondents of out of town newspapers. All told there were about +one hundred salaried men in these various groups, men experienced in +financial affairs, widely known and respected, engaged in a work which +had never been interrupted and which, as far as could be foreseen, +promised to furnish them with a continuous vocation.</p> + +<p>The first effect of the war was a general curtailment of newspaper +advertising, a rise in the price of paper, and a greatly increased +cost of the news of the day owing to excessive cable charges for +foreign dispatches. Thus the newspapers suffered a rapidly diminishing +revenue, and they found it necessary to discharge many of their +employees and to reduce the salaries of others. With the Stock +Exchange closed, naturally the salaried financial writers were among +the first to feel this hardship.</p> + +<p>Those whose services were retained throughout this crisis were +confronted with divided responsibilities. It was their duty to +interpret a mass of more or less fantastic rumors at a time when +nerves were overwrought and points of view magnified and distorted. +They wished to prevent the publication of anything of an incendiary +nature, while at the same time a necessity arose for presenting to the +public the news to which it was entitled. Placed in such a position +there was a very natural impatience here and there to have the +Exchange reopened, while now and then a tendency<span class="pagenum"><a name="Page_26" id="Page_26">[Pg 26]</a></span> became manifested to +publish certain news of the day which, while interesting to the +public, tended to handicap the efforts of those bent only on +reassurance and calm counsel. At times it became somewhat difficult to +prevent the publication of some of these matters, particularly of the +prices made in the so called "gutter" market which sprang up in New +Street. And yet on the whole nothing could have exceeded the fairness +and the spirit of coöperation of these gentlemen in this trying time. +One newspaper even went so far as to cease the publication of a +remunerative page of small advertisements having to do with dealings +in outside securities. This was done at the request of the Committee +without hesitation. Others coöperated in the suppression of +advertising on the part of questionable people, while correspondents +of out of town newspapers, both foreign and domestic, cheerfully +acceded to requests to suppress all disturbing financial reports. In a +word, the financial department of the whole newspaper press accepted +the situation philosophically, bearing their losses without complaint +and supporting without cavil the restrictive measures which it was +necessary to employ.</p> + +<p>This loyal conduct of the press and of the auctioneers was one of the +great factors without which the critical days of the suspension of +business could not have been successfully surmounted.</p> + +<hr class="short" /> + +<p>It will be remembered that in the morning of July 31st, the Governing +Committee not only voted to close the Exchange but also declared that +the delivery of<span class="pagenum"><a name="Page_27" id="Page_27">[Pg 27]</a></span> securities should be suspended until further notice. +The motive of this latter action was to prevent the possible +insolvencies that were likely to be forced if purchasers were +compelled to pay for their securities in the absence of a call money +market. At the earliest moment that attention could be given to it the +Committee of Five requested the Chairman of the Stock Exchange +Clearing House to place before it the exact figures of the outstanding +contracts. These figures when presented showed that there were stock +balances open on Clearing House order amounting to $38,700,000 and +Ex-Clearing House contracts amounting to about $61,000,000. Roughly +speaking there had been about $100,000,000 of stock sold in the +Exchange on July 30th, the delivery of which to the purchasers had +been suspended by the action of the Governing Committee. Obviously a +first great step toward clearing up the situation and preparing the +ground for the ultimate reopening of the market was to get this great +volume of contracts settled, so that if any failures were inevitable +they would be disposed of beforehand.</p> + +<p>It being probable that many of the purchasers of stock on July 30th +were in a position to finance their purchases even in the midst of the +crisis the Committee deemed it wise to offer every possible facility +for the immediate settlement of contracts when the purchaser was in +this position. They therefore issued the following notice on August +4th:</p> + +<blockquote><p>"The Special Committee of Five appointed to consider questions +connected with the closing of the Exchange state that the +resolution of the Governing Committee suspending deliveries<span class="pagenum"><a name="Page_28" id="Page_28">[Pg 28]</a></span> +until further notice does not mean that settlement may not be +made by mutual consent wherever feasible. The Clearing House of +the Exchange is prepared to advise and assist, and inquiries +should be made in person there."</p></blockquote> + +<p>At the request of the Committee of Five the Committee on Clearing +House at once undertook the task of assisting members of the Exchange +in closing up these contracts and used its clerical force for that +purpose, thus involving much careful and detailed work. They held +daily continuous meetings, giving their personal attention in +assisting members, and using a care that involved both tact and +arduous labor. Through their efforts such extraordinary progress was +made, in this complex and difficult task, that by September 22nd +announcement was made that the delivery of all Clearing House balances +had been completed with the exception of those of the few firms whose +affairs were in the hands of receivers. These were settled shortly +afterwards and at the same time the great volume of Ex-Clearing House +contracts were also completely fulfilled.</p> + +<p>This is one of the most extraordinary and gratifying experiences of +the great crisis. In about seven weeks, at a time when money was +unobtainable and the condition of panic was at its height, this huge +volume of unsettled contracts was met and consummated by voluntary +coöperation and without compulsion of any kind. In some few cases +selfishness or indifference delayed action on the part of individuals, +but these were all brought to a final adjustment by the influence and +persuasion of the Committee.<span class="pagenum"><a name="Page_29" id="Page_29">[Pg 29]</a></span></p> + +<p>This achievement not only reflects undying credit upon the members of +the Exchange by showing both the sound condition of their business and +their zeal to act for the general welfare, and creates a deep sense of +obligation to the Clearing House Committee who for many long weeks +worked unceasingly to overcome the difficulties that beset the path, +but it justifies and confirms the wisdom of the New York Stock +Exchange in adhering to the practice of daily settlements. In all the +great European centers, where trading on the fortnightly settlement +basis is in vogue, the restoration of dealings was terribly +complicated by the herculean task of clearing up back contracts that +extended over many days. In New York, when conditions so shaped +themselves as to warrant reopening the Exchange, the back contracts of +its members had all been settled up <i>two months</i> before. Had our +system, like the European, involved "trading for the account," every +additional day of back contracts added to the $100,000,000 worth of +July 30th would have stood in the way of a final settlement, and the +reopening of the market (which was long postponed as it was) would +have been much further delayed.</p> + +<hr class="short" /> + +<p>On August 4th, a problem which had loomed upon the horizon the day +after the closing of the Exchange, was brought squarely before the +Committee. A delegation of houses dealing in securities for European +account appeared and stated that approximately $40,000,000 to +$50,000,000 of securities were to arrive "this week, beginning +to-morrow, Wednesday,"<span class="pagenum"><a name="Page_30" id="Page_30">[Pg 30]</a></span> and that they would be accompanied by sight +drafts which would have to be financed. This alleged great volume of +securities had been sold in this market for foreign account and +borrowed in New York in order to make the immediate deliveries that +our day to day system requires. The suspension of the fulfillment of +contracts declared by the Exchange made it impossible to return this +borrowed stock, and the houses doing this business were therefore +obliged either to allow the drafts to go to protest or finance the +incoming stock until the free enforcement of contracts was again +permitted.</p> + +<p>With money practically unobtainable, and general panic prevailing, it +is needless to say that these statements of the delegation of houses +doing foreign business were a severe shock to the Committee of Five. A +remedy proposed by one or two of these banking houses was that the +people from whom they were borrowing stock should be required to take +it back. This simple expedient, while eminently satisfactory from the +standpoint of the borrower of stock, was not very helpful to the +Committee, as it would merely have shifted the problem of financing +the stock from one set of brokers to another, and would have raised +the dangerous question of a general enforcement of contracts in +borrowed securities. It was an interesting illustration, among some +others to be subsequently experienced, of the manner in which certain +minds can become entirely absorbed in that aspect of a question which +deals solely with personal interest. After careful discussion it was +determined that the coöperation of the Clearing House banks should be +sought in solving the difficulty. The Committee of Five thereupon<span class="pagenum"><a name="Page_31" id="Page_31">[Pg 31]</a></span> +sent a communication to the Bank Clearing House committee setting +forth all the circumstances connected with the expected consignment of +securities as stated by the delegation of banking houses and requested +an appointment to meet them, or a sub-committee of their members, and +discuss the matter. The appointment was obtained for the following +morning, August 5th, and the Chairman and Mr. H. K. Pomroy were +appointed a sub-committee to confer with the Bankers and directed to +take Mr. Richard Sutro with them as a representative of the houses +doing foreign business.</p> + +<p>At the meeting with the Clearing House bankers it was very properly +decided that a solution of the problem could only be reached when an +exact knowledge of the amount of money required to pay for the +incoming securities had been obtained, the figures stated by the +banking houses which were seeking assistance being only estimates. The +representatives of the Stock Exchange agreed to obtain this exact +information at once, and having returned and stated the circumstances +to the Committee of Five, it was directed that the following +communication be sent to a list of members of the Exchange who, it was +understood, were to have foreign drafts presented to them:—</p> + +<blockquote><p>"The Special Committee of Five requests that by three o'clock +to-day they may have in their possession from you information as +to the number and amount of drafts which you expect will be +presented to you from Europe on any steamers arriving to-day or +subsequently. They would particularly like to know how much you +expect on each steamer. In case any of these have already been +financed please so state in your communication.<span class="pagenum"><a name="Page_32" id="Page_32">[Pg 32]</a></span></p> + +<p>"The Committee would also like to have you tabulate in your +reply, so far as you can, the banks, trust companies or bankers +from whom you expect drafts to be presented.</p> + +<p>"This communication is confidential and it is requested that you +do not discuss this matter with any one outside your own firm. +Your answer is expected by bearer, in order that the financing of +these drafts may be facilitated."</p></blockquote> + +<p>By three o'clock, the same afternoon, replies had been received from +thirteen houses that they expected securities on the <i>Olympic</i> and +<i>Mauretania</i>, and had also received advices of other securities +forwarded but did not know on what steamers; the drafts to be +presented they said would be approximately for four and one half +millions. Replies from twelve other houses stated it as a possibility +but not a certainty that securities might reach them on the steamers +above mentioned to the amount of about four millions; and, finally, +twelve firms sent replies stating that they either expected no +securities or had made the necessary arrangements to finance what was +coming. These facts—so far below the estimate at first presented to +the Committee—came as a great relief, and were at once taken before +the Bank Clearing House Committee. After a careful discussion with +these gentlemen the Committee of Five again met and sent the following +communication to the firms who had reported that securities and drafts +were about to be tendered to them.</p> + +<blockquote><p>"Members of the Exchange to whom foreign drafts are presented for +payment, are requested to confer with the Committee of Five at 9 +<span class="smcap">a.m.</span> to-morrow, Thursday, the 6th inst., in the Secretary's +office, with details of such transactions in hand, when efforts +will be made to facilitate the adjustment."</p></blockquote><p><span class="pagenum"><a name="Page_33" id="Page_33">[Pg 33]</a></span></p> + +<p>The next morning the few firms who had drafts to meet on that day were +provided with the necessary loans by two banks and a trust company at +8 per cent. The amount of securities due from Europe was undoubtedly +large, but the great bulk of it had not been shipped and the shipment +of it was postponed for many weeks afterward. The extraordinary +statement that $40,000,000 or $50,000,000 were about to be landed in +New York is interesting as showing the hysterical state of mind to +which many business men had been reduced at that time. The actual +amount of stocks sold to arrive, against which borrowings had been +effected in New York, was finally shown to amount to $20,000,000. That +this amount was not increased at an embarrassing period in these +important negotiations was due in large measure to the action of the +Committee in calling together the various foreign arbitrage houses, +and securing from them an agreement to cable to their correspondents +in Europe not to make further shipments of securities, because +borrowed stocks could not be returned and deliveries effected. This as +it turned out was an important step in the right direction.</p> + +<hr class="short" /> + +<p>Owing to the sudden and severe pressure of business to which the +Committee of Five was subjected almost from the moment of its +organization, some matters were unavoidably overlooked which should +have had immediate attention. Conspicuous among these was the question +of the rate of interest to be charged upon open contracts which the +action of the Governing Committee had suspended. This matter was not +reached<span class="pagenum"><a name="Page_34" id="Page_34">[Pg 34]</a></span> until the meeting of August 4th, when the following ruling +was made:</p> + +<blockquote><p>"The Special Committee rules that interest on the delivery at the +rate of 6 per cent. shall accrue from August 5th on all unsettled +contracts for delivery of securities, except that interest shall +cease when a receiver of securities gives one day's notice to a +deliverer that he is ready to receive and pay for same.</p> + +<p>"The Special Committee further rules that sales of bonds on July +30th carry interest at the rate specified in the bond to July +31st, and that between July 31st and August 5th they are 'flat'; +interest thereafter to be 6 per cent. on the amount of money +involved, subject to the exemption stated in the previous +ruling."</p></blockquote> + +<p>In view of the fact that no action had been taken up to August 4th and +that a number of private settlements had been arranged in the meantime +the Committee thought it wise to avoid a retroactive ruling, and +imposed the 6 per cent. rate from August 5th. Injustice was done, in +some cases, by permitting a lapse of five days when no interest charge +was required, but this injustice was cheerfully borne owing to the +unusual exigencies of the situation.</p> + +<p>On this same day the Committee received the first communication which +indicated that some members of the Exchange had not yet appreciated +the necessities and dangers of the situation. This came in the form of +a letter from the Baltimore Stock Exchange which contained the +following passage:—</p> + +<blockquote><p>"A representative New York Stock Exchange house has been guilty +of going directly to one of the Trust Companies here, and made +offerings of bonds dealt in on both your Exchange and our own, at +a large concession."</p></blockquote><p><span class="pagenum"><a name="Page_35" id="Page_35">[Pg 35]</a></span></p> + +<p>The Committee directed the Secretary to make the following reply:—</p> + +<blockquote><p>"In the matter of your letter of August 1, 1914, I am instructed +by the Special Committee appointed by the Governing Committee on +July 31, 1914, to inform you that in the opinion of said +Committee the offering down of securities in places where money +is loaned on securities is most reprehensible, and that members +of this Exchange ought not to engage therein. If possible, I +would like the name of the member of the New York Stock Exchange +who made such offer."</p></blockquote> + +<p>It may be urged in extenuation of the act of the Stock Exchange house +that, August 1st being only one day after the closing, a thorough +appreciation of the gravity of the situation had not yet become +general.</p> + +<hr class="short" /> + +<p>By August 5th the work of the Committee had assumed the form that was +to continue unremittingly until the Exchange reopened four and one +half months later. A constant stream of communications either by +letter or by personal appearance filled the days sometimes from nine +o'clock in the morning until six in the afternoon. The communications +asked advice and made suggestions of every conceivable kind, but, +above all, they were loaded with problems and difficult situations +which had grown out of the breakdown of the financial machinery in +general.</p> + +<p>The labors of the Committee in striving to straighten out this +formidable tangle of business affairs led to their issuing a series of +rulings, which were binding upon all members of the Exchange. These +rulings were sent over the "Ticker" whenever they were passed, but on<span class="pagenum"><a name="Page_36" id="Page_36">[Pg 36]</a></span> +August 5th it was decided to supplement the "Ticker" by distributing +the rulings in circular form, and thus insure the possession by every +member of a full copy of the entire number. It is a gratifying fact, +both from the standpoint of the Committee and of the Stock Exchange, +that no one of the very numerous rulings was a failure or had to be +rescinded, and that they were all accepted without cavil or serious +criticism by the members. In the relatively few cases where an +indisposition to live up to these rulings was brought to the attention +of the Committee, an appeal from them to loyalty and good judgment +never failed to bring a recalcitrant member to terms.</p> + +<p>On this day, August 5th, a special circular was sent out to answer the +constant inquiries as to whether purchases or sales of securities were +in any way permissible during the period of closing. It contained the +following:</p> + +<blockquote><p>"When the Governing Committee ordered the Exchange closed it was +their intention that all dealings in securities should cease, +pending the adjustment of the financial situation and the +reopening of the Exchange.</p> + +<p>"It is possible that cases may occur where an exception would be +warranted provided such dealings were for the benefit of the +situation, and in no sense of a speculative character, or +conducted in public. Any member, however, taking part in such +transactions must have in mind, his loyalty to the Exchange, +whether or not he is living up to the spirit of the laws, and +that he is not committing an act detrimental to the public +welfare."</p></blockquote> + +<p>On August 7th the question of the reopening of the Exchange again came +to the front. A letter from Baltimore was received urging that the +Exchange reopen<span class="pagenum"><a name="Page_37" id="Page_37">[Pg 37]</a></span> for dealings in bonds only, and the newspapers were +so urgent for some statement on the subject that the Committee +authorized the following:</p> + +<blockquote><p>"The Special Committee of Five will not recommend to the +Governing Committee the reopening of the Exchange until in their +judgment the financial situation warrants it, and as before +stated, ample notice will be given of the proposed opening."</p></blockquote> + +<p>The question of borrowed and loaned stocks came up at this time in two +aspects, one the interest rate to be charged, and the other the +determination of the market price at which such loans should stand. +With regard to the former the Committee ruled on August 5th that +"until further notice, from and after this date, the interest rate on +all borrowed and loaned stocks shall be 6%." In the latter case they +ruled (August 10th) that "borrowed and loaned stocks must be marked to +the closing prices on Thursday, July 30th, 1914, at the request of +either party to the loan."</p> + +<p>The effect of this second ruling was to establish the policy of +regarding the closing prices of July 30th, as the market for +securities, so that all loans, whether cash loans or stock loans, +should be figured at this level. The making of any prices below those +of July 30th was to be resisted by every available means, and the +money-lending institutions were to be urged to coöperate by +recognizing them as a basis for exacting margins. As long as this +policy could be successfully carried out the danger of financial +collapse would be averted.</p> + +<p>It having been ruled that a lender of stock, by notifying the borrower +of his willingness to take the<span class="pagenum"><a name="Page_38" id="Page_38">[Pg 38]</a></span> stock back, could stop the interest +charge on the contract, a considerable demand arose for new stock +loans to replace those in which this privilege had been exercised. The +matter of facilitating these new stock loans was taken up by the Stock +Exchange Clearing House, and this together with the negotiations for +voluntary settlement of back contracts now brought upon the Clearing +House Committee that great volume of work which increased steadily +until the reopening of the Exchange.</p> + +<p>One step tending to increase this work was taken on August 11th, when +the Committee ruled as follows:</p> + +<blockquote><p>"Whenever a loaner of stocks gives one day's notice of +willingness to have the same returned and the borrower fails to +so return, the interest thereon shall cease. The Clearing House +of the Exchange is prepared to advise and assist in making new +stock loans and inquiries should be made in person there."</p></blockquote> + +<p>The effect of this ruling was to create a borrowing demand for stocks +at current interest rates and the Clearing House Committee became the +agency through which these stock loans were negotiated.</p> + +<p>A further ruling, on August 11th, relative to the interest rate was to +this effect:</p> + +<blockquote><p>"That on all loans of stock made between members after this date +the rate of interest is subject to agreement between the parties +to the transactions, but should not exceed 6 per cent."</p></blockquote> + +<p>By the eleventh of August the question of the growth of an outside +unregulated market began to force itself upon the attention of the +Committee. All the organized<span class="pagenum"><a name="Page_39" id="Page_39">[Pg 39]</a></span> Stock Exchanges of the country were +closed, the auctioneers had loyally agreed to abstain from making +sales, the "Curb" or recognized outside market was faithfully +coöperating to prevent dealing, the unaffiliated bankers and money +institutions were refraining even from the private sale of bonds in +which they were interested, so that for a brief period there was a +practically complete embargo on the marketing of securities. Naturally +enough, so absolute a restraint brought on a pressure which was bound +to force a vent somewhere. At first an occasional group of mysterious +individuals were seen loitering in New Street behind the Exchange. A +member of the Committee of Five, who was prone to see the humorous +side of things even in those dark days, remarked as he observed them +late one afternoon "the outside market seems to consist of four boys +and a dog."</p> + +<p>Before long, however, this furtive little group developed into a good +sized crowd of men who assembled at ten o'clock in the morning and +continued in session until three in the afternoon. At first they met +immediately outside of the Exchange, but later they took up a position +south of Exchange Place and close to the office of the Stock Exchange +Clearing House. Their dealings increased gradually as time went on and +never ceased entirely until the Exchange reopened. In all probability +the existence of this market was a safeguard as long as its dimensions +could be kept restricted. An absolute prohibition of the sale of +securities, if continued too long, might have brought on some kind of +an explosion and defeated the very end which it was sought to +achieve.<span class="pagenum"><a name="Page_40" id="Page_40">[Pg 40]</a></span></p> + +<p>This irregular dealing, as long as it remained within narrow limits +and was not advertised in the press, furnished a safety valve by +permitting very urgent liquidation. It was, however, continually +accompanied by the great danger that it might grow to large and +threatening proportions. If, in consequence of the facilities which +these unattached brokers were offering, responsible interests should +begin to take part in and help to create an open air market, the very +disasters which the closed Exchange was intended to prevent might be +brought about.</p> + +<p>It was necessary, therefore, that the Stock Exchange authorities +should do all in their power to hold the development of this market in +check. With this end in view they not only prohibited their own +members from resorting to it, but they exerted what influence they +could upon others not to lend it their support. The banks and money +lenders were urged not to recognize the declining prices which were +established there as a basis for margining loans, as such recognition +might tend to increase the dealings. One or two large institutions +which, at first, were disposed to finance the operations conducted in +the Street were persuaded to refrain from continuing to do so, and the +press, while giving publicity now and then to the very low figures at +which some leading stocks were quoted, was induced to avoid the +practice of regularly tabulating these prices.</p> + +<p>It having become apparent that some members of the Exchange, while +obeying the mandate to do no trading in New Street, were indirectly +helping the practice along by clearing stocks for the parties who<span class="pagenum"><a name="Page_41" id="Page_41">[Pg 41]</a></span> +were making the market there, the Committee ruled (August 11th) "that +members of the Exchange are prohibited from furnishing the facilities +of their offices to clear transactions made by non-members while the +Exchange remains closed."</p> + +<p>The final outcome was that the New Street market did more good than +harm. It relieved the situation by facilitating some absolutely +necessary liquidation, and never grew to such proportions as to +precipitate disaster, but during the long suspense and uncertainty of +the closing of the Exchange it was a constant and keen source of +anxiety to the Committee of Five.</p> + +<hr class="short" /> + +<p>Toward the end of the first fortnight after the closing of the +Exchange, the communications received by the Committee made it plain +that there were quite a large number of purchasers, attracted by the +low figures reached in the last day's trading, who were ready and +anxious to buy securities at or above the closing prices. Obviously +purchases of this kind by investors who happened to be in a position +to take securities out of the market, promised to bring relief to +interests whose position was critical and thus to fortify the general +situation. This facility could not be extended in the form of a +general permission to the members of the Exchange to make transactions +privately at or above closing prices. To have permitted as far +reaching a relaxation of restraint as this in so critical a time would +have entailed too great a risk. If any one of the eleven hundred +members had proved disloyal in the exercise of so dangerous a +privilege and privately negotiated sales at prices<span class="pagenum"><a name="Page_42" id="Page_42">[Pg 42]</a></span> below those of the +closing, the whole plan of sustaining values might have been +jeopardized.</p> + +<p>After considering the matter very carefully the Committee concluded +that the machinery and clerical force of the Stock Exchange Clearing +House could be advantageously used to supervise and control +transactions of this character, and, on August 12th, they issued the +following ruling:</p> + +<blockquote><p>"Members of the Exchange desiring to buy securities for cash may +send a list of same to the Committee on Clearing House, 55 New +Street, giving the amounts of securities wanted and the prices +they are willing to pay.</p> + +<p>"No offer to buy at less than the closing prices of Thursday, +July 30, 1914, will be considered.</p> + +<p>"Members of the Exchange desiring to sell securities, but only in +order to relieve the necessities of themselves or their +customers, may send a list of same to the Committee on Clearing +House, giving the amounts of securities for sale.</p> + +<p>"No prices less than the closing prices of Thursday, July 30th, +1914, will be considered."</p></blockquote> + +<p>Thus was established a market in the Stock Exchange Clearing House +which was kept in operation until the complete reopening of the +Exchange. Immense labor and difficulty were brought upon the Clearing +House Committee in order to handle and supervise this unusual method +of trading, and the extraordinary success with which it was carried +through has entitled them to the lasting gratitude of their fellow +members. The business was conducted by having a large clerical force +tabulate the orders received and bring purchasers and sellers together +who were willing to trade in similar amounts and at similar prices. In +order to consummate<span class="pagenum"><a name="Page_43" id="Page_43">[Pg 43]</a></span> a trade the Clearing House would notify both +parties, leaving it to them to carry out the delivery and payment, and +requiring them to inform the Clearing House when the transaction had +been completed.</p> + +<hr class="short" /> + +<p>The first effect of furnishing this means for establishing a +restricted market was very encouraging. A very considerable amount of +business began at once to be entered into. Many people with ready +money, who felt that securities had fallen to bargain prices, appeared +as purchasers and relieved the necessities of those who had been +embarrassed by the war crisis. A little later, however, when the +progress of the war took on a more discouraging aspect, this "Clearing +House Market" fell to the arbitrary minimum of the closing prices with +a large excess of selling as compared to buying orders, and the "New +Street Market" grew in proportion. During the darkest days of +depression the prices of a few leading stocks such as U. S. Steel and +Amalgamated Copper dropped in the Street ten points or more below +their July 30th closings, and business in the Clearing House almost +ceased, but in the later Autumn, when the rapid rise in the volume of +American exports began to foreshadow a readjustment in foreign +exchange, the New Street prices rose again to the Clearing House level +and a relatively small business in the "outlaw" market was transformed +into a relatively large business conducted under the supervision of +the Exchange.</p> + +<p>It is an interesting detail, worth mentioning, that the ruling of the +Committee quoted above, which established<span class="pagenum"><a name="Page_44" id="Page_44">[Pg 44]</a></span> a market in the Clearing +House, used the permissive word "may" in stating that orders to buy +and sell might be sent to that institution. This was soon taken +advantage of by a few individuals who proceeded to conduct private +transactions among themselves. Their excuse was that if transactions +were merely permitted in the Clearing House it became optional as to +whether they should take place there or elsewhere. Within a few days +thereafter the Committee amended the ruling by substituting the word +"must" for the word "may." The great responsibility attached to +promulgating rulings, which were to be the law during this critical +period, is made more apparent when it is realized that the ill +considered use of a single word might bring on unforeseen and perhaps +dangerous consequences.</p> + +<p>During the month of August a constantly increasing pressure from every +conceivable direction was exerted to break down the dam with which the +Committee was striving to hold back the natural flow of dealings in +securities. By letter and by personal appearance before the Committee +individuals, in and out of the Exchange, strove to induce them to +countenance transactions at prices below the arbitrary level of the +closing. In addition to this agitation among individuals and firms, +restlessness began to show itself in some of the other Exchanges. At +one time the Stock Exchange of a great neighboring city, which had +permitted restricted dealings exactly similar to those carried on in +New York, wished to have those dealings regularly quoted in the +newspapers; at another time a movement developed<span class="pagenum"><a name="Page_45" id="Page_45">[Pg 45]</a></span> on the Consolidated +Stock Exchange to establish some kind of restricted public dealing on +their floor. The Committee of Five were obliged to labor hard and +assiduously to hold this pressure back and keep the dam intact, and +its efforts were ably and loyally seconded by the Committee of the +Bank Clearing House whose great influence was unremittingly exerted to +prevent the danger of premature action of any kind.</p> + +<p>On September 1st the Clearing House banks were anxious to determine +what was the amount, measured in money, of securities sold in New York +by Europe and not yet received. The object of obtaining this +information was to know what demand would be made upon the loan market +if, at any time, these securities should be shipped. At the +suggestions of the bankers the Committee of Five summoned before them +representatives of all the houses doing a foreign business and +requested them to send answers, as promptly as possible, to the +following two questions:</p> + +<blockquote><p><i>First:</i> "Amount due Europe for securities received to date and +not yet paid."</p> + +<p><i>Second:</i> "Amount due Europe for securities already sold but not +received from Europe."</p></blockquote> + +<p>On the following morning answers were handed in showing that the +amount received and not yet paid for was $699,576.11, and that the +amount due Europe on securities sold but not yet received was +$18,236,614.15. The rapidity and accuracy with which this important +information was obtained, without any publicity or disturbance of +confidence, is interesting as showing the<span class="pagenum"><a name="Page_46" id="Page_46">[Pg 46]</a></span> efficiency of the intimate +coöperation between the banks and the Stock Exchange.</p> + +<hr class="short" /> + +<p>Among the many agencies for dealing in securities, whose activities +were suddenly cut off on July 31st, the first in importance next to +the Stock Exchanges themselves were the so-called bond houses. These +firms, which included in their number many prominent private bankers, +were dealers on a great scale in investment bonds, and when the +thunderbolt of war struck they were carrying large lines of those +bonds on borrowed money which, in the ordinary course of events, would +have been placed among their numerous clients. When the crisis of +early August had developed, all these houses (some of them not being +members of the Stock Exchange) loyally coöperated in closing up the +market, and abstained from negotiating their securities even in the +most private manner. By the middle of August, however, a number of +them began to show decided restlessness over the embargo upon their +business. The cutting off of their accustomed income, while expenses +continued as usual, was not what influenced them, for this hardship +was shared by all Wall Street, but the enforced carrying of securities +in bank loans at so critical a time when they felt that these +securities might be disposed of became a grievance.</p> + +<p>It was urged by many of them that the careful placing of these +securities would be a great aid to the situation because every +investor who made a purchase would facilitate the liquidation of their +loans, ease the strain on the money market, and diminish the volume<span class="pagenum"><a name="Page_47" id="Page_47">[Pg 47]</a></span> +of securities for sale. There was undoubtedly much to be said in favor +of this view when looked at from the standpoint of the effect upon the +bond houses themselves or upon the loan market, but there was another +aspect of the question which was less reassuring. If these houses +started, at this terribly critical time, to place their securities +among their clients at declining prices, and if these prices became +known, which they certainly would, no one could foretell what the +consequences might be. Many large institutions, such as Insurance +Companies and Savings Banks, had funds invested in bonds, and many +money lenders held loans upon bonds as security; what would be the +effect upon these interests if a declining market even in unlisted +bonds should be publicly quoted?</p> + +<p>Influenced by this grave uncertainty the Committee of Five resisted +the pressure brought upon them by certain representatives of the bond +dealers who raised this question first on the nineteenth of August. +Several of these gentlemen represented important firms and +institutions which were not members of the Exchange, and their freedom +from any obligation to be controlled by the Committee created a +situation which threatened to become strained. In all cases of this +kind, where an independent outsider and the Committee could not come +to an understanding, the practice had become established of appealing +to the Clearing House Bankers to act as a court of last resort. The +banks, with their power to call loans, exerted an influence which +could reach every nook and corner of the business world, and, at the +same time, their immense facilities for feeling<span class="pagenum"><a name="Page_48" id="Page_48">[Pg 48]</a></span> the financial pulse +made them the best judges of what risks it was as yet safe to take. A +series of meetings consequently took place between the Bank Clearing +House Committee, the representatives of the bond houses, and the +Committee of Five. At the first of these meetings the bank Presidents +leaned very decidedly to the views of the Stock Exchange, and it was +decided to postpone any consideration of a departure from the status +quo for at least a fortnight.</p> + +<p>The general situation remaining very critical all through August, no +further steps were taken until September 8th. By that date a new +factor had intruded itself into the situation. Certain corporate +obligations were about to come due and the refunding of these +obligations, whether in fresh issues of bonds or in short term notes, +was going to make it necessary to withdraw the prohibition against +placing investment securities upon the market. When this necessity +became clear it was decided that some strict supervision and +safeguarding of the sale of bonds and notes was necessary and the +so-called "Committee of Seven," appointed by the bond dealers, were +requested to formulate a plan for this purpose. This Committee of +Seven consisted of members of the firms of: Brown Brothers & Co.; +Guaranty Trust Co.; Harris, Forbes & Co.; Kissel, Kinnicutt & Co.; Wm. +A. Read & Co.; Remick, Hodges & Co., and White, Weld & Co.</p> + +<p>On September 9th, this Committee issued the following notice to bond +dealers:</p> + +<blockquote><p>"Your Committee is pleased to report that New York City's +financial needs have been taken care of satisfactorily, thereby<span class="pagenum"><a name="Page_49" id="Page_49">[Pg 49]</a></span> +considerably clearing the foreign exchange situation which +existed when our communication of September 3d was sent out.</p> + +<p>"The Committee is therefore of the opinion that the placing of +securities owned by dealers with their private customers should +be approved where the securities can be sold without disturbing +the collateral loan situation and your Committee will be glad to +continue to advise whenever such opportunities arise. Anything +tending toward public quotations or the creating of the +impression of an active or even semi-active market would +unquestionably seriously disturb the loan situation.</p> + +<p>"Transactions with bargain hunters should not be countenanced and +your Committee will not approve the closing of transactions +coming under this head. Prices should conform to the spirit which +has prevailed during the past few weeks.</p> + +<p>"Recognizing the support which banks and other lenders of money +have given to dealers in securities, it should be the policy of +such dealers when securities are sold to apply the proceeds +toward the liquidation of loans.</p> + +<p>"The Committee has considered questions of maturing obligations +of cities and corporations and believes that the present +situation does not warrant any attempt to issue long time bonds, +but that such refunding should be accomplished through short time +financing.</p> + +<p>"The Clearing House Committee and the Stock Exchange Committee +have expressed appreciation of the coöperation shown by the +dealers in listed and unlisted securities and if all will +endeavor to live up to the spirit of the policy thus far adhered +to we are sure there will be no cause for criticisms on the part +of the banks or the Stock Exchange Committee.</p> + +<p>"Your Committee of Seven will continue to meet in the Directors' +Room of the Chase National Bank daily, from 11 <span class="smcap">a.m.</span> to 12 <span class="smcap">m.</span>, for +advice on any cases where we can be of any assistance whatever."</p></blockquote> + +<p>The practical plan adopted was as follows:</p> + +<p>Bond houses having securities of their own for sale could place them +with their clients at prices approved by the Committee of Seven. All +purchasers and sellers of bonds, acting as brokers only, were required +to file their orders with the Committee of Seven when dealing in +unlisted<span class="pagenum"><a name="Page_50" id="Page_50">[Pg 50]</a></span> bonds, and with the Stock Exchange Clearing House when +dealing in listed bonds, and these two agencies were empowered to +determine minimum prices below which sales could not be made.</p> + +<p>It will be seen that a very important step in the direction of +relaxation of restraints was here taken. Not only was the prohibition +of all dealings which had marked the beginning of the crisis +withdrawn, but prices below the closing sales of July 30th were to be +permitted subject to the supervision of a Committee.</p> + +<hr class="short" /> + +<p>As has already been stated, the Committee on Clearing House had their +hands full from the time the Exchange closed, first with bringing +about the settlement of the contracts of July 30th, and secondly with +carrying on the business of making new contracts for members wishing +to trade in securities at or above the closing prices. It was +impossible, therefore, for the members of that Committee to give +personal attention to the difficult problem of determining the prices +below which listed bonds should not be sold. To meet this difficulty +it was decided that a small additional Committee of men known to be +thoroughly familiar with the bond business should be organized, and +that it should be their duty to control the liquidation of listed +bonds.</p> + +<p>The carrying out of this plan at first met with a technical obstacle. +The power to appoint a Special Committee rested exclusively with the +Governing Committee of the Exchange; in order to secure action a +special meeting of that body would have to be called; in the early +weeks of September sentiment was still in so<span class="pagenum"><a name="Page_51" id="Page_51">[Pg 51]</a></span> critical a state and +every act of the Exchange was so keenly watched that it was feared the +holding of an extraordinary meeting might start rumors and cause +alarm. In view of these considerations the Committee of Five hit upon +the makeshift of inviting three members of the Governing Committee, +who possessed the desired qualifications, to volunteer their services +as an advisory body in the matter of fixing prices for listed bonds. +The three members selected were Messrs. C. M. Newcombe, Vice President +of the Exchange, W. H. Remick, and W. D. Wood.</p> + +<p>On the 19th of September these three gentlemen cheerfully undertook +the difficult and onerous task urged upon them, and for three months +they abandoned their own private interests and devoted their entire +time to it. Owing to the intelligent and judicious manner in which +they handled the delicate problem of conducting a liquidation in +listed bonds that should at once be effective and yet not lead to +demoralization, they placed themselves among the foremost of those to +whom the financial community owes a debt of gratitude.</p> + +<hr class="short" /> + +<p>By the latter part of September methods, as described above, had been +found for facilitating a restricted liquidation of listed stocks, and +of listed and unlisted bonds. Nothing, however, had been done to make +an outlet for unlisted stocks. The "Curb" market and certain prominent +unaffiliated houses dealing in these securities had loyally played +their part in suspending dealings, but symptoms began to show +themselves of possible revolt, and the Committee of Five set to work<span class="pagenum"><a name="Page_52" id="Page_52">[Pg 52]</a></span> +to find a safety valve for this department also. The device of a +supervisory Committee had proven so efficacious in other directions, +that it was naturally turned to in this instance. The circumstances +differed, however, in one particular. The bond dealers had +spontaneously created for themselves the very efficient Committee of +Seven who took their affairs in hand, but the interests involved in +unlisted stocks did not show the same solidarity, and it was necessary +for the Committee of Five to take a hand in initiating action.</p> + +<p>With this end in view they consulted Mr. Herbert B. Smithers, of the +firm of F. S. Smithers & Co., concerning the feasibility of having a +committee formed to pass upon and control a resumption of dealings in +unlisted stocks. Mr. Smithers was singled out for the reason that he +was a member of the Stock Exchange whose firm was among the most +prominent dealers in these securities, and the prompt and energetic +way in which he undertook the task proposed to him soon convinced the +Committee that they had not erred in resorting to him. He set about +organizing a Committee at once and on September 24th he appeared +before the Committee of Five accompanied by Messrs. A. C. Gwynne, F. +H. Hatch, A. H. Lockett, and E. K. McCormick. These gentlemen +announced that they were willing to act, with Mr. Smithers as their +Chairman, and a plan for the control of the market in unlisted stocks +was agreed upon.</p> + +<p>In order to clothe this Committee (which included two Stock Exchange +members, two representatives of prominent outside dealers, and the +President of the<span class="pagenum"><a name="Page_53" id="Page_53">[Pg 53]</a></span> Curb Association) with authority, the Committee of +Five directed members of the Exchange to submit proposed dealings in +unlisted stocks to them and abide by their rulings. The Stock Exchange +Committee could, of course, only control its own members, but it being +a fact that a very large part of the unlisted business emanated from +Stock Exchange houses, it was probable that their action would +determine that of unattached dealers. This expectation was, in the +main, borne out, and business in unlisted stocks began to be carried +on actively under the jurisdiction above described.</p> + +<p>It is necessary to record, however, in the interest of preserving a +correct picture of the happenings of this momentous time, that the +smooth and gratifying operation of the various other Committees, which +sprang into being to handle the numerous problems presented, was not +entirely repeated in this case.</p> + +<p>The conditions surrounding unlisted stocks seemed on the surface to be +identical with those pertaining to unlisted bonds. In both cases a +business that was partly in the hands of Stock Exchange members and +partly in those of outside concerns was to be presided over by a mixed +Committee representing both interests. In the case of the Bond +Committee of Seven this supervision was accepted and cheerfully lived +up to by practically all concerned. A different situation soon +developed in unlisted stocks. Almost immediately certain individuals +in the business began to assert that the unlisted Committee was a self +appointed body which did not represent the people most concerned, and +that being themselves dealers in the properties the trades in which +were under<span class="pagenum"><a name="Page_54" id="Page_54">[Pg 54]</a></span> their supervision, these gentlemen could not be trusted to +act fairly in making their rulings. After much preliminary growling +which vented itself in interviews with the Committee of Five, this +antagonistic sentiment crystallized into a written protest.</p> + +<p>On October 1st, the following statement was presented to the Committee +of Five.</p> + +<blockquote> +<p><span class="smcap">"Gentlemen</span>:</p> + +<p>"Owing to a general feeling of dissatisfaction amongst members +and non-members of the New York Stock Exchange resulting from the +formation of a Committee of Five to supervise dealings in +Unlisted Securities, we, the undersigned, desire to suggest the +following recommendations for your consideration:</p> + +<p>"<i>First</i>: The personnel of the Committee be changed to the effect +that same be composed of parties not identified as dealers.</p> + +<p>"<i>Second</i>: That in stocks which have an open or active market, +transactions may be made without restriction or necessity of +report to the Committee, when at or above the closing prices of +July 30, 1914.</p> + +<p>"<i>Third</i>: That where securities have not had an active or open +market the bid prices as published in the <i>Chronicle</i> of August +1st, be accepted as the closing prices.</p> + +<p>"<i>Fourth</i>: That in the case of securities where the Committee may +deem it possible to trade at prices below those prevailing on +July 30th, they establish minimum prices good for as long a time +as the Committee deems practical, and that a list of these prices +be furnished to those making application for same."</p> + +<p>"We think that if the above recommendations are put into force, +it will do away with the criticism which has been made as to the +Committee as at present constituted, and by so doing increase the +efficiency of this Committee on Unlisted Securities, by securing +thorough and hearty coöperation on the part of all brokers and +dealers in these issues."</p></blockquote> + +<p>In reply to this appeal the Committee of Five pointed out that +whenever, in other cases, the action of a Committee had been invoked +to supervise the transaction<span class="pagenum"><a name="Page_55" id="Page_55">[Pg 55]</a></span> of business, confidence in the integrity +of that Committee had been general and unquestioned. The Committee of +Seven, the Committee on Clearing House, the Committee of Three, and +the Committee of Five themselves had all been vested with dictatorial +powers over a business in which their members were personally engaged. +In order to render trading in unlisted stocks a possibility, at the +time, similar powers must be granted and similar confidence must be +given to some one. The Unlisted Stock Committee were not +self-appointed because they came into being at the instigation and +suggestion of the Committee of Five, and to disband them after they +had started upon their work, substituting other individuals in their +places, would merely stimulate fresh antagonism that might wreck the +entire project. The fact that these men were dealers in outside +properties especially fitted them to pass upon the reasonableness of +the prices that were to be made, and there was no more reason to +question their integrity of purpose than there would be to doubt that +of any individuals who might take their place.</p> + +<p>A firm stand was thus taken in defence of this new Committee, and they +succeeded in carrying on their work successfully up to the time when +the amelioration of conditions enabled them to disband. It must be +regretfully recorded, however, that the petty jealousy and distrust +which had appeared in connection with this episode continued to show +themselves in a desultory way until the end. A few individuals threw +what impediments they could in the path of this Committee, and thereby +furnished the only exception to the wonderful<span class="pagenum"><a name="Page_56" id="Page_56">[Pg 56]</a></span> exhibition of loyalty +and self effacement that manifested itself in every other department.</p> + +<hr class="short" /> + +<p>When the Exchange suddenly closed its doors, an immense number of +people, consisting of employees of the Exchange itself and the +clerical forces of all the many brokerage houses, were rendered idle. +As soon as it became evident that the suspension of business was going +to be indefinitely prolonged, the grave question arose as to the +extent to which these people would be thrown out of employment. The +Stock Exchange at once set the generous example of deciding to retain +its entire force without reduction of wages, and this decision was +carried through for the entire four and one half months of suspension. +A more difficult problem, however, confronted the brokerage houses. +Many of these firms had very heavy office rents and fixed charges of +various kinds; their business had been showing meager profits and even +losses for some years and, the length of the period of closing being +impossible to forecast, they did not dare to undertake burdens that +might get them into difficulties. The result was that a few strong +houses, with philanthropic proclivities, carried their clerical forces +through on full pay, but the majority were obliged to cut them down in +various ways. In some cases the full force was retained on greatly +reduced salaries, in others salaries were reduced and part of the +force discharged, and the net result was that a great number of +unfortunates were either thrown into unemployment altogether or placed +in very straightened circumstances.<span class="pagenum"><a name="Page_57" id="Page_57">[Pg 57]</a></span></p> + +<p>It is an interesting fact, bearing on the popular superstition that +Wall Street is peopled by unprincipled worshippers of the dollar who +are incapable of those finer qualities of character which are confined +exclusively to other walks of life, that there is no region in which a +quicker response to the call of the needy can be obtained than on the +floor of the Stock Exchange. Even though the brokers were facing an +indefinite period of starvation themselves, with expenses running on +one side and receipts cut off on the other, the moment it became clear +that severe suffering had come upon the clerical forces of the Street +a movement was at once set on foot to start measures of relief and +assistance. Perhaps the best way to convey an idea of the form which +this assistance took is to quote from a report on the subject made by +one of those who generously gave his time to the work. What follows is +in his own words.</p> + +<p>"A phase of the extraordinary and unprecedented conditions prevailing +in the Financial District, commonly known as 'Wall Street,' was the +necessity for cutting down office expenses, and though many firms +carried their salary list intact, a considerable number laid off from +one half to two thirds of their employees, and subsequent events +developed the fact that some of them discharged practically their +entire force.</p> + +<p>"About the middle of September, the distress said to exist among the +Wall Street employees, who had lost their positions as a result of the +war in Europe, prompted Mr. C. E. Knoblauch to suggest that some +concerted action be taken to meet this emergency, if only as a<span class="pagenum"><a name="Page_58" id="Page_58">[Pg 58]</a></span> +temporary expedient. A number of informal discussions of the subject +with fellow members of the Exchange, and further evidences of the +existence of a wider field for the work than was at first realized, +culminated in a call for a meeting in the office of Tefft & Company +and immediate organization.</p> + +<p>"Officers having been duly elected, the personnel of the Committee was +declared to be as follows:—James B. Mabon, W. H. Remick, Graham F. +Blandy, R. H. Thomas, W. W. Price, G. V. Hollins, C. E. Knoblauch, C. +J. Housman, G. M. Sidenberg, Townsend Lawrence, T. F. Wilcox, Erastus +T. Tefft, Chairman; Charles L. Burnham, Secretary; Edward Roesler, +Treasurer.</p> + +<p>"The title of the Committee was formally agreed upon as 'The Wall +Street Employees' Relief Committee.'</p> + +<p>"Through the courtesy of Mr. Clarence Mackey, the offer of a suite of +rooms on the second floor of the Commercial Cable Building, 20 Broad +Street, for the use of the Committee, at no charge for rent, was +gratefully accepted, and arrangements for occupation were made at +once. Mr. Oswald Villard, through a member of the Committee, evidenced +his interest by offering temporary use of rooms in the <i>Evening Post</i> +Building for the purposes of the Committee.</p> + +<p>"It was determined that the principal object of the Committee would be +to act as an Employment Bureau, to find positions for unemployed and +to relieve distress where it was found to exist. It was understood and +arranged for, that any Wall Street employee who had lost a position as +a result of the war was eligible, and<span class="pagenum"><a name="Page_59" id="Page_59">[Pg 59]</a></span> that no fees whatever be +charged. A circular letter was sent to Stock Exchange members and +firms appealing for subscriptions, and the matter of selection of a +depository of the funds was referred to the Treasurer with power. The +work of receiving and recording registration blanks commenced with a +rush, over one hundred and fifty were filed the first day, and in a +few weeks they numbered over one thousand.</p> + +<p>"A very pleasant feature of the work was the cordial coöperation +encountered on all sides. Helping hands were extended everywhere. The +newspapers gave many 'reading notices,' and special advertising rates, +and the news bureaus printed any and all notices as and when +requested. The Stock Exchange Library Committee and the Secretary's +Office placed their typewriting, multigraph and circular printing +facilities at the Committee's disposal, furnished the rooms with +desks, chairs, etc., and supplied all necessary stationery. The Stock +Exchange force of telegraphers and other employees practically in a +body volunteered their services, and those selected were of great +assistance in preparing the card index system, which was used and +found to be practical and eminently satisfactory. Appreciated +assistance was promptly tendered by The Telephone Clerks' Association, +The Association of Wall Street Employees, and The Wall Street +Telegraphers' Association.</p> + +<p>"Several cases of sickness, some very serious, were taken care of by +Dr. L. A. Dessar, who gave free medical service to all applicants +recommended by the Committee, and provided hospital treatment when +required.<span class="pagenum"><a name="Page_60" id="Page_60">[Pg 60]</a></span> The declarations made by the applicants demonstrated beyond +any question that the number of men, women, girls and boys for whom +prompt assistance in procuring employment was imperatively necessary +had been greatly under-estimated, and evidenced an absolute argument +endorsing the reasons for the Committee's existence.</p> + +<p>"Many who applied were not in immediate need of money, but wanted +employment, which the members of the Committee sought for them by +individual solicitation of everyone they knew, or knew of, who were +employers, and also by careful, judicious and timely advertising in +the daily papers. Such satisfactory results were attained, that up to +date of this writing, (May 15, 1915), of over seventeen hundred +applications received, permanent positions were secured for about +seven hundred at rates of compensation that were distinctly +gratifying, all conditions considered. Two hundred and thirty were +placed in temporary jobs for periods ranging from a few days to +several weeks, a number of them being re-employed two or three times. +Four hundred and ninety, having been taken back by their former +employers, withdrew their applications.</p> + +<p>"Numerous positions obtained for applicants while the Exchange was +closed were in lines other than Stock Exchange business, and Wall +Street clerks notwithstanding their recognized efficiency being, so to +speak, specially trained, it was often found to be difficult, even +impossible to make them fit the kind of work to which they were more +or less strangers. In view of the fact<span class="pagenum"><a name="Page_61" id="Page_61">[Pg 61]</a></span> that this circumstance made +the accomplishment desired necessarily slow, the outcome demonstrated +that it was reasonably sure.</p> + +<p>"The request for subscriptions to the fund met with a hearty and +generous response. Some apprehension was felt in this regard, but the +splendid result proved to be an agreeable surprise. Appeals for +subscriptions to the fund were made only to Stock Exchange members and +firms, nevertheless, thanks to the general interest manifested, and +the widespread advertising consequent thereto, contributions were +received from generous friends outside of Wall Street, to an extent +that was simply astonishing. Checks for $1,000 each were not unusual +items, and as a rule the request was made, 'please do not publish my +name.' A well known artist, in addition to a cash subscription, +presented one of his paintings to the Committee. Through the kind +assistance of the Chairman of The Stock Exchange Luncheon Club, the +picture was sold for the substantial sum of $500.</p> + +<p>"The Treasurer, with ample funds at his disposal, was able to meet +calls for financial help that were frequent and pressing, and +recognizing the desirability of experienced and competent assistance +in making the necessarily intimate inquiries, to determine if +applicants for relief were worthy, he applied to Mr. Robert W. +DeForest, President of The Charity Organization Society, for expert +advice in the matter, and was referred by Mr. DeForest to Mr. Frank +Persons, Manager of the New York Bureau, and Miss Byington, in charge +of the Brooklyn Branch, who rendered invaluable services<span class="pagenum"><a name="Page_62" id="Page_62">[Pg 62]</a></span> in +connection with many of the applications, all of which were carefully +investigated. Much suffering and distress, and some cases of actual +destitution were found to exist, and while a detailed statistical +statement would seem uncalled for and not desired at this time, the +following brief résumé of the Committee's 'relief work' will +undoubtedly prove to be of interest.</p> + +<p>"Financial assistance was extended to about one hundred individuals +and families; rent was paid for thirty-nine; food purchased for +forty-six; clothing was furnished in seven instances; five persons +were placed in hospitals; there were a considerable number of cases +where the Committee in whole or in part took care of funeral expenses; +old debts for medical attendance and drugs; agency fees and surety +bonds; life insurance premiums, board and lodging, etc., etc. Many +applicants for assistance proved to be merely temporarily embarrassed, +they were willing and anxious to be helped but did not want charity, +so to meet that emergency a form of voucher was used, which +acknowledged the receipt of a 'loan' without interest, to be repaid at +the convenience of the 'borrower.' That applied to <i>cash</i> of course, +payments for groceries, rent, etc., were simply receipted for.</p> + +<p>"The results achieved, in the opinion of many, would seem to warrant +an amendment to the original idea that a return to normal conditions +would involve the dissolution of the Committee, and the proposition +that it be made a permanent organization is being seriously +considered."<span class="pagenum"><a name="Page_63" id="Page_63">[Pg 63]</a></span></p> + +<p>This record is deeply gratifying to the brokerage fraternity because +it discloses the fact that, even in the midst of a calamity so great +that no individual could feel himself beyond the reach of insolvency, +the impulse to succor the unfortunate remained as strong as ever among +them.</p> + + + +<hr /> +<p><span class="pagenum"><a name="Page_64" id="Page_64">[Pg 64]</a></span></p> +<h2>CHAPTER III</h2> + +<h3>THE REOPENING OF THE EXCHANGE</h3> + + +<p>The fact that the Stock Exchange closed on July 31st and did not +reopen fully until December 15th, might lead to the supposition that +the question of reopening was not taken up before December. Far from +this being the case, the truth is that reopening began to be discussed +immediately after the institution was closed. Within twenty-four hours +of the closing the minority, who had not been at first convinced of +the wisdom of that action, joined with the majority in urgently +advising that the Exchange be not reopened soon. All through the month +of August a growing anxiety over the possibility of some hasty action +by the Exchange authorities showed itself among brokers, bankers, and +even some government officials. For this anxiety there was never any +basis, because the officers of the Exchange having exceptional means +of knowing what the dangers were, had no intention of assuming the +immense responsibilities of re-establishing the market without the +backing and approval of the entire banking fraternity. Gradually the +excited solicitude about a premature reopening subsided as the +ultra-conservative attitude of the Exchange was understood, and this +was followed ere long by the first symptoms of agitation for the +establishment of some form of restricted market.<span class="pagenum"><a name="Page_65" id="Page_65">[Pg 65]</a></span></p> + +<p>As we have already shown the restraints of July 31st were relaxed one +by one with the lapse of time. First a market at or above the closing +prices was organized under the Committee on Clearing House; then +Committees to facilitate trading in listed and unlisted bonds were +formed; and finally a market was provided for unlisted stocks. All +these devices, however, while they brought about readjustment and +diminution of strain, did not constitute a reopening of the Stock +Exchange, and the restoration of that great primary market, in some +restricted way, became more and more a subject of public interest and +concern.</p> + +<p>As we have seen, the fundamental reason for closing the Exchange was +that America, when the war broke out, was in debt to Europe, and that +Europe was sure to enforce the immediate payment of that debt in order +to put herself in funds to prosecute this greatest of all wars. To use +an illustration popular in Wall Street at the time, there was to be an +unexpected run on Uncle Sam's Bank and the Stock Exchange was the +paying teller's window through which the money was to be drawn out, so +the window was closed to gain time. How to reopen this window in such +a way as not to pay out any more money to the foreign creditor than +would suit our own convenience was the problem which soon began to +agitate many ingenious minds. As time went on plans for performing +this difficult feat poured in upon the Committee of Five in constantly +increasing volume, and they were frequently accompanied by a request +on the part of their authors that, when adopted, the credit for their +success be publicly attributed to them. An<span class="pagenum"><a name="Page_66" id="Page_66">[Pg 66]</a></span> edifying confidence was +thus shown in what were usually the most visionary of these schemes.</p> + +<hr class="short" /> + +<p>Space does not permit the presentation of all these multitudinous +suggestions, but as a matter of information we shall quote extracts +from some of them. In point of time, the first communication to the +Committee on this subject came on August 4th when a prominent banker +appeared in person, and gave vent to the following oracular utterance: +"When the Exchange reopens it should not do business from ten till +three, but should open from ten o'clock to one. All transactions +should be for cash, and must be delivered and paid for the same day, +no contract to be allowed to stand over night." He also made the +prediction, which was amply verified, that many weeks would elapse +before the Exchange could be reopened at all. Some little time elapsed +before anything further was presented on the subject, but by the end +of August the flood of plans began and went on increasing until the +Exchange resumed business.</p> + +<p>On August 31st a communication was received from a well known +"Statistical Organization" for "Merchants, Bankers and Investors" +which said, in part: "In behalf of my clients, who are exceedingly +interested in making it possible for the Stock Exchanges to open +safely, I am getting the opinion of important bodies relative to the +proposed legislation suggested on the enclosed slip, or any other +which you think would serve the purpose." On the enclosed slip was the +following proposed legislation "to enable the Stock Exchanges to +open."<span class="pagenum"><a name="Page_67" id="Page_67">[Pg 67]</a></span></p> + +<blockquote><p>"Be it enacted: That until the President considers European +conditions fairly normal it shall be a misdemeanor in this +country to buy, sell, transfer, give, or accept as collateral, +shares of stock or evidences of indebtedness extending over one +year, unless accompanied by a certificate showing that the owner +is a United States citizen, together with such evidence as the +Secretary of the Treasury may require that the securities have +been owned by United States citizens since July 30th, 1914."</p></blockquote> + +<p>In answer to this proposition the Secretary of the Stock Exchange sent +the following reply:</p> + +<blockquote><p>"Answering your letter of August 29th, 1914, I am instructed by +the Special Committee of Five appointed by the Governing +Committee to say that in its opinion such legislation as referred +to would be ruinous to the credit of the United States throughout +the world for many years to come."</p></blockquote> + +<p>In September a letter was received from a Western banker suggesting +that the slogan "Buy a share of stock" if started "would achieve +success, and by so doing would greatly benefit the stock market +situation. This movement would have to be started so as not to create +the impression among the many thousands of people it would reach, that +it was merely a movement for the purpose of benefiting the stock +brokers, but that it would be instrumental in relieving the strain on +every conceivable business. Were such a movement accepted, and should +it meet with results worthy of the plan it would be found out when the +smoke clears away that American people would own American railway and +industrial shares. This could be only for the great benefit of this +country but for Europe as well, for the reason that if Europe knew +that there was a good absorbing<span class="pagenum"><a name="Page_68" id="Page_68">[Pg 68]</a></span> power here it necessarily would not +dump its stocks at frightful sacrifices."</p> + +<p>In October a junior member of one of the big private banking houses +appeared personally and stated that, in his opinion, both domestic and +foreign security holders should be treated alike; that sales should be +conducted as usual; that on reopening transactions should be +restricted and only sales be published and no bids or offers. His idea +of restriction at the start was that all stock purchased should be +paid for on the basis of 10% cash and the balance in certificates of +deposit for cash, which certificates were to be non-negotiable except +between banks. A Committee could, from time to time, remove the +restrictions from such securities as seemed no longer to require them. +The banks should be asked to agree not to call any present loans and +to be very sparing in calling for margins.</p> + +<p>Close upon the heels of this plan came a letter signed "A Friend of +the People" which said "Let the Stock Exchange be opened strictly for +the sale of American securities held by foreign stock holders. If they +wish to throw their stocks over we can buy them at our own price. +After six or eight days' selling from Europe the Exchange could be +open to the world. By that time the market should be on a rising scale +and safe for all."</p> + +<p>This gentleman showed some originality in his view that the foreigner +should be invited to sell at once, instead of being legislated out of +the market as so many other advisers proposed. He seemed to be quite +oblivious of the difficulties, however, that would have<span class="pagenum"><a name="Page_69" id="Page_69">[Pg 69]</a></span> been +encountered in inducing American security holders to stand by in +pensive calm while the foreigners unloaded to their heart's content.</p> + +<p>Early in November a Philadelphia banker wrote a long and intricate +letter the full details of which we have not space to reproduce, but +it contained the following fragment which is interesting in its way:</p> + +<blockquote><p>"Could not a plan be formulated between the Stock Exchanges, +investment bankers and Federal Reserve Banks, by which the +securities could be valued on their intrinsic and market values +at such prices that would be considered reasonable to be obtained +in the next two or three years; that the lenders be guaranteed +against any losses from recession below the stipulated point at +which the securities might later be liquidated, say sometime +during the year 1917, if it had not been voluntarily liquidated +without loss before. Loans so insured would have to be in force +on securities carried prior to a certain date, probably before +the Exchange opened, if not last July 30th, and that an insurance +premium would be charged which would be considered slightly more +than adequate. Any surplus could be eventually pro-rated to the +policy holders. There would need to be no obligation to take out +such insurance unless the borrowers preferred. The banks might, +however, force them to do so in many cases or pay off loans."</p></blockquote> + +<p>At about this time many letters and suggestions were received +centering round the main idea that the market be opened exclusively +for such stocks as were not much held in Europe. Just as a +correspondent cited above seemed to believe that American security +holders could be compelled to remain inactive while foreigners sold +their holdings, so these people imagined that holders of one class of +securities could be kept quiet while the prices of some other class +were declining in a free market.<span class="pagenum"><a name="Page_70" id="Page_70">[Pg 70]</a></span></p> + +<p>With the above came a letter from a correspondent whose thoughts +carried him back to the old days of buyers' and sellers' options, when +most of the security business was done on 30 or 60 day contracts. He +proposed that the Exchange be reopened so that "all trades made be +'buyer 60'. No other bids or offers to be valid." This would postpone +for two months the settling day for the expected liquidation, and he +felt certain that by that time there could be no trouble in meeting +obligations. Unfortunately at the time he wrote there was no way of +obtaining assurance of this happy outcome. The same idea in a somewhat +different form came from another correspondent who, instead of +deferring payment by a buyer's option, proposed that stocks and bonds +be sold on a 10 per cent. basis "That is, the seller of 100 shares of +Union Pacific at 112 will deliver to buyer 10 per cent. of amount +sold, and receive a check for $1,120, together with a contract in +which the buyer agrees to take 10 per cent. more, or say 10 shares at +the end of six months, 10 shares in 9 months, 10 shares in 12 months, +10 shares in 15 months," etc., etc., at the original price of $112 per +share. This plan seemed to contemplate a bequest of unsettled +contracts to future generations of unsuspecting brokers. The author of +it was particularly solicitous that, in the event of its adoption, his +name should be handed down to posterity along with the unfulfilled +contracts.</p> + +<p>An idea of very wide prevalence, which was touched upon in nearly all +communications to the Committee and which even some bankers approved, +was that a preliminary step to reopening should be an agreement<span class="pagenum"><a name="Page_71" id="Page_71">[Pg 71]</a></span> by +the banks not to call loans made prior to July 31st, 1914, for some +specified period of time. This idea was very thoroughly discussed and +looked into by the Committee. It was found to present great practical +difficulties, but was never definitely abandoned until the resumption +of business was shown to be possible without it.</p> + +<hr class="short" /> + +<p>The advice which was received by the Committee of Five with regard to +reopening was divided into two classes. There was that large body of +suggestions, some of which we have described above, which were +volunteered either in letters or in interviews, and there was the +advice of well known bankers and men of financial prominence which the +Committee itself solicited. In the latter class figured a member of +one of the largest private banking houses in New York whose opinions +and counsel were of inestimable value. This gentleman, gifted with +clear insight and a thorough grasp of the situation, and generously +anxious to be of service to the Committee, pointed out from the start +that the reopening of the Exchange hung upon a favorable swing in the +balance of trade. When the indebtedness of the United States to Europe +could be offset by our exports the danger of reëstablishing our market +would become negligible, and this shrewd adviser predicted that the +desired reaction in foreign exchange was much closer at hand than was +generally supposed. The most valuable of his admonitions, and the +words which did most to strengthen the courage and resolve of the +Committee were these: "You will be given all kinds of advice<span class="pagenum"><a name="Page_72" id="Page_72">[Pg 72]</a></span> by all +kinds of people, but remember that in the end the responsibility will +fall upon you, therefore listen attentively to everything you are told +but act on your own independent judgment." This wise course was +successfully followed, and the change in the trend of foreign exchange +came, as he predicted, much sooner than was expected.</p> + +<p>Numerous other prominent men who were turned to for assistance showed +the greatest willingness to render every service within their power, +and placed the Committee under heavy obligations. There was one case +where the zealous desire to work out a very detailed solution of the +reopening problem brought a 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."</p> + +<p>As this statement proceeded visible signs of painful emotions +manifested themselves among the Committee. The Exchange had already +been closed three months,<span class="pagenum"><a name="Page_73" id="Page_73">[Pg 73]</a></span> 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."</p> + +<p>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<span class="pagenum"><a name="Page_74" id="Page_74">[Pg 74]</a></span> 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.</p> + +<hr class="short" /> + +<p>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.</p> + +<p>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<span class="pagenum"><a name="Page_75" id="Page_75">[Pg 75]</a></span> 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.</p> + +<hr class="short" /> + +<p>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,<span class="pagenum"><a name="Page_76" id="Page_76">[Pg 76]</a></span> 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:</p> + +<blockquote><p>"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.</p> + +<p>"Ruling No. 23, dated September 24, 1914, is hereby rescinded."</p></blockquote> + +<p>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.</p> + +<p>As a natural sequence to the above action, on November 12th, the Curb +Association issued the following notice:<span class="pagenum"><a name="Page_77" id="Page_77">[Pg 77]</a></span></p> + +<blockquote><p>"To the Members of the New York Curb Market Association:</p> + +<p>"<span class="smcap">Gentlemen</span>:</p> + +<p>"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 <span class="sc">a.m.</span></p> + +<p>"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.</p> + +<p class="right"> +"<span class="smcap">E. R. McCormick</span>,<br /> +"<i>Chairman</i>."<br /> +</p> +</blockquote> + +<p>On November 13th, the Committee of Five ruled that:</p> + +<blockquote><p>"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."</p></blockquote> + +<p>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.<span class="pagenum"><a name="Page_78" id="Page_78">[Pg 78]</a></span></p> + +<p>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.</p> + +<p>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.</p> + +<hr class="short" /> + +<p>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<span class="pagenum"><a name="Page_79" id="Page_79">[Pg 79]</a></span> 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.</p> + +<p>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,<span class="pagenum"><a name="Page_80" id="Page_80">[Pg 80]</a></span> 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:</p> + +<blockquote><p>"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."</p></blockquote> + +<p>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 zeal of an outsider who while trying to pilot the +Committee into safe waters succeeded in running it on a reef of his +own creation.</p> + +<p>Immediately on ascertaining the true situation the following notice +was sent out on Saturday:</p> + +<blockquote><p>"The Special Committee of Five announces that having consummated +its plan for bond transactions on the Exchange under certain +specified restrictions, the same will, in accordance with the +Constitution of the Exchange, be submitted to the Governing<span class="pagenum"><a name="Page_81" id="Page_81">[Pg 81]</a></span> +Committee at the regular meeting to be held on the 24th inst. If +the recommendations of the Special Committee are adopted by the +Governing Committee the plan will go into operation at an early +date."</p></blockquote> + +<p>Some of the newspapers having announced positively that this new move +with regard to bonds would take place on Monday, the 23rd, they were +very indignant that it should be postponed without supplying them with +a good and sufficient reason. The Committee, on its part, feeling that +it was undesirable to publish the details of an awkward +misunderstanding with a public official, who would not want his name +dragged into a matter that he had in no way concerned himself with, +refused to furnish the reason. This at once let loose upon them those +vials of reportorial wrath which, up to that time, they had been +fortunate in escaping. One journal amicably stated that this incident +merely emphasized a fact which had all along been obvious, namely that +the Committee were, and had been from the start, totally incompetent +to perform the task intrusted to them.</p> + +<p>While a gentle shower of epithets fell upon their devoted heads the +Committee proceeded with their work and, having obtained the necessary +authority from the Governing Committee, they sent out the following +ruling on November 24th:</p> + +<blockquote><p>"That so much of rule No. 21 as applies to dealings in listed +bonds through the Clearing House be rescinded, to take effect at +the close of business on Friday, November 27th, 1914. Beginning +on Saturday, November 28, 1914, dealings in bonds listed on the +Exchange will be permitted on the floor of the Exchange<span class="pagenum"><a name="Page_82" id="Page_82">[Pg 82]</a></span> between +the hours of ten and three o'clock each day except Saturday, when +dealings shall cease at twelve o'clock noon. Such dealings to be +under the supervision and regulation of the Committee, and to be +for 'cash' or 'regular way' only and not below the minimum prices +as authorized by the Committee from time to time. Transactions at +prices other than those allowed by the Committee, or in evasion +of the Committee's rules, are prohibited. All rules of the +Exchange governing delivery and default on contracts covered by +this resolution shall be in force on and after Saturday, November +28th, 1914, but the closing of contracts 'under the rule' shall +be subject to the foregoing provisions."</p></blockquote> + +<p>Thus on Saturday, November 28th, the doors of the Stock Exchange were +once more thrown open and a restricted market in listed bonds was +established on the floor under the watchful eye of the Committee of +Three. There was some hesitancy at first as to whether these bond +transactions should be quoted on the ticker in the accustomed way, but +before the day of opening came it was decided to report them as usual. +By requiring that all trades should be for "cash" or "regular way" +and, in a subsequent ruling, by instructing all purchasers of bonds to +report to the Committee when such bonds were not delivered by 2.15 +<span class="smcap">p.m.</span> on the day following the purchase, it was hoped to impede any +sudden or violent liquidation of foreign securities.</p> + +<hr class="short" /> + +<p>The restoration of the bond market to the floor was a complete +success, and at about the same time a general revival of public +confidence showed itself in a rise in prices first in the street +market and then in the Stock Exchange Clearing House itself. +Encouraged by these symptoms the Committee of Five at once formulated<span class="pagenum"><a name="Page_83" id="Page_83">[Pg 83]</a></span> +a plan for carrying the reopening a step farther. A list of stocks +which were not international in character was made out and submitted +to the Bank Clearing House Committee, and with their concurrence it +was decided to place these upon the floor of the Exchange to be traded +in at or above certain prescribed minimum prices.</p> + +<p>At a meeting of the Governing Committee on December 7th the following +resolution was adopted: "That the Committee of Five is hereby +empowered to permit dealings on the floor of the Exchange in such +stocks as it may designate under restrictions prescribed by it. That +the Committee of Five is hereby authorized to enforce stock loan +contracts whenever in its judgment it may deem best so to do, and that +the resolution of July 31st, 1914, be modified in this respect."</p> + +<p>A list of minimum prices was fixed upon that averaged some two or +three points below the closing prices of July 31st, and on December +11th the Committee issued a ruling prescribing the conditions for the +partial resumption of stock dealings on the Exchange. We here present +it in full:</p> + +<blockquote><p>"The Special Committee of Five rules that Rule 13 be rescinded, +in so far as it applies to stocks admitted to dealings in the +Exchange from time to time by the Committee of Five, said +rescission to take effect at the close of business on Friday, +December 11, 1914.</p> + +<p>"Beginning on Saturday, December 12, 1914, dealings in certain +specified stocks listed on the Exchange will be permitted on the +floor of the Exchange between the hours of ten and three o'clock +each day except Saturday, when dealings shall cease at twelve +o'clock noon.</p> + +<p>"Dealings in such stocks as shall be specified by, and be under +the supervision and regulation of the Committee, shall be for<span class="pagenum"><a name="Page_84" id="Page_84">[Pg 84]</a></span> +'cash' or 'regular way' <i>only</i> and not below the minimum prices +authorized by the Committee from time to time. Transactions at +prices below those allowed by the Committee, or in evasion of its +rules are prohibited.</p> + +<p>"A list of stocks to be admitted to dealings on the Exchange +accompanies these rulings. Minimum prices on same will be +announced on December 11, 1914.</p> + +<p>"All stocks quoted on July 30th at or below 15 per cent., or $15 +per share, may be dealt in without restriction as to price, but +are included in the list for your guidance, and will be marked +'Free' in the price column.</p> + +<p>"All stocks admitted to dealings as above, which were being +cleared through the Stock Exchange Clearing House at the close of +business on July 30, 1914, will be similarly cleared from the +opening of business on the 12th day of December, 1914.</p> + +<p>"All stocks admitted to dealings, which were being dealt in +'Ex-Clearing House' at the close of business on July 30, 1914, +will be similarly dealt in from the opening of business on the +12th day of December, 1914.</p> + +<p>"Stocks admitted to dealings on the Exchange will cease to be +dealt in through the Stock Exchange Committee on Clearing House. +Stocks not so admitted will continue to be dealt in through the +Committee on Clearing House until further notice.</p> + +<p>"All rules of the Exchange governing delivery and default on +contracts covered by these rules shall be in force on and after +the 12th day of December, 1914, but the closing of contracts +'Under the Rule' shall be subject to the foregoing provisions.</p> + + +<p class="center">STOCKS LOANED</p> + +<p>"The Loan Market for stocks will reopen at ten o'clock, <span class="smcap">a.m.</span> on +the 12th day of December, 1914, for such stocks <i>only</i> as are +admitted to dealings on the Exchange, from and after which date +all rules of the Exchange governing the borrowing and loaning of +such stocks shall be in force, but the closing of contracts +'Under the Rule' shall be subject to the foregoing provisions.</p> + +<p>"The above rule shall apply to stocks borrowed and loaned prior +to and since July 30, 1914.</p> + +<p>"Borrowed and loaned stocks will be cleared as before July 30th +last, but only in cases where such stocks are admitted to +dealings on the Exchange.</p> + +<p>"Loans of stocks <i>not</i> admitted to dealings on the Exchange will +continue to stand until further notice, unless otherwise agreed +to by both parties to the contract."</p></blockquote><p><span class="pagenum"><a name="Page_85" id="Page_85">[Pg 85]</a></span></p> + +<p>On Monday, December 14th, the next business day after the limited list +of stocks had been placed upon the floor of the Exchange, it was +reported to the Committee that the volume of transactions taking place +in the Stock Exchange Clearing House, in the stocks not yet admitted +to the floor, had risen to such proportions as seriously to embarrass +that institution. As this activity was taking place on a rising market +and signs of increasing confidence were constantly multiplying, the +Committee quickly resolved, on the same day, to transfer all stocks to +the floor on the following morning, and notice to that effect was at +once sent out. The unexpected appearance of this notice on the tape +was greeted with cheers of approbation in the Exchange, and on +December 15th the long hoped for reopening of the entire market had +become a reality.</p> + +<hr class="short" /> + +<p>The Committee of Five by this act brought their own rule to a close. +Arbitrary power had been put in their hands to be exercised while the +Exchange remained closed, but now that it was reopened authority +naturally returned to its legitimate channels. The Committee therefore +presented the following report to the Governing Committee on December +15th:</p> + +<blockquote><p>"The Special Committee of Five beg leave to report that in as +much as the crisis that existed on July 31st, 1914, has passed, +and financial affairs in this country have resumed a practically +normal condition, the necessity for the Committee's continuance +no longer exists and hence they request to be discharged. Before +being discharged they desire to express their appreciation of the +trust and confidence placed in them by the Governing Committee. +They also wish to express to the members of the<span class="pagenum"><a name="Page_86" id="Page_86">[Pg 86]</a></span> Exchange their +appreciation of the manner in which their rulings have been +respected, even though in many cases it involved great +sacrifices.</p> + +<p>Resolved, That the report of the Special Committee of Five be +received, and the Committee be discharged."</p></blockquote> + +<p>Thus, like the sudden and unexpected shifting of a dream, the +Committee of Five who so recently had almost despaired of fixing a +date for reopening the Exchange, found the Exchange open and +themselves a memory of the past. The abruptness of their exit was +tempered, however, in the following manner. As above described, the +reopening was accompanied by the restraint of certain arbitrary +minimum prices below which securities could not be sold. It was felt +that, owing to the critical and indecisive state of the war, there was +a continuing possibility of some news that might renew a crisis in the +market. While this possibility lasted the maintenance of minimum +prices furnished an automatic check upon sudden panic which would +avoid raising the question of a second closing of the Exchange. In +order to regulate these minimum prices and so change them from time to +time as to keep in accord with normal supply and demand, it was +necessary to appoint a Committee, and the original Five were continued +in office with this sole regulative power. As bonds were similarly +restricted, the Committee of Three also lingered on the scene for the +same purpose. The two Committees performed this unusual function up to +the first of April, 1915, when the very marked improvement in +conditions led to the abandonment of this last vestige of artificial +restraint.<span class="pagenum"><a name="Page_87" id="Page_87">[Pg 87]</a></span></p> + +<p>It is instructive, as showing the workings of some minds, that +although the Committee of Five, in its capacity of regulator of +minimum prices, issued a public statement that they were under no +circumstances going to valorize or sustain prices but merely expected +to maintain a safeguard against some unforeseen shock to confidence, +many people wrote them urgent letters asking that in certain +properties a minimum should be maintained which would render selling +impossible. It was quite futile to try to disabuse some of these +correspondents of the idea that no decline should be allowed in +properties that they were interested in.</p> + +<hr class="short" /> + +<p>To one who meditates upon the singular experience which was thus +abruptly brought to a close, there are a few features of it which +stand out as meriting the especial attention of all members of the +Stock Exchange. First of all it was most impressively shown what +apparently hopeless tasks can be accomplished by loyal coöperation. If +at any time up to July, 1914, any Wall Street man had asserted that +the stock market could be kept closed continually for four and +one-half months he would have been laughed to scorn, and yet this +supposed impossibility was performed by the joint and determined +action of the financial community. On the other hand, and as a +counterpart to this valuable experience, it must never be lost sight +of that the extraordinary war measures of 1914 may be a danger to the +future if they are misinterpreted. There is a possibility (even a +probability) that when ordinary crises arise in times to come, people +who find themselves financially<span class="pagenum"><a name="Page_88" id="Page_88">[Pg 88]</a></span> embarrassed will bring enormous +pressure upon the authorities of the Exchange to renew the drastic +expedients of the famous thirty-first of July. It is to be sincerely +hoped that there will always be firmness enough in the Governing +Committee to resist this pressure. The great world war coming, as it +did, without warning was a rare and epoch-making event that warranted +unheard of action and to indulge in such action for any lesser cause +would be utterly disastrous.</p> + +<p>The Committee of Five seems to have been brought into existence under +a lucky star. That five men called together so suddenly in such an +emergency should have worked with absolute harmony for so long a time +is quite remarkable. Their unanimity was never troubled but once. On +one of the first few days of their career a rather positive and +aggressive member, arguing with a colleague, said "you must remember +that you are only one of this Committee." The Committeeman thus +addressed responded with calm determination "and you must not forget +that you are not the other four." This encounter excited much +amusement among the remaining members and was the one and only +occasion where anything resembling a serious difference appeared.</p> + +<p>In addition to being blessed with harmony they were very fortunate in +having passed rulings for so long a time without giving forth anything +that had to be recalled. In view of the complexity of the conditions, +fortune must have aided in this as well as judgment. They were, of +course, treated to much wisdom (after the event) by their critics. +They were told that they might have opened the Exchange sooner after +the actual<span class="pagenum"><a name="Page_89" id="Page_89">[Pg 89]</a></span> opening had proved a success, and they were informed in +the editorial columns of a prominent journal that their fear of +foreign liquidation had been an "obsession" which lacked +justification. These critics never were heard from while the event was +in doubt, and consequently the Committee did not profit much by their +learned sayings.</p> + +<p>It can be stated with confidence that the intelligent resourcefulness +of the Stock Exchange, in conjunction with the splendid public +spirited work of the New York banks and the press, warded off a +calamity the possible magnitude of which it would be difficult to +measure. The success of this undertaking should be a source of pride +and emulation to those future generations of brokers who will have to +solve the problems of the great financial market when in the words of +Tyndall, "you and I, like streaks of morning cloud, shall have melted +into the infinite azure of the past."</p> + + + +<hr /> +<h2>THE END</h2> + + +<div class="figcenter" style="width: 100px;"> +<img src="images/i096.png" width="100" height="92" alt="" title="" /> +</div> + +<h5>THE COUNTRY LIFE PRESS<br /> +GARDEN CITY, N. Y.</h5> + +<hr class="full" /> + +<div class="trans-note"> +<a name="END" id="END"></a> +<p class="heading">Transcriber's Notes</p> + +<p>The transcriber made these changes to the text to correct obvious errors:</p> + +<pre class="note"> + 1. p. 49, from 11 A.M. to 12 M. + (note missing "A" or "P"), left as published + 2. p. 54, "We think that if ... (added opening quote) + 3. p. 83, rescision --> rescission + 4. p. 87, unforseen --> unforeseen +</pre> + +</div> + +<hr class="full" /> + + + + + + + + +<pre> + + + + + +End of the Project Gutenberg EBook of The New York Stock Exchange in the +Crisis of 1914, by Henry George Stebbins Noble + +*** END OF THIS PROJECT GUTENBERG EBOOK NY STOCK EXCH--CRISIS OF 1914 *** + +***** This file should be named 29443-h.htm or 29443-h.zip ***** +This and all associated files of various formats will be found in: + https://www.gutenberg.org/2/9/4/4/29443/ + +Produced by Richard J. 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You may copy it, give it away or +re-use it under the terms of the Project Gutenberg License included +with this eBook or online at www.gutenberg.org + + +Title: The New York Stock Exchange in the Crisis of 1914 + +Author: Henry George Stebbins Noble + +Release Date: July 18, 2009 [EBook #29443] + +Language: English + +Character set encoding: ASCII + +*** START OF THIS PROJECT GUTENBERG EBOOK NY STOCK EXCH--CRISIS OF 1914 *** + + + + +Produced by Richard J. Shiffer and the Online Distributed +Proofreading Team at https://www.pgdp.net (This file was +produced from images generously made available by The +Internet Archive/American Libraries.) + + + + + +[Transcriber's Note: Every effort has been made to replicate this +text as faithfully as possible, including obsolete and variant +spellings and other inconsistencies. Text that has been changed to +correct an obvious error is noted at the end of this ebook.] + + + + + THE NEW YORK + STOCK EXCHANGE IN + THE CRISIS OF 1914 + + + BY + H. G. S. NOBLE + PRESIDENT + + + [Illustration] + + + GARDEN CITY NEW YORK + THE COUNTRY LIFE PRESS + 1915 + + _Copyright, 1915_ + THE COUNTRY LIFE PRESS + + + + +INTRODUCTION + + +The year 1914 has no precedent in Stock Exchange history. At the +present time (1915), when the great events that have come to pass are +still close to us, even their details are vivid in our minds and we +need no one to rehearse them. Time, however, is quick to dim even +acute memories, and Wall Street, of all places, is the land of +forgetfulness. The new happenings of all the World crowd upon each +other so fast in the financial district that even the greatest and +most far-reaching of them are soon driven out of sight. This being the +case, it has seemed to the writer of these pages that some record +should be kept among the brokerage fraternity of what was so great an +epoch in their history, and that this record could best be written +down by one who happened to be very favorably placed to know the story +in its entirety. + +Of course the archives of the Exchange will always contain the minutes +of Committees and other documentary material embodying the story of +the past, but this dry chronicle is never likely to see the light +except when unearthed by law courts or legislative committees. It +seems worth while, therefore, to disentangle the essential thread of +the tale of 1914 from the mass of unreadable detail in the minute +books, and put it in a shape where those who are interested may look +it over. + +This is not an easy task. To differentiate the interesting and the +essential from the mass of routine material is, perhaps, not very +difficult, but to present this segregated matter in a form that will +not be monotonous is much more of a problem. The proceedings of a +Committee that has been in continuous session must, when written down, +partake of the nature of a diary, and to that extent be tiresome +reading. We shall, therefore, have to ask the indulgence of any one +who happens to look into these pages, and beg him to pass over the +form for the sake of the substance. That the substance itself is of +deep interest goes without saying. It was given to the Stock Exchange +to play a great part in a momentous world crisis, and it must be of +profound interest to know how that part was played. + +Stock Exchanges are a relatively recent product of modern +civilization, and like new comers in every field they are suspected +and misunderstood. The most complex of all problems are economic +problems, and the functions of Stock Exchanges form a most intricate +part of political economy. It has, consequently, been a noticeable +phenomenon in all contemporary industrial society that the activities +of the stock markets have been a constant subject of agitation and +legislative meddling. Most of this meddling has been based upon +ignorance and misunderstanding, but in a broad view this ignorance and +misunderstanding are excusable owing to the novelty and above all the +great complexity of the factors at work. One of the needs of the time, +therefore, is that the public, and their representatives in the +Legislatures, should be enlightened as fast as possible with regard to +the immensely important uses of these institutions, and to the +operation of their very delicate machinery. + +The World crisis of 1914 forced upon us an object lesson on the +question of speculative exchanges in general which ought to be of +lasting profit. For years agitators had been hard at work all over the +country urging the suppression of the Cotton Exchanges, and claiming +that they contained gamblers who depressed the price of the cotton +growers' product. In the summer of 1914 the dreams of these agitators +were realized. The Cotton Exchanges were all closed and the cotton +grower was given an opportunity of testing the benefits of a situation +where there was no reliable agency to appraise the value of cotton. +The result may be summed up in the statement that the reopening of the +Cotton Exchanges met with no opposition. A similar object lesson was +furnished in the case of the Stock Exchanges. They were all closed, +and for a few weeks some profound thinkers in the radical press stated +that the country was showing its ability to dispense with them. When +the time for their reopening came, however, there was no agitation to +prevent it. On the contrary it was hailed as a sign of the resumption +of normal financial conditions in the United States. + +This evidence that the experience of 1914 has cast a much needed light +on the public value of speculative exchanges, gives a further excuse +for describing in some detail how the experience was passed through by +that greatest of all these institutions, the New York Stock +Exchange. + + + + +THE NEW YORK STOCK EXCHANGE IN THE CRISIS OF 1914 + + + + +The New York Stock Exchange + + + + +CHAPTER I + +THE CLOSING OF THE EXCHANGE + + +The Stock Exchange is in the second century of its existence and in +that long period of time (long relatively to the number of years +during which Stock Exchanges have been known to the world) it has been +forced to close its doors only twice. The first occasion was the great +panic of 1873, the after effect of civil war when trading was +suspended for ten days; the second came with the outbreak of the world +War in the close of July, 1914. These two remarkable events differ +profoundly in the gravity of the circumstances which brought them +about. In 1873, although the financial disturbance was one of the +greatest the United States has ever experienced, the trouble was +mainly local and did not seriously involve the entire world. The +Exchange was not closed in anticipation of a catastrophe but was +obliged to shut down after the crash had taken place, in order to +enable Wall Street to gather up its shattered fragments. The measure +of this crisis was the ten days during which trading was suspended. + +Far different from these were the circumstances surrounding July 31st, +1914. On that eventful date a financial earthquake of a violence +absolutely without precedent shook every great center of the +civilized world, closing their markets one by one until New York, the +last of all, finally suspended in order to forestall what would have +surely been a ruinous collapse. The four and a half months during +which this suspension continued stand to the ten days closing of 1873 +in a proportion which fitly illustrates the relative gravity of the +two historic upheavals. + +In the light of these facts we are justified in asserting that the +events of 1914 are the most momentous that have so far constituted the +life and history of the New York Stock Exchange, and consequently that +some record of, and commentary upon, these facts may be of value to +the present members of that body and of interest and profit to its +future members. + +It is in the nature of panics to be unforeseen, but the statement may +be truly made that some of them can be more unforeseen than others. +The panic of 1907 was preceded by anxious forebodings in the minds of +many well informed people, whereas the Venezuela panic in 1895, being +due to the sudden act of an individual, came out of a clear sky. To +the latter class distinctively belongs the great convulsion of 1914. +While the standing armies of Europe were a constant reminder of +possible war, and the frequent diplomatic tension between the Great +Powers cast repeated war shadows over the financial markets, the +American public, at least, was entirely unprepared for a world +conflagration. Up to the final moment of the launching of ultimata +between the European governments no one thought it possible that all +our boasted bonds of civilization were to burst over night and plunge +us back into mediaeval barbarism. Wall Street was therefore taken +unaware, and so terrific was the rapidity with which the world passed, +in the period of about a week, from the confidence of long enduring +peace to the frightful realization of strife, that no time was given +for men to collect their thoughts and decide how to meet the +on-rushing disaster. + +Added to the paralyzing effect of this unheard of speed of action, +there came the disconcerting thought that the conditions produced were +absolutely without precedent. Experience, the chart on which we rely +to guide ourselves through troubled waters, did not exist. No world +war had ever been fought under the complex conditions of modern +industry and finance, and no one could, for the moment, form any +reliable idea of what would happen or of what immediate action should +be taken. These circumstances should be kept clearly in mind by all +who wish to form a clear conception of this great emergency, and to +estimate fairly the conduct of the financial community in its efforts +to save the day. + +The conditions on the Stock Exchange, when the storm burst, were in +some respects very helpful. Speculation for several years had been at +a low ebb, so that values were not inflated nor commitments extended. +Had such a war broken out in 1906, with the level of prices then +existing, one recoils at the thought of what might have happened. +Furthermore, the unsettled business outlook due to new and untried +legislation had fostered a heavy short interest in the market, thereby +furnishing the best safeguard against a sudden and disastrous drop. +This short interest was a leading factor in producing the +extraordinary resistance of prices in New York which caused so much +favorable comment during the few days before the closing. It were well +if ill-informed people who deprecate short selling would note this +fact. + +During the week preceding July 31st, therefore, in the face of a +practical suspension of dealings in the other world markets, the New +York market stood its ground wonderfully. The decline in prices, +though it became violent on July 30th, showed no evidence of collapse. +There was a continuous market everywhere up to the last moment, and +call money was obtainable at reasonable prices. Here was a perplexing +problem when the closing of foreign Bourses raised the question of how +long we should strive to keep our own Exchange open. + +To close the recognized public market for securities, the market which +is organized and safeguarded and depended upon as a standard of +values, is an undertaking of great responsibility in any community. To +take this step in New York, which is one of the four preeminent +financial centers of the world, involved a responsibility of a +magnitude difficult adequately to estimate. Upon the continuity of +this market rest the vast money loans secured by the pledge of listed +securities; numberless individuals depend upon it in times of crisis +to enable them to raise money rapidly by realizing on security +investments and thus safeguarding other property that may be +unsaleable; the possessor of ready money looks to it as the quickest +and safest field in which to obtain an interest return on his funds; +and the business world as a whole depends upon it as a barometer of +general conditions. + +Add to this the fact that speculative commitments by individuals from +all over the world, which have been based upon the expectation of an +uninterrupted market, are left in hopeless and critical suspense if +this market is suddenly removed, and it becomes apparent that to close +the Exchange is manifestly to inflict far-reaching hardship upon vast +numbers of people. It is also sure to be productive of much injustice. +In bad times sound and solvent firms are anxious to enforce all their +contracts promptly so as to protect themselves against those that are +overextended; an obligatory suspension of business compels these +solvent firms, in many cases, to help carry the risks of the insecure +ones and deprives the provident man of the safety to which he is +entitled. + +When such facts as these are duly weighed by the agencies having the +authority to close the stock market, it becomes clear that duty +dictates a policy of hands off as long as a continuous market persists +and purchasers continue to buy as the decline proceeds. This was well +illustrated in the acute panic of 1907 when an enormous open market +never ceased to furnish the means by which needy sellers constantly +liquidated, and the possessors of savings made most profitable +investments. To have closed the Exchange during that crisis--assuming +it to have been possible--would have been an unmixed evil. The violent +decline in prices was the natural and only remedy for a long period of +over-speculation, and it would have been worse had it been +artificially postponed. + +Considerations of this general character, up to July 30th, caused the +authorities of the New York Stock Exchange to take no action, although +the other world markets had all virtually suspended dealings. On July +30th, the evidences of approaching panic showed themselves. An +enormous business was done accompanied by very violent declines in +prices, and, although money was still obtainable throughout the day, +at the close of business profound uneasiness prevailed. + + * * * * * + +On the afternoon of July 30th, the officers of the Stock Exchange met +in consultation with a number of prominent bankers and bank +presidents, and the question of closing the Exchange was anxiously +discussed. While the news from abroad was most critical, and the day's +decline in prices was alarming, it was also true that no collapse had +taken place and no money panic had yet appeared. The bankers' opinion +was unanimous that while closing was a step that might become +necessary at any time, it was not clear that it would be wise to take +it that afternoon, and it was agreed to await the events of the +following day. Meanwhile, several members of the Governing Committee +of the Exchange had become convinced that closing was inevitable and, +in opposition to the opinion of the bankers, urged that immediate +steps be taken to bring it about. It may seem strange to people +outside of Wall Street that the night before the Exchange closed such +apparent indecision and difference of opinion existed. It was, +however, a perfectly natural outcome of an unprecedented situation. +The crisis had developed so suddenly, and the conditions were so +utterly without historic parallel, that the best informed men found +themselves at a loss for guidance. + +During the evening of July 30th the conviction that closing was +imperative spread with great speed among the large brokerage firms. Up +to a late hour of the night the President of the Exchange was the +recipient of many messages and telegrams from houses not only in New +York, but all over the country, urging immediate action. The paralysis +of the world's Stock Exchanges had meanwhile become general. The +Bourses at Montreal, Toronto and Madrid had closed on July 28th; those +at Vienna, Budapest, Brussels, Antwerp, Berlin, and Rome on July 29th; +St. Petersburg and all South American countries on July 30th, and on +this same day the Paris Bourse was likewise forced to suspend +dealings, first on the Coulisse and then on the Bourse itself. On +Friday morning, July 31st, the London Stock Exchange officially +closed, so that the resumption of business on that morning would have +made New York the only market in which a world panic could vent +itself. + +The Governing Committee of the Exchange were called to meet at nine +o'clock (the earliest hour at which they could all be reached, for it +was summer and many were out of town) and at that hour they assembled +in the Secretary's office ready to consider what action should be +taken. In addition to the Committee many members of prominent firms +appeared in the room to report that orders to sell stocks at ruinous +prices were pouring in upon them from all over the world and that +security holders throughout the country were in a state of panic. It +would be hopeless to try to describe the nervous tension and +excitement of the group of perhaps fifty men who consulted together +under the oppressive consciousness that within forty-five minutes (it +was then a quarter past nine) an unheard of disaster might overtake +them. It was determined that the Governing Committee should go into +session at once as there was so little time to spare. Just as they +started for their official meeting room a telephone message was +received from a prominent banking house stating that the bankers and +bank presidents were holding a consultation and suggesting that the +Exchange authorities await the conclusion of their deliberations. + +There is an employee of the Exchange whose duty it is to ring a gong +upon the floor of the big board room at ten o'clock in the morning. +Until that gong has rung the market is not open and contracts are not +recognized. This employee was instructed not to ring the gong until he +had received personal orders to do so from the President; a permanent +telephone connection was established with the office in which the +bankers were conferring, and amid a horrible suspense the outcome of +their conference was awaited. For twenty minutes this strain +continued. It was a quarter before ten and only fifteen minutes +remained in which to act. Meanwhile the brokers were fast assembling +upon the board room floor, orders were piling in upon them to sell at +panic prices, ten o'clock was approaching, and although all felt that +the opening should not be permitted no one had a word from the +Governing Committee as to what was going to be done. + + * * * * * + +At a quarter of ten, no word having come from the bankers, the +receiver of the telephone which had been connected with their meeting +place was hung up, and the Governing Committee were called in session +to take action. As they took their seats two messages reached them. +One was brought by a prominent member of their body who had gone to +the office of the President of the bank Clearing House and had been +told by him, after consulting with some of his fellow officers, "We +concur; under no circumstances is it our suggestion, but if the +Exchange desires to close, we concur." The other was sent, through a +member of the Exchange, from one of the leading bank Presidents who +stated that closing would be a grave mistake and that he was opposed +to it. + +The roll was called and thirty-six out of the forty-two members +answered to their names. The Chair having announced the purpose of the +meeting, Mr. Ernest Groesbeck moved that the Exchange be closed until +further notice. This motion was carried, not unanimously but by a +large majority. Mr. Groesbeck then moved that the delivery of +securities be suspended until further notice, and, this being carried +unanimously, made a third motion that a special Committee consisting +of four members of the Governing Committee and the President be +appointed to consider all questions relating to the suspension of +deliveries and report to the Governing Committee at the earliest +possible moment. The third motion, like the second was carried +unanimously and the Committee adjourned. It was then four minutes of +ten. On the instant that the first motion closing the Exchange was +passed, word was sent to the ticker operators to publish the news on +the tape. In this way the seething crowd of anxious brokers on the +floor got word of the decision before ten o'clock struck. Immediately +upon the adjournment of the Committee Mr. George W. Ely the Secretary +of the Exchange ascended the Chairman's desk in the board room and +made the formal announcement, which was greeted with cheers of +approbation. The President promptly appointed Messrs. H. K. Pomroy, +Ernest Groesbeck, Donald G. Geddes, and Samuel F. Streit to +constitute, with himself, the Committee of Five, and the long suspense +and anxiety of four months and a half began. + +These events, which were crowded into a few feverish hours, and which +seemed to those who participated in them more like a nightmare than +like a reality, present some aspects that are especially worthy of +detailed description. It is noticeable that the vote to close the +Exchange was not unanimous. This shows the immense complexity of a +situation, which, even at the last moment, left some two or three +conscientious men undecided. It is a fact of profound importance, and +one that never should be forgotten by stock brokers or by the public, +that the Exchange closed itself on its own responsibility and without +either assistance or compulsion from any outside influence. Many false +assertions by professional enemies of the institution have been made +to the effect that the banks forced the closing, or that its members +were unwillingly coerced by outside pressure. The facts are that the +influential part of the membership, the heads of the big commission +houses, made up their minds on the evening of July 30th that closing +was imperative, and that on the morning of July 31st their +representatives in the Governing Committee took the responsibility +into their own hands, the bankers having been unable as yet to reach a +conclusion. + +Immediately after the closing the President of the Exchange visited +the prominent bank president who had served notice at the last moment +of his disapproval of this procedure. He was found in his office in +consultation with a member of one of the great private banking houses. +Both the bank president and the private banker agreed that, in their +opinion, the closing had been a most unfortunate mistake. It was an +opportunity thrown away to make New York the financial center of the +world. The damage was done and would have to be made the best of, but +had the market been allowed to open the banks would have come to the +rescue and all would have gone well. These gentlemen admitted that the +Exchange was to some extent excusable owing to the negligence of the +bankers in not notifying them that they were ready to protect the +money market. + +It may safely be stated that within twenty-four hours after this +interview neither the two bankers in question nor any one else in Wall +Street entertained these opinions. The rise of exchange on London to +$7--a rate never before witnessed; the marking of the Bank of +England's official discount rate to 10%, accompanied by a run on that +institution which resulted in a loss of gold in one week of +$52,500,000; the decline of the Bank's ratio of reserve from the low +figure of 40% to the paralyzing figure of 14-5/8%; together with the +fact that the surplus reserves of our New York Clearing House banks +fell $50,000,000 below their legal requirements, were reasons enough +in themselves to convince the most skeptical of the necessity of what +had been done. + +The frightful gravity of the situation which had arisen became clearer +and more defined in people's minds a few days after the first of +August than it was on the morning of July 31st. European selling had +been proceeding for some time before the outbreak of War and in the +last few days before closing had been temporarily arrested by the +prohibitive level of exchange and the risk of shipment at sea. The +American public itself, however, was seized with panic on the evening +of July 30th, and on the morning of July 31st brokers' offices were +flooded with orders to sell securities for what they would bring and +without reference to values. Had the market been permitted to open on +that Friday morning the familiar Wall Street tradition of "Black +Friday" would have had a meaning more sinister than ever had been +dreamed of before. + +In all previous American panics the foreign world markets were counted +upon to come to the rescue and break the fall. Imports of gold, +foreign loans, and foreign buying were safeguards which in past crises +had been counted upon to prevent utter disaster. On this occasion our +market stood by itself unaided; an unthinkable convulsion had seized +the world; panic had spread; even the bargain hunter was chilled by +the unprecedented conditions; there were practically no buyers. A half +hour's session of the Exchange that morning would have brought on a +complete collapse in prices; a general insolvency of brokerage houses +would have forced the suspension of all business; the banks, holding +millions of unsaleable collateral, would have become involved; many +big institutions would have failed and a run on savings banks would +have begun. It is idle to speculate upon what the final outcome might +have been. Suffice it to say that these grave consequences were +prevented in the nick of time by the prompt and determined action of +the Stock Exchange, and by that alone. + + * * * * * + +Any decisive step whether right or wrong always finds its critics. +There were a few people who criticised the Exchange for closing too +soon and thought that the feeling of panic was increased by this +action. These few were mostly converted from their opinions as the +situation became clearer. There was a larger number who took the +ground that the Exchange had not closed soon enough, and urged that +had the step been taken a few days sooner a considerable decline in +values would have been prevented. It is strange that the latter +critics did not stop to reflect on how great an advantage it was, all +through the anxious days of August, to have had the New York market +liquidated as far as it could be without disaster, and the level of +closing prices relatively low. How vastly greater would have been the +task of safeguarding the situation in the face of declining prices in +the "New Street Market" had the closing prices on the Exchange been +ten or fifteen points higher. The truth is that the Exchange was +closed at the very best possible moment. The market was kept open as +long as liquidation could safely be carried on (thus immensely +diminishing the pressure to be withstood during the suspension) and it +was closed at the very instant that a collapse was threatened. + +The above facts suggest some reflections with regard to the agitation +for governmental interference with or control of the Exchange. The act +of closing necessitated the prompt decision of men thoroughly familiar +with the circumstances in a period of time actually measured by +minutes. If it had been necessary to reach government officials +unfamiliar with details, convince them of the necessity of action, and +overcome the invariable friction of public machinery, the financial +world would have been prostrated before the first move had been made. +If the Exchange had been an incorporated body, and had been closed in +the face of the difference of opinion and possible conflict of +interests that existed at the time, it would have been possible for a +temporary injunction to have been brought against its management +restraining its freedom to meet the emergency. Long before the merits +of such an injunction could have been argued in court the harm would +have been done, and ruin would have overtaken many innocent people. +The full power of a group of individuals thoroughly familiar with the +conditions to act without delay or restraint prevented a calamity +which can safely be described as national. + +It is a fact, which will probably never be appreciated outside of the +immediate confines of Wall Street, that the Exchange was unexpectedly +thrown into a position where the interests of the whole country were +put in its hands, and that through the prompt and energetic action of +the thirty-six men who faced the awful responsibility on July 31st +financial America was saved. It is true that in saving the community +they saved themselves, but so do the soldiers who win upon the +battle-field, and in neither case is the obligation cancelled by the +selfish considerations involved. When in future the perennial outcry +against the Exchange is being fostered by those whose minds are +exclusively occupied with the evils that are inseparable from every +human institution, let us hope that once in a while some friendly +voice may be raised to remind the world of July thirty-first, nineteen +hundred and fourteen. + + + + +CHAPTER II + +THE PERIOD OF SUSPENSION + + +During the same morning on which the momentous action of closing was +taken the Committee of Five met and elected the President of the +Exchange as their Chairman. The acute crisis was over, the danger of a +cataclysm had been averted, but the situation that remained was big +with problems full of menace and uncertainty. + +Just what effect the closing of the market would have was a matter of +doubt. On all previous occasions when the facilities of the Exchange +had been inadequate, or had been shut off, an unregulated market had +established itself in public places and proceeded uncontrolled. Thus +during the Civil War, when the volume of speculation had completely +outgrown the limited machinery of the old Board of Brokers, a +continuous market developed partly in the street and partly in a +basement room called the "Coal Hole" and flourished during the day, +while in the evening it was continued in the lobby of the Fifth Avenue +Hotel. This market did more business than was done upon the Exchange +itself, and a few years after the War, many of its members, who had +organized into the "Open Board of Brokers," were admitted to the Stock +Exchange in a body. The suspension of business in 1873 was too brief +to allow of the formation of a market such as the above, but, while it +continued, cash transactions for securities were being carried on +every day in the financial district. + +Would results such as these obtain on this occasion? Much depended +upon the length of time before the Exchange could re-open, but this in +itself was a problem for which no one could venture a solution. Again, +a vast volume of contracts made on July 30th had been suspended. How +long could the enforcement of these contracts be successfully +prohibited, and above all how long would the banks and financial +institutions which were lending money on Stock Exchange collateral +refrain from calling loans when they were deprived of any measure of +the value of their security? Over its own members the New York Stock +Exchange might exercise a rigid control, and it could safely be +assumed that the other Stock Exchanges of the country would cooperate +with it, but numberless outside agencies existed such as independent +dealers unaffiliated with exchanges, and auctioneers, any of whom +might establish a market. If declining prices were made through media +of this description, and the press felt called upon to furnish them to +the public, the closing of the Exchange might not suffice to prevent +panic and disaster. + +Oppressed by these considerations, and by an appalling sense of +responsibility, the new Committee of Five began its labors in the +morning of July 31st. The first step decided upon was to communicate +with the Bank Clearing House Committee. Mr. Francis L. Hine, President +of the Clearing House, was invited to meet the Committee of Five which +he did, a little later in the day, and presented to them the +following statement of the action taken by the Clearing House. + + "There was a meeting of the Clearing House Committee this morning + in view of the closing of the New York Stock Exchange. It was the + opinion of the Committee that the business and financial + condition of New York and the entire country was sound but that + the situation in Europe justified extreme prudence and + self-control on the part of the United States; that the closing + of the Stock Exchange was a wise precaution by reason of the + disposition of all Europe to make it the market for whatever it + wished to sell, and that in this country there was no occasion + for any serious interruption of the regular course of business, + either financial or mercantile." + +After the retirement of Mr. Hine, the Chairman of the Committee on +Clearing House of the Exchange stated that all the checks given to the +Clearing House had been certified, and a notice was thereupon sent out +instructing members to call for their drafts at the usual hour. Thus +all the differences due on the day's transactions of July 30th were +settled, and a first encouraging step was taken. It was also decided +to permit the offering of call money on the floor of the Exchange. + +The Committee held its second meeting on August 1st and the first of +the long series of problems growing out of the closing of the market +was at once presented to it. A letter from a brokerage house doing +business with Europe was received in which it was pointed out that +"arbitrageurs" who had sold stocks in New York and bought them in +London during the previous fortnight had made their deliveries by +borrowing stock in New York; that the stock purchased in London was +due to arrive on this side, and that the usual process of financing +it by returning the previously borrowed stock had been cut off through +the suspension of unfulfilled contracts. This was likely to lead to +very grave embarrassment because call money had practically +disappeared and houses to whom this foreign stock was consigned might +not be able to meet their obligation to pay for it as it arrived. +There being no arrivals of foreign stock expected that day, the +Committee deferred action, and thus gained time to think out ways and +means of meeting the difficulty. + +The second problem presented came in the form of a request for +permission to sell securities outside of the Exchange. The firm of S. +H. P. Pell & Co. had suspended, and a house which had been lending +them money wished to be authorized to sell out the collateral. This +was the first of many cases brought before the Committee, during its +long tenure of office, in which individuals sought for a special +privilege to sell securities they were anxious to market while trading +in general was forbidden. In this case the applicants were referred to +that section of the Constitution of the Exchange in which it is +provided that members having contracts with insolvents shall close out +these contracts in the Exchange when the securities involved are +listed. The Exchange being closed, this provision answered the +question without necessitating any independent action on the part of +the Committee. + + * * * * * + +From the moment of the closing of the Exchange a growing pressure +arose to determine just when and how it should be re-opened. The +desire for information on this point was widespread, and when the +gravity of the situation became clearer to the community, a great +anxiety developed that the re-opening should, above all, not be +premature. Realizing that the fear of sudden and ill considered action +on this question was becoming dangerous to the restoration of +confidence, the Committee of Five, at its meeting of August 3rd +authorized the following statement. + + "Announcement is made by the President of the Stock Exchange, in + answer to inquiries as to when the Exchange will open, that ample + notice of such opening will be given." + +In spite of this notice fear that the Stock Exchange might act +injudiciously lingered for some time longer until the constant +reiteration by its officers of their intention to act only in +conjunction and in consultation with the banks permanently allayed it. + +By Monday, August 3rd, a steady stream of letters had begun to pour in +upon the Committee asking advice and direction upon any number of +questions raised by the closing of the market, and offering every kind +of suggestion and advice. In addition to this it soon became evident +that interviews would have to be held with large numbers of people for +the purpose of securing their cooperation, influencing their conduct, +and obtaining information. The resolution of the Governing Committee +by virtue of which the Committee of Five was brought into being merely +stated that questions such as these should be considered and reported +back "at the earliest possible moment." Clearly here was an impossible +situation. The immense detail of the work which was beginning to +unfold itself could never be handled by so large a body as the +Governing Committee itself. Realizing that this difficulty must be met +without a moment's delay the Committee of Five requested the calling +of a special meeting of the Governors for twelve o'clock the same day +and presented to them the following resolution, which was unanimously +adopted. + + "RESOLVED: That the Special Committee of Five, appointed by the + Governing Committee on July 31st, be, and it hereby is, + authorized during the present closing of the Exchange, to decide + all questions relating to the business of the Exchange and its + members." + +This action of the Governing Committee, while it was rendered +necessary by the peculiar requirements of the situation, was +unprecedented in the history of the Exchange, for never before had +such powers and such responsibilities been put in the hands of so few +individuals. It was one of a series of "war measures" by means of +which ends were achieved that would not have been reached in any other +way. + +Clothed with complete authority the Committee met again in the +afternoon of August 3rd and was at once confronted with a request for +a ruling on the question of how far members were to be restrained from +dealing outside of the Exchange. After a lengthy discussion the +following was approved as their opinion. + + "It was the intention in closing the Stock Exchange that trading + should be stopped and it is the duty of loyal members to comply. + If cases come into your office where it is absolutely necessary + to trade, do so as quietly as possible and prevent the quotation + from being published." + +It will be noticed that the policy adopted here was less stringent +than what came later when the growth of an outside market increased +the dangers of the situation. + + * * * * * + +With the question of outside dealings there at once arose the closely +connected question of the danger arising from having price quotations +of such dealings made public. The quotation machinery of the Exchanges +had been silenced by the closing of those institutions, but there +remained the public auctioneers whose sales, if they took place, would +be disseminated by the press and might spread panic among security +holders and money lenders. The auctioneers in New York, Boston, +Philadelphia, and Chicago were at once approached, not only directly +but through their bankers and other advisers. It was a disagreeable +task as these auctioneers had to be urged to cease doing business, but +it was rendered unexpectedly easy by the courtesy and friendliness +with which they cooperated for the general welfare. So loyal were +these various agencies that not a single sale, either of listed or +unlisted securities, occurred in any auction room of the country until +the urgent phases of the crisis had passed. + +It was not in auction rooms alone, however, that prices might be made; +dealings were liable to occur in any unexpected locality, and it was +urgent that prices of an alarming character should be kept from the +public. For this most important purpose the cooperation of the press +was absolutely necessary. To obtain this, at the outset, was no easy +matter. The closing of the Stock Exchange placed the financial news +writers of the daily press in a curious position. With them were +allied that group of financial writers connected with the various Wall +Street news agencies, the several financial journals that are +exclusively devoted to Wall Street affairs, and the financial +correspondents of out of town newspapers. All told there were about +one hundred salaried men in these various groups, men experienced in +financial affairs, widely known and respected, engaged in a work which +had never been interrupted and which, as far as could be foreseen, +promised to furnish them with a continuous vocation. + +The first effect of the war was a general curtailment of newspaper +advertising, a rise in the price of paper, and a greatly increased +cost of the news of the day owing to excessive cable charges for +foreign dispatches. Thus the newspapers suffered a rapidly diminishing +revenue, and they found it necessary to discharge many of their +employees and to reduce the salaries of others. With the Stock +Exchange closed, naturally the salaried financial writers were among +the first to feel this hardship. + +Those whose services were retained throughout this crisis were +confronted with divided responsibilities. It was their duty to +interpret a mass of more or less fantastic rumors at a time when +nerves were overwrought and points of view magnified and distorted. +They wished to prevent the publication of anything of an incendiary +nature, while at the same time a necessity arose for presenting to the +public the news to which it was entitled. Placed in such a position +there was a very natural impatience here and there to have the +Exchange reopened, while now and then a tendency became manifested to +publish certain news of the day which, while interesting to the +public, tended to handicap the efforts of those bent only on +reassurance and calm counsel. At times it became somewhat difficult to +prevent the publication of some of these matters, particularly of the +prices made in the so called "gutter" market which sprang up in New +Street. And yet on the whole nothing could have exceeded the fairness +and the spirit of cooperation of these gentlemen in this trying time. +One newspaper even went so far as to cease the publication of a +remunerative page of small advertisements having to do with dealings +in outside securities. This was done at the request of the Committee +without hesitation. Others cooperated in the suppression of +advertising on the part of questionable people, while correspondents +of out of town newspapers, both foreign and domestic, cheerfully +acceded to requests to suppress all disturbing financial reports. In a +word, the financial department of the whole newspaper press accepted +the situation philosophically, bearing their losses without complaint +and supporting without cavil the restrictive measures which it was +necessary to employ. + +This loyal conduct of the press and of the auctioneers was one of the +great factors without which the critical days of the suspension of +business could not have been successfully surmounted. + + * * * * * + +It will be remembered that in the morning of July 31st, the Governing +Committee not only voted to close the Exchange but also declared that +the delivery of securities should be suspended until further notice. +The motive of this latter action was to prevent the possible +insolvencies that were likely to be forced if purchasers were +compelled to pay for their securities in the absence of a call money +market. At the earliest moment that attention could be given to it the +Committee of Five requested the Chairman of the Stock Exchange +Clearing House to place before it the exact figures of the outstanding +contracts. These figures when presented showed that there were stock +balances open on Clearing House order amounting to $38,700,000 and +Ex-Clearing House contracts amounting to about $61,000,000. Roughly +speaking there had been about $100,000,000 of stock sold in the +Exchange on July 30th, the delivery of which to the purchasers had +been suspended by the action of the Governing Committee. Obviously a +first great step toward clearing up the situation and preparing the +ground for the ultimate reopening of the market was to get this great +volume of contracts settled, so that if any failures were inevitable +they would be disposed of beforehand. + +It being probable that many of the purchasers of stock on July 30th +were in a position to finance their purchases even in the midst of the +crisis the Committee deemed it wise to offer every possible facility +for the immediate settlement of contracts when the purchaser was in +this position. They therefore issued the following notice on August +4th: + + "The Special Committee of Five appointed to consider questions + connected with the closing of the Exchange state that the + resolution of the Governing Committee suspending deliveries + until further notice does not mean that settlement may not be + made by mutual consent wherever feasible. The Clearing House of + the Exchange is prepared to advise and assist, and inquiries + should be made in person there." + +At the request of the Committee of Five the Committee on Clearing +House at once undertook the task of assisting members of the Exchange +in closing up these contracts and used its clerical force for that +purpose, thus involving much careful and detailed work. They held +daily continuous meetings, giving their personal attention in +assisting members, and using a care that involved both tact and +arduous labor. Through their efforts such extraordinary progress was +made, in this complex and difficult task, that by September 22nd +announcement was made that the delivery of all Clearing House balances +had been completed with the exception of those of the few firms whose +affairs were in the hands of receivers. These were settled shortly +afterwards and at the same time the great volume of Ex-Clearing House +contracts were also completely fulfilled. + +This is one of the most extraordinary and gratifying experiences of +the great crisis. In about seven weeks, at a time when money was +unobtainable and the condition of panic was at its height, this huge +volume of unsettled contracts was met and consummated by voluntary +cooperation and without compulsion of any kind. In some few cases +selfishness or indifference delayed action on the part of individuals, +but these were all brought to a final adjustment by the influence and +persuasion of the Committee. + +This achievement not only reflects undying credit upon the members of +the Exchange by showing both the sound condition of their business and +their zeal to act for the general welfare, and creates a deep sense of +obligation to the Clearing House Committee who for many long weeks +worked unceasingly to overcome the difficulties that beset the path, +but it justifies and confirms the wisdom of the New York Stock +Exchange in adhering to the practice of daily settlements. In all the +great European centers, where trading on the fortnightly settlement +basis is in vogue, the restoration of dealings was terribly +complicated by the herculean task of clearing up back contracts that +extended over many days. In New York, when conditions so shaped +themselves as to warrant reopening the Exchange, the back contracts of +its members had all been settled up _two months_ before. Had our +system, like the European, involved "trading for the account," every +additional day of back contracts added to the $100,000,000 worth of +July 30th would have stood in the way of a final settlement, and the +reopening of the market (which was long postponed as it was) would +have been much further delayed. + + * * * * * + +On August 4th, a problem which had loomed upon the horizon the day +after the closing of the Exchange, was brought squarely before the +Committee. A delegation of houses dealing in securities for European +account appeared and stated that approximately $40,000,000 to +$50,000,000 of securities were to arrive "this week, beginning +to-morrow, Wednesday," and that they would be accompanied by sight +drafts which would have to be financed. This alleged great volume of +securities had been sold in this market for foreign account and +borrowed in New York in order to make the immediate deliveries that +our day to day system requires. The suspension of the fulfillment of +contracts declared by the Exchange made it impossible to return this +borrowed stock, and the houses doing this business were therefore +obliged either to allow the drafts to go to protest or finance the +incoming stock until the free enforcement of contracts was again +permitted. + +With money practically unobtainable, and general panic prevailing, it +is needless to say that these statements of the delegation of houses +doing foreign business were a severe shock to the Committee of Five. A +remedy proposed by one or two of these banking houses was that the +people from whom they were borrowing stock should be required to take +it back. This simple expedient, while eminently satisfactory from the +standpoint of the borrower of stock, was not very helpful to the +Committee, as it would merely have shifted the problem of financing +the stock from one set of brokers to another, and would have raised +the dangerous question of a general enforcement of contracts in +borrowed securities. It was an interesting illustration, among some +others to be subsequently experienced, of the manner in which certain +minds can become entirely absorbed in that aspect of a question which +deals solely with personal interest. After careful discussion it was +determined that the cooperation of the Clearing House banks should be +sought in solving the difficulty. The Committee of Five thereupon +sent a communication to the Bank Clearing House committee setting +forth all the circumstances connected with the expected consignment of +securities as stated by the delegation of banking houses and requested +an appointment to meet them, or a sub-committee of their members, and +discuss the matter. The appointment was obtained for the following +morning, August 5th, and the Chairman and Mr. H. K. Pomroy were +appointed a sub-committee to confer with the Bankers and directed to +take Mr. Richard Sutro with them as a representative of the houses +doing foreign business. + +At the meeting with the Clearing House bankers it was very properly +decided that a solution of the problem could only be reached when an +exact knowledge of the amount of money required to pay for the +incoming securities had been obtained, the figures stated by the +banking houses which were seeking assistance being only estimates. The +representatives of the Stock Exchange agreed to obtain this exact +information at once, and having returned and stated the circumstances +to the Committee of Five, it was directed that the following +communication be sent to a list of members of the Exchange who, it was +understood, were to have foreign drafts presented to them:-- + + "The Special Committee of Five requests that by three o'clock + to-day they may have in their possession from you information as + to the number and amount of drafts which you expect will be + presented to you from Europe on any steamers arriving to-day or + subsequently. They would particularly like to know how much you + expect on each steamer. In case any of these have already been + financed please so state in your communication. + + "The Committee would also like to have you tabulate in your + reply, so far as you can, the banks, trust companies or bankers + from whom you expect drafts to be presented. + + "This communication is confidential and it is requested that you + do not discuss this matter with any one outside your own firm. + Your answer is expected by bearer, in order that the financing of + these drafts may be facilitated." + +By three o'clock, the same afternoon, replies had been received from +thirteen houses that they expected securities on the _Olympic_ and +_Mauretania_, and had also received advices of other securities +forwarded but did not know on what steamers; the drafts to be +presented they said would be approximately for four and one half +millions. Replies from twelve other houses stated it as a possibility +but not a certainty that securities might reach them on the steamers +above mentioned to the amount of about four millions; and, finally, +twelve firms sent replies stating that they either expected no +securities or had made the necessary arrangements to finance what was +coming. These facts--so far below the estimate at first presented to +the Committee--came as a great relief, and were at once taken before +the Bank Clearing House Committee. After a careful discussion with +these gentlemen the Committee of Five again met and sent the following +communication to the firms who had reported that securities and drafts +were about to be tendered to them. + + "Members of the Exchange to whom foreign drafts are presented for + payment, are requested to confer with the Committee of Five at 9 + A.M. to-morrow, Thursday, the 6th inst., in the Secretary's + office, with details of such transactions in hand, when efforts + will be made to facilitate the adjustment." + +The next morning the few firms who had drafts to meet on that day were +provided with the necessary loans by two banks and a trust company at +8 per cent. The amount of securities due from Europe was undoubtedly +large, but the great bulk of it had not been shipped and the shipment +of it was postponed for many weeks afterward. The extraordinary +statement that $40,000,000 or $50,000,000 were about to be landed in +New York is interesting as showing the hysterical state of mind to +which many business men had been reduced at that time. The actual +amount of stocks sold to arrive, against which borrowings had been +effected in New York, was finally shown to amount to $20,000,000. That +this amount was not increased at an embarrassing period in these +important negotiations was due in large measure to the action of the +Committee in calling together the various foreign arbitrage houses, +and securing from them an agreement to cable to their correspondents +in Europe not to make further shipments of securities, because +borrowed stocks could not be returned and deliveries effected. This as +it turned out was an important step in the right direction. + + * * * * * + +Owing to the sudden and severe pressure of business to which the +Committee of Five was subjected almost from the moment of its +organization, some matters were unavoidably overlooked which should +have had immediate attention. Conspicuous among these was the question +of the rate of interest to be charged upon open contracts which the +action of the Governing Committee had suspended. This matter was not +reached until the meeting of August 4th, when the following ruling +was made: + + "The Special Committee rules that interest on the delivery at the + rate of 6 per cent. shall accrue from August 5th on all unsettled + contracts for delivery of securities, except that interest shall + cease when a receiver of securities gives one day's notice to a + deliverer that he is ready to receive and pay for same. + + "The Special Committee further rules that sales of bonds on July + 30th carry interest at the rate specified in the bond to July + 31st, and that between July 31st and August 5th they are 'flat'; + interest thereafter to be 6 per cent. on the amount of money + involved, subject to the exemption stated in the previous + ruling." + +In view of the fact that no action had been taken up to August 4th and +that a number of private settlements had been arranged in the meantime +the Committee thought it wise to avoid a retroactive ruling, and +imposed the 6 per cent. rate from August 5th. Injustice was done, in +some cases, by permitting a lapse of five days when no interest charge +was required, but this injustice was cheerfully borne owing to the +unusual exigencies of the situation. + +On this same day the Committee received the first communication which +indicated that some members of the Exchange had not yet appreciated +the necessities and dangers of the situation. This came in the form of +a letter from the Baltimore Stock Exchange which contained the +following passage:-- + + "A representative New York Stock Exchange house has been guilty + of going directly to one of the Trust Companies here, and made + offerings of bonds dealt in on both your Exchange and our own, at + a large concession." + +The Committee directed the Secretary to make the following reply:-- + + "In the matter of your letter of August 1, 1914, I am instructed + by the Special Committee appointed by the Governing Committee on + July 31, 1914, to inform you that in the opinion of said + Committee the offering down of securities in places where money + is loaned on securities is most reprehensible, and that members + of this Exchange ought not to engage therein. If possible, I + would like the name of the member of the New York Stock Exchange + who made such offer." + +It may be urged in extenuation of the act of the Stock Exchange house +that, August 1st being only one day after the closing, a thorough +appreciation of the gravity of the situation had not yet become +general. + + * * * * * + +By August 5th the work of the Committee had assumed the form that was +to continue unremittingly until the Exchange reopened four and one +half months later. A constant stream of communications either by +letter or by personal appearance filled the days sometimes from nine +o'clock in the morning until six in the afternoon. The communications +asked advice and made suggestions of every conceivable kind, but, +above all, they were loaded with problems and difficult situations +which had grown out of the breakdown of the financial machinery in +general. + +The labors of the Committee in striving to straighten out this +formidable tangle of business affairs led to their issuing a series of +rulings, which were binding upon all members of the Exchange. These +rulings were sent over the "Ticker" whenever they were passed, but on +August 5th it was decided to supplement the "Ticker" by distributing +the rulings in circular form, and thus insure the possession by every +member of a full copy of the entire number. It is a gratifying fact, +both from the standpoint of the Committee and of the Stock Exchange, +that no one of the very numerous rulings was a failure or had to be +rescinded, and that they were all accepted without cavil or serious +criticism by the members. In the relatively few cases where an +indisposition to live up to these rulings was brought to the attention +of the Committee, an appeal from them to loyalty and good judgment +never failed to bring a recalcitrant member to terms. + +On this day, August 5th, a special circular was sent out to answer the +constant inquiries as to whether purchases or sales of securities were +in any way permissible during the period of closing. It contained the +following: + + "When the Governing Committee ordered the Exchange closed it was + their intention that all dealings in securities should cease, + pending the adjustment of the financial situation and the + reopening of the Exchange. + + "It is possible that cases may occur where an exception would be + warranted provided such dealings were for the benefit of the + situation, and in no sense of a speculative character, or + conducted in public. Any member, however, taking part in such + transactions must have in mind, his loyalty to the Exchange, + whether or not he is living up to the spirit of the laws, and + that he is not committing an act detrimental to the public + welfare." + +On August 7th the question of the reopening of the Exchange again came +to the front. A letter from Baltimore was received urging that the +Exchange reopen for dealings in bonds only, and the newspapers were +so urgent for some statement on the subject that the Committee +authorized the following: + + "The Special Committee of Five will not recommend to the + Governing Committee the reopening of the Exchange until in their + judgment the financial situation warrants it, and as before + stated, ample notice will be given of the proposed opening." + +The question of borrowed and loaned stocks came up at this time in two +aspects, one the interest rate to be charged, and the other the +determination of the market price at which such loans should stand. +With regard to the former the Committee ruled on August 5th that +"until further notice, from and after this date, the interest rate on +all borrowed and loaned stocks shall be 6%." In the latter case they +ruled (August 10th) that "borrowed and loaned stocks must be marked to +the closing prices on Thursday, July 30th, 1914, at the request of +either party to the loan." + +The effect of this second ruling was to establish the policy of +regarding the closing prices of July 30th, as the market for +securities, so that all loans, whether cash loans or stock loans, +should be figured at this level. The making of any prices below those +of July 30th was to be resisted by every available means, and the +money-lending institutions were to be urged to cooperate by +recognizing them as a basis for exacting margins. As long as this +policy could be successfully carried out the danger of financial +collapse would be averted. + +It having been ruled that a lender of stock, by notifying the borrower +of his willingness to take the stock back, could stop the interest +charge on the contract, a considerable demand arose for new stock +loans to replace those in which this privilege had been exercised. The +matter of facilitating these new stock loans was taken up by the Stock +Exchange Clearing House, and this together with the negotiations for +voluntary settlement of back contracts now brought upon the Clearing +House Committee that great volume of work which increased steadily +until the reopening of the Exchange. + +One step tending to increase this work was taken on August 11th, when +the Committee ruled as follows: + + "Whenever a loaner of stocks gives one day's notice of + willingness to have the same returned and the borrower fails to + so return, the interest thereon shall cease. The Clearing House + of the Exchange is prepared to advise and assist in making new + stock loans and inquiries should be made in person there." + +The effect of this ruling was to create a borrowing demand for stocks +at current interest rates and the Clearing House Committee became the +agency through which these stock loans were negotiated. + +A further ruling, on August 11th, relative to the interest rate was to +this effect: + + "That on all loans of stock made between members after this date + the rate of interest is subject to agreement between the parties + to the transactions, but should not exceed 6 per cent." + +By the eleventh of August the question of the growth of an outside +unregulated market began to force itself upon the attention of the +Committee. All the organized Stock Exchanges of the country were +closed, the auctioneers had loyally agreed to abstain from making +sales, the "Curb" or recognized outside market was faithfully +cooperating to prevent dealing, the unaffiliated bankers and money +institutions were refraining even from the private sale of bonds in +which they were interested, so that for a brief period there was a +practically complete embargo on the marketing of securities. Naturally +enough, so absolute a restraint brought on a pressure which was bound +to force a vent somewhere. At first an occasional group of mysterious +individuals were seen loitering in New Street behind the Exchange. A +member of the Committee of Five, who was prone to see the humorous +side of things even in those dark days, remarked as he observed them +late one afternoon "the outside market seems to consist of four boys +and a dog." + +Before long, however, this furtive little group developed into a good +sized crowd of men who assembled at ten o'clock in the morning and +continued in session until three in the afternoon. At first they met +immediately outside of the Exchange, but later they took up a position +south of Exchange Place and close to the office of the Stock Exchange +Clearing House. Their dealings increased gradually as time went on and +never ceased entirely until the Exchange reopened. In all probability +the existence of this market was a safeguard as long as its dimensions +could be kept restricted. An absolute prohibition of the sale of +securities, if continued too long, might have brought on some kind of +an explosion and defeated the very end which it was sought to +achieve. + +This irregular dealing, as long as it remained within narrow limits +and was not advertised in the press, furnished a safety valve by +permitting very urgent liquidation. It was, however, continually +accompanied by the great danger that it might grow to large and +threatening proportions. If, in consequence of the facilities which +these unattached brokers were offering, responsible interests should +begin to take part in and help to create an open air market, the very +disasters which the closed Exchange was intended to prevent might be +brought about. + +It was necessary, therefore, that the Stock Exchange authorities +should do all in their power to hold the development of this market in +check. With this end in view they not only prohibited their own +members from resorting to it, but they exerted what influence they +could upon others not to lend it their support. The banks and money +lenders were urged not to recognize the declining prices which were +established there as a basis for margining loans, as such recognition +might tend to increase the dealings. One or two large institutions +which, at first, were disposed to finance the operations conducted in +the Street were persuaded to refrain from continuing to do so, and the +press, while giving publicity now and then to the very low figures at +which some leading stocks were quoted, was induced to avoid the +practice of regularly tabulating these prices. + +It having become apparent that some members of the Exchange, while +obeying the mandate to do no trading in New Street, were indirectly +helping the practice along by clearing stocks for the parties who +were making the market there, the Committee ruled (August 11th) "that +members of the Exchange are prohibited from furnishing the facilities +of their offices to clear transactions made by non-members while the +Exchange remains closed." + +The final outcome was that the New Street market did more good than +harm. It relieved the situation by facilitating some absolutely +necessary liquidation, and never grew to such proportions as to +precipitate disaster, but during the long suspense and uncertainty of +the closing of the Exchange it was a constant and keen source of +anxiety to the Committee of Five. + + * * * * * + +Toward the end of the first fortnight after the closing of the +Exchange, the communications received by the Committee made it plain +that there were quite a large number of purchasers, attracted by the +low figures reached in the last day's trading, who were ready and +anxious to buy securities at or above the closing prices. Obviously +purchases of this kind by investors who happened to be in a position +to take securities out of the market, promised to bring relief to +interests whose position was critical and thus to fortify the general +situation. This facility could not be extended in the form of a +general permission to the members of the Exchange to make transactions +privately at or above closing prices. To have permitted as far +reaching a relaxation of restraint as this in so critical a time would +have entailed too great a risk. If any one of the eleven hundred +members had proved disloyal in the exercise of so dangerous a +privilege and privately negotiated sales at prices below those of the +closing, the whole plan of sustaining values might have been +jeopardized. + +After considering the matter very carefully the Committee concluded +that the machinery and clerical force of the Stock Exchange Clearing +House could be advantageously used to supervise and control +transactions of this character, and, on August 12th, they issued the +following ruling: + + "Members of the Exchange desiring to buy securities for cash may + send a list of same to the Committee on Clearing House, 55 New + Street, giving the amounts of securities wanted and the prices + they are willing to pay. + + "No offer to buy at less than the closing prices of Thursday, + July 30, 1914, will be considered. + + "Members of the Exchange desiring to sell securities, but only in + order to relieve the necessities of themselves or their + customers, may send a list of same to the Committee on Clearing + House, giving the amounts of securities for sale. + + "No prices less than the closing prices of Thursday, July 30th, + 1914, will be considered." + +Thus was established a market in the Stock Exchange Clearing House +which was kept in operation until the complete reopening of the +Exchange. Immense labor and difficulty were brought upon the Clearing +House Committee in order to handle and supervise this unusual method +of trading, and the extraordinary success with which it was carried +through has entitled them to the lasting gratitude of their fellow +members. The business was conducted by having a large clerical force +tabulate the orders received and bring purchasers and sellers together +who were willing to trade in similar amounts and at similar prices. In +order to consummate a trade the Clearing House would notify both +parties, leaving it to them to carry out the delivery and payment, and +requiring them to inform the Clearing House when the transaction had +been completed. + + * * * * * + +The first effect of furnishing this means for establishing a +restricted market was very encouraging. A very considerable amount of +business began at once to be entered into. Many people with ready +money, who felt that securities had fallen to bargain prices, appeared +as purchasers and relieved the necessities of those who had been +embarrassed by the war crisis. A little later, however, when the +progress of the war took on a more discouraging aspect, this "Clearing +House Market" fell to the arbitrary minimum of the closing prices with +a large excess of selling as compared to buying orders, and the "New +Street Market" grew in proportion. During the darkest days of +depression the prices of a few leading stocks such as U. S. Steel and +Amalgamated Copper dropped in the Street ten points or more below +their July 30th closings, and business in the Clearing House almost +ceased, but in the later Autumn, when the rapid rise in the volume of +American exports began to foreshadow a readjustment in foreign +exchange, the New Street prices rose again to the Clearing House level +and a relatively small business in the "outlaw" market was transformed +into a relatively large business conducted under the supervision of +the Exchange. + +It is an interesting detail, worth mentioning, that the ruling of the +Committee quoted above, which established a market in the Clearing +House, used the permissive word "may" in stating that orders to buy +and sell might be sent to that institution. This was soon taken +advantage of by a few individuals who proceeded to conduct private +transactions among themselves. Their excuse was that if transactions +were merely permitted in the Clearing House it became optional as to +whether they should take place there or elsewhere. Within a few days +thereafter the Committee amended the ruling by substituting the word +"must" for the word "may." The great responsibility attached to +promulgating rulings, which were to be the law during this critical +period, is made more apparent when it is realized that the ill +considered use of a single word might bring on unforeseen and perhaps +dangerous consequences. + +During the month of August a constantly increasing pressure from every +conceivable direction was exerted to break down the dam with which the +Committee was striving to hold back the natural flow of dealings in +securities. By letter and by personal appearance before the Committee +individuals, in and out of the Exchange, strove to induce them to +countenance transactions at prices below the arbitrary level of the +closing. In addition to this agitation among individuals and firms, +restlessness began to show itself in some of the other Exchanges. At +one time the Stock Exchange of a great neighboring city, which had +permitted restricted dealings exactly similar to those carried on in +New York, wished to have those dealings regularly quoted in the +newspapers; at another time a movement developed on the Consolidated +Stock Exchange to establish some kind of restricted public dealing on +their floor. The Committee of Five were obliged to labor hard and +assiduously to hold this pressure back and keep the dam intact, and +its efforts were ably and loyally seconded by the Committee of the +Bank Clearing House whose great influence was unremittingly exerted to +prevent the danger of premature action of any kind. + +On September 1st the Clearing House banks were anxious to determine +what was the amount, measured in money, of securities sold in New York +by Europe and not yet received. The object of obtaining this +information was to know what demand would be made upon the loan market +if, at any time, these securities should be shipped. At the +suggestions of the bankers the Committee of Five summoned before them +representatives of all the houses doing a foreign business and +requested them to send answers, as promptly as possible, to the +following two questions: + + _First:_ "Amount due Europe for securities received to date and + not yet paid." + + _Second:_ "Amount due Europe for securities already sold but not + received from Europe." + +On the following morning answers were handed in showing that the +amount received and not yet paid for was $699,576.11, and that the +amount due Europe on securities sold but not yet received was +$18,236,614.15. The rapidity and accuracy with which this important +information was obtained, without any publicity or disturbance of +confidence, is interesting as showing the efficiency of the intimate +cooperation between the banks and the Stock Exchange. + + * * * * * + +Among the many agencies for dealing in securities, whose activities +were suddenly cut off on July 31st, the first in importance next to +the Stock Exchanges themselves were the so-called bond houses. These +firms, which included in their number many prominent private bankers, +were dealers on a great scale in investment bonds, and when the +thunderbolt of war struck they were carrying large lines of those +bonds on borrowed money which, in the ordinary course of events, would +have been placed among their numerous clients. When the crisis of +early August had developed, all these houses (some of them not being +members of the Stock Exchange) loyally cooperated in closing up the +market, and abstained from negotiating their securities even in the +most private manner. By the middle of August, however, a number of +them began to show decided restlessness over the embargo upon their +business. The cutting off of their accustomed income, while expenses +continued as usual, was not what influenced them, for this hardship +was shared by all Wall Street, but the enforced carrying of securities +in bank loans at so critical a time when they felt that these +securities might be disposed of became a grievance. + +It was urged by many of them that the careful placing of these +securities would be a great aid to the situation because every +investor who made a purchase would facilitate the liquidation of their +loans, ease the strain on the money market, and diminish the volume +of securities for sale. There was undoubtedly much to be said in favor +of this view when looked at from the standpoint of the effect upon the +bond houses themselves or upon the loan market, but there was another +aspect of the question which was less reassuring. If these houses +started, at this terribly critical time, to place their securities +among their clients at declining prices, and if these prices became +known, which they certainly would, no one could foretell what the +consequences might be. Many large institutions, such as Insurance +Companies and Savings Banks, had funds invested in bonds, and many +money lenders held loans upon bonds as security; what would be the +effect upon these interests if a declining market even in unlisted +bonds should be publicly quoted? + +Influenced by this grave uncertainty the Committee of Five resisted +the pressure brought upon them by certain representatives of the bond +dealers who raised this question first on the nineteenth of August. +Several of these gentlemen represented important firms and +institutions which were not members of the Exchange, and their freedom +from any obligation to be controlled by the Committee created a +situation which threatened to become strained. In all cases of this +kind, where an independent outsider and the Committee could not come +to an understanding, the practice had become established of appealing +to the Clearing House Bankers to act as a court of last resort. The +banks, with their power to call loans, exerted an influence which +could reach every nook and corner of the business world, and, at the +same time, their immense facilities for feeling the financial pulse +made them the best judges of what risks it was as yet safe to take. A +series of meetings consequently took place between the Bank Clearing +House Committee, the representatives of the bond houses, and the +Committee of Five. At the first of these meetings the bank Presidents +leaned very decidedly to the views of the Stock Exchange, and it was +decided to postpone any consideration of a departure from the status +quo for at least a fortnight. + +The general situation remaining very critical all through August, no +further steps were taken until September 8th. By that date a new +factor had intruded itself into the situation. Certain corporate +obligations were about to come due and the refunding of these +obligations, whether in fresh issues of bonds or in short term notes, +was going to make it necessary to withdraw the prohibition against +placing investment securities upon the market. When this necessity +became clear it was decided that some strict supervision and +safeguarding of the sale of bonds and notes was necessary and the +so-called "Committee of Seven," appointed by the bond dealers, were +requested to formulate a plan for this purpose. This Committee of +Seven consisted of members of the firms of: Brown Brothers & Co.; +Guaranty Trust Co.; Harris, Forbes & Co.; Kissel, Kinnicutt & Co.; Wm. +A. Read & Co.; Remick, Hodges & Co., and White, Weld & Co. + +On September 9th, this Committee issued the following notice to bond +dealers: + + "Your Committee is pleased to report that New York City's + financial needs have been taken care of satisfactorily, thereby + considerably clearing the foreign exchange situation which + existed when our communication of September 3d was sent out. + + "The Committee is therefore of the opinion that the placing of + securities owned by dealers with their private customers should + be approved where the securities can be sold without disturbing + the collateral loan situation and your Committee will be glad to + continue to advise whenever such opportunities arise. Anything + tending toward public quotations or the creating of the + impression of an active or even semi-active market would + unquestionably seriously disturb the loan situation. + + "Transactions with bargain hunters should not be countenanced and + your Committee will not approve the closing of transactions + coming under this head. Prices should conform to the spirit which + has prevailed during the past few weeks. + + "Recognizing the support which banks and other lenders of money + have given to dealers in securities, it should be the policy of + such dealers when securities are sold to apply the proceeds + toward the liquidation of loans. + + "The Committee has considered questions of maturing obligations + of cities and corporations and believes that the present + situation does not warrant any attempt to issue long time bonds, + but that such refunding should be accomplished through short time + financing. + + "The Clearing House Committee and the Stock Exchange Committee + have expressed appreciation of the cooperation shown by the + dealers in listed and unlisted securities and if all will + endeavor to live up to the spirit of the policy thus far adhered + to we are sure there will be no cause for criticisms on the part + of the banks or the Stock Exchange Committee. + + "Your Committee of Seven will continue to meet in the Directors' + Room of the Chase National Bank daily, from 11 A.M. to 12 M., for + advice on any cases where we can be of any assistance whatever." + +The practical plan adopted was as follows: + +Bond houses having securities of their own for sale could place them +with their clients at prices approved by the Committee of Seven. All +purchasers and sellers of bonds, acting as brokers only, were required +to file their orders with the Committee of Seven when dealing in +unlisted bonds, and with the Stock Exchange Clearing House when +dealing in listed bonds, and these two agencies were empowered to +determine minimum prices below which sales could not be made. + +It will be seen that a very important step in the direction of +relaxation of restraints was here taken. Not only was the prohibition +of all dealings which had marked the beginning of the crisis +withdrawn, but prices below the closing sales of July 30th were to be +permitted subject to the supervision of a Committee. + + * * * * * + +As has already been stated, the Committee on Clearing House had their +hands full from the time the Exchange closed, first with bringing +about the settlement of the contracts of July 30th, and secondly with +carrying on the business of making new contracts for members wishing +to trade in securities at or above the closing prices. It was +impossible, therefore, for the members of that Committee to give +personal attention to the difficult problem of determining the prices +below which listed bonds should not be sold. To meet this difficulty +it was decided that a small additional Committee of men known to be +thoroughly familiar with the bond business should be organized, and +that it should be their duty to control the liquidation of listed +bonds. + +The carrying out of this plan at first met with a technical obstacle. +The power to appoint a Special Committee rested exclusively with the +Governing Committee of the Exchange; in order to secure action a +special meeting of that body would have to be called; in the early +weeks of September sentiment was still in so critical a state and +every act of the Exchange was so keenly watched that it was feared the +holding of an extraordinary meeting might start rumors and cause +alarm. In view of these considerations the Committee of Five hit upon +the makeshift of inviting three members of the Governing Committee, +who possessed the desired qualifications, to volunteer their services +as an advisory body in the matter of fixing prices for listed bonds. +The three members selected were Messrs. C. M. Newcombe, Vice President +of the Exchange, W. H. Remick, and W. D. Wood. + +On the 19th of September these three gentlemen cheerfully undertook +the difficult and onerous task urged upon them, and for three months +they abandoned their own private interests and devoted their entire +time to it. Owing to the intelligent and judicious manner in which +they handled the delicate problem of conducting a liquidation in +listed bonds that should at once be effective and yet not lead to +demoralization, they placed themselves among the foremost of those to +whom the financial community owes a debt of gratitude. + + * * * * * + +By the latter part of September methods, as described above, had been +found for facilitating a restricted liquidation of listed stocks, and +of listed and unlisted bonds. Nothing, however, had been done to make +an outlet for unlisted stocks. The "Curb" market and certain prominent +unaffiliated houses dealing in these securities had loyally played +their part in suspending dealings, but symptoms began to show +themselves of possible revolt, and the Committee of Five set to work +to find a safety valve for this department also. The device of a +supervisory Committee had proven so efficacious in other directions, +that it was naturally turned to in this instance. The circumstances +differed, however, in one particular. The bond dealers had +spontaneously created for themselves the very efficient Committee of +Seven who took their affairs in hand, but the interests involved in +unlisted stocks did not show the same solidarity, and it was necessary +for the Committee of Five to take a hand in initiating action. + +With this end in view they consulted Mr. Herbert B. Smithers, of the +firm of F. S. Smithers & Co., concerning the feasibility of having a +committee formed to pass upon and control a resumption of dealings in +unlisted stocks. Mr. Smithers was singled out for the reason that he +was a member of the Stock Exchange whose firm was among the most +prominent dealers in these securities, and the prompt and energetic +way in which he undertook the task proposed to him soon convinced the +Committee that they had not erred in resorting to him. He set about +organizing a Committee at once and on September 24th he appeared +before the Committee of Five accompanied by Messrs. A. C. Gwynne, F. +H. Hatch, A. H. Lockett, and E. K. McCormick. These gentlemen +announced that they were willing to act, with Mr. Smithers as their +Chairman, and a plan for the control of the market in unlisted stocks +was agreed upon. + +In order to clothe this Committee (which included two Stock Exchange +members, two representatives of prominent outside dealers, and the +President of the Curb Association) with authority, the Committee of +Five directed members of the Exchange to submit proposed dealings in +unlisted stocks to them and abide by their rulings. The Stock Exchange +Committee could, of course, only control its own members, but it being +a fact that a very large part of the unlisted business emanated from +Stock Exchange houses, it was probable that their action would +determine that of unattached dealers. This expectation was, in the +main, borne out, and business in unlisted stocks began to be carried +on actively under the jurisdiction above described. + +It is necessary to record, however, in the interest of preserving a +correct picture of the happenings of this momentous time, that the +smooth and gratifying operation of the various other Committees, which +sprang into being to handle the numerous problems presented, was not +entirely repeated in this case. + +The conditions surrounding unlisted stocks seemed on the surface to be +identical with those pertaining to unlisted bonds. In both cases a +business that was partly in the hands of Stock Exchange members and +partly in those of outside concerns was to be presided over by a mixed +Committee representing both interests. In the case of the Bond +Committee of Seven this supervision was accepted and cheerfully lived +up to by practically all concerned. A different situation soon +developed in unlisted stocks. Almost immediately certain individuals +in the business began to assert that the unlisted Committee was a self +appointed body which did not represent the people most concerned, and +that being themselves dealers in the properties the trades in which +were under their supervision, these gentlemen could not be trusted to +act fairly in making their rulings. After much preliminary growling +which vented itself in interviews with the Committee of Five, this +antagonistic sentiment crystallized into a written protest. + +On October 1st, the following statement was presented to the Committee +of Five. + + + "GENTLEMEN: + + "Owing to a general feeling of dissatisfaction amongst members + and non-members of the New York Stock Exchange resulting from the + formation of a Committee of Five to supervise dealings in + Unlisted Securities, we, the undersigned, desire to suggest the + following recommendations for your consideration: + + "_First_: The personnel of the Committee be changed to the effect + that same be composed of parties not identified as dealers. + + "_Second_: That in stocks which have an open or active market, + transactions may be made without restriction or necessity of + report to the Committee, when at or above the closing prices of + July 30, 1914. + + "_Third_: That where securities have not had an active or open + market the bid prices as published in the _Chronicle_ of August + 1st, be accepted as the closing prices. + + "_Fourth_: That in the case of securities where the Committee may + deem it possible to trade at prices below those prevailing on + July 30th, they establish minimum prices good for as long a time + as the Committee deems practical, and that a list of these prices + be furnished to those making application for same." + + "We think that if the above recommendations are put into force, + it will do away with the criticism which has been made as to the + Committee as at present constituted, and by so doing increase the + efficiency of this Committee on Unlisted Securities, by securing + thorough and hearty cooperation on the part of all brokers and + dealers in these issues." + +In reply to this appeal the Committee of Five pointed out that +whenever, in other cases, the action of a Committee had been invoked +to supervise the transaction of business, confidence in the integrity +of that Committee had been general and unquestioned. The Committee of +Seven, the Committee on Clearing House, the Committee of Three, and +the Committee of Five themselves had all been vested with dictatorial +powers over a business in which their members were personally engaged. +In order to render trading in unlisted stocks a possibility, at the +time, similar powers must be granted and similar confidence must be +given to some one. The Unlisted Stock Committee were not +self-appointed because they came into being at the instigation and +suggestion of the Committee of Five, and to disband them after they +had started upon their work, substituting other individuals in their +places, would merely stimulate fresh antagonism that might wreck the +entire project. The fact that these men were dealers in outside +properties especially fitted them to pass upon the reasonableness of +the prices that were to be made, and there was no more reason to +question their integrity of purpose than there would be to doubt that +of any individuals who might take their place. + +A firm stand was thus taken in defence of this new Committee, and they +succeeded in carrying on their work successfully up to the time when +the amelioration of conditions enabled them to disband. It must be +regretfully recorded, however, that the petty jealousy and distrust +which had appeared in connection with this episode continued to show +themselves in a desultory way until the end. A few individuals threw +what impediments they could in the path of this Committee, and thereby +furnished the only exception to the wonderful exhibition of loyalty +and self effacement that manifested itself in every other department. + + * * * * * + +When the Exchange suddenly closed its doors, an immense number of +people, consisting of employees of the Exchange itself and the +clerical forces of all the many brokerage houses, were rendered idle. +As soon as it became evident that the suspension of business was going +to be indefinitely prolonged, the grave question arose as to the +extent to which these people would be thrown out of employment. The +Stock Exchange at once set the generous example of deciding to retain +its entire force without reduction of wages, and this decision was +carried through for the entire four and one half months of suspension. +A more difficult problem, however, confronted the brokerage houses. +Many of these firms had very heavy office rents and fixed charges of +various kinds; their business had been showing meager profits and even +losses for some years and, the length of the period of closing being +impossible to forecast, they did not dare to undertake burdens that +might get them into difficulties. The result was that a few strong +houses, with philanthropic proclivities, carried their clerical forces +through on full pay, but the majority were obliged to cut them down in +various ways. In some cases the full force was retained on greatly +reduced salaries, in others salaries were reduced and part of the +force discharged, and the net result was that a great number of +unfortunates were either thrown into unemployment altogether or placed +in very straightened circumstances. + +It is an interesting fact, bearing on the popular superstition that +Wall Street is peopled by unprincipled worshippers of the dollar who +are incapable of those finer qualities of character which are confined +exclusively to other walks of life, that there is no region in which a +quicker response to the call of the needy can be obtained than on the +floor of the Stock Exchange. Even though the brokers were facing an +indefinite period of starvation themselves, with expenses running on +one side and receipts cut off on the other, the moment it became clear +that severe suffering had come upon the clerical forces of the Street +a movement was at once set on foot to start measures of relief and +assistance. Perhaps the best way to convey an idea of the form which +this assistance took is to quote from a report on the subject made by +one of those who generously gave his time to the work. What follows is +in his own words. + +"A phase of the extraordinary and unprecedented conditions prevailing +in the Financial District, commonly known as 'Wall Street,' was the +necessity for cutting down office expenses, and though many firms +carried their salary list intact, a considerable number laid off from +one half to two thirds of their employees, and subsequent events +developed the fact that some of them discharged practically their +entire force. + +"About the middle of September, the distress said to exist among the +Wall Street employees, who had lost their positions as a result of the +war in Europe, prompted Mr. C. E. Knoblauch to suggest that some +concerted action be taken to meet this emergency, if only as a +temporary expedient. A number of informal discussions of the subject +with fellow members of the Exchange, and further evidences of the +existence of a wider field for the work than was at first realized, +culminated in a call for a meeting in the office of Tefft & Company +and immediate organization. + +"Officers having been duly elected, the personnel of the Committee was +declared to be as follows:--James B. Mabon, W. H. Remick, Graham F. +Blandy, R. H. Thomas, W. W. Price, G. V. Hollins, C. E. Knoblauch, C. +J. Housman, G. M. Sidenberg, Townsend Lawrence, T. F. Wilcox, Erastus +T. Tefft, Chairman; Charles L. Burnham, Secretary; Edward Roesler, +Treasurer. + +"The title of the Committee was formally agreed upon as 'The Wall +Street Employees' Relief Committee.' + +"Through the courtesy of Mr. Clarence Mackey, the offer of a suite of +rooms on the second floor of the Commercial Cable Building, 20 Broad +Street, for the use of the Committee, at no charge for rent, was +gratefully accepted, and arrangements for occupation were made at +once. Mr. Oswald Villard, through a member of the Committee, evidenced +his interest by offering temporary use of rooms in the _Evening Post_ +Building for the purposes of the Committee. + +"It was determined that the principal object of the Committee would be +to act as an Employment Bureau, to find positions for unemployed and +to relieve distress where it was found to exist. It was understood and +arranged for, that any Wall Street employee who had lost a position as +a result of the war was eligible, and that no fees whatever be +charged. A circular letter was sent to Stock Exchange members and +firms appealing for subscriptions, and the matter of selection of a +depository of the funds was referred to the Treasurer with power. The +work of receiving and recording registration blanks commenced with a +rush, over one hundred and fifty were filed the first day, and in a +few weeks they numbered over one thousand. + +"A very pleasant feature of the work was the cordial cooperation +encountered on all sides. Helping hands were extended everywhere. The +newspapers gave many 'reading notices,' and special advertising rates, +and the news bureaus printed any and all notices as and when +requested. The Stock Exchange Library Committee and the Secretary's +Office placed their typewriting, multigraph and circular printing +facilities at the Committee's disposal, furnished the rooms with +desks, chairs, etc., and supplied all necessary stationery. The Stock +Exchange force of telegraphers and other employees practically in a +body volunteered their services, and those selected were of great +assistance in preparing the card index system, which was used and +found to be practical and eminently satisfactory. Appreciated +assistance was promptly tendered by The Telephone Clerks' Association, +The Association of Wall Street Employees, and The Wall Street +Telegraphers' Association. + +"Several cases of sickness, some very serious, were taken care of by +Dr. L. A. Dessar, who gave free medical service to all applicants +recommended by the Committee, and provided hospital treatment when +required. The declarations made by the applicants demonstrated beyond +any question that the number of men, women, girls and boys for whom +prompt assistance in procuring employment was imperatively necessary +had been greatly under-estimated, and evidenced an absolute argument +endorsing the reasons for the Committee's existence. + +"Many who applied were not in immediate need of money, but wanted +employment, which the members of the Committee sought for them by +individual solicitation of everyone they knew, or knew of, who were +employers, and also by careful, judicious and timely advertising in +the daily papers. Such satisfactory results were attained, that up to +date of this writing, (May 15, 1915), of over seventeen hundred +applications received, permanent positions were secured for about +seven hundred at rates of compensation that were distinctly +gratifying, all conditions considered. Two hundred and thirty were +placed in temporary jobs for periods ranging from a few days to +several weeks, a number of them being re-employed two or three times. +Four hundred and ninety, having been taken back by their former +employers, withdrew their applications. + +"Numerous positions obtained for applicants while the Exchange was +closed were in lines other than Stock Exchange business, and Wall +Street clerks notwithstanding their recognized efficiency being, so to +speak, specially trained, it was often found to be difficult, even +impossible to make them fit the kind of work to which they were more +or less strangers. In view of the fact that this circumstance made +the accomplishment desired necessarily slow, the outcome demonstrated +that it was reasonably sure. + +"The request for subscriptions to the fund met with a hearty and +generous response. Some apprehension was felt in this regard, but the +splendid result proved to be an agreeable surprise. Appeals for +subscriptions to the fund were made only to Stock Exchange members and +firms, nevertheless, thanks to the general interest manifested, and +the widespread advertising consequent thereto, contributions were +received from generous friends outside of Wall Street, to an extent +that was simply astonishing. Checks for $1,000 each were not unusual +items, and as a rule the request was made, 'please do not publish my +name.' A well known artist, in addition to a cash subscription, +presented one of his paintings to the Committee. Through the kind +assistance of the Chairman of The Stock Exchange Luncheon Club, the +picture was sold for the substantial sum of $500. + +"The Treasurer, with ample funds at his disposal, was able to meet +calls for financial help that were frequent and pressing, and +recognizing the desirability of experienced and competent assistance +in making the necessarily intimate inquiries, to determine if +applicants for relief were worthy, he applied to Mr. Robert W. +DeForest, President of The Charity Organization Society, for expert +advice in the matter, and was referred by Mr. DeForest to Mr. Frank +Persons, Manager of the New York Bureau, and Miss Byington, in charge +of the Brooklyn Branch, who rendered invaluable services in +connection with many of the applications, all of which were carefully +investigated. Much suffering and distress, and some cases of actual +destitution were found to exist, and while a detailed statistical +statement would seem uncalled for and not desired at this time, the +following brief resume of the Committee's 'relief work' will +undoubtedly prove to be of interest. + +"Financial assistance was extended to about one hundred individuals +and families; rent was paid for thirty-nine; food purchased for +forty-six; clothing was furnished in seven instances; five persons +were placed in hospitals; there were a considerable number of cases +where the Committee in whole or in part took care of funeral expenses; +old debts for medical attendance and drugs; agency fees and surety +bonds; life insurance premiums, board and lodging, etc., etc. Many +applicants for assistance proved to be merely temporarily embarrassed, +they were willing and anxious to be helped but did not want charity, +so to meet that emergency a form of voucher was used, which +acknowledged the receipt of a 'loan' without interest, to be repaid at +the convenience of the 'borrower.' That applied to _cash_ of course, +payments for groceries, rent, etc., were simply receipted for. + +"The results achieved, in the opinion of many, would seem to warrant +an amendment to the original idea that a return to normal conditions +would involve the dissolution of the Committee, and the proposition +that it be made a permanent organization is being seriously +considered." + +This record is deeply gratifying to the brokerage fraternity because +it discloses the fact that, even in the midst of a calamity so great +that no individual could feel himself beyond the reach of insolvency, +the impulse to succor the unfortunate remained as strong as ever among +them. + + + + +CHAPTER III + +THE REOPENING OF THE EXCHANGE + + +The fact that the Stock Exchange closed on July 31st and did not +reopen fully until December 15th, might lead to the supposition that +the question of reopening was not taken up before December. Far from +this being the case, the truth is that reopening began to be discussed +immediately after the institution was closed. Within twenty-four hours +of the closing the minority, who had not been at first convinced of +the wisdom of that action, joined with the majority in urgently +advising that the Exchange be not reopened soon. All through the month +of August a growing anxiety over the possibility of some hasty action +by the Exchange authorities showed itself among brokers, bankers, and +even some government officials. For this anxiety there was never any +basis, because the officers of the Exchange having exceptional means +of knowing what the dangers were, had no intention of assuming the +immense responsibilities of re-establishing the market without the +backing and approval of the entire banking fraternity. Gradually the +excited solicitude about a premature reopening subsided as the +ultra-conservative attitude of the Exchange was understood, and this +was followed ere long by the first symptoms of agitation for the +establishment of some form of restricted market. + +As we have already shown the restraints of July 31st were relaxed one +by one with the lapse of time. First a market at or above the closing +prices was organized under the Committee on Clearing House; then +Committees to facilitate trading in listed and unlisted bonds were +formed; and finally a market was provided for unlisted stocks. All +these devices, however, while they brought about readjustment and +diminution of strain, did not constitute a reopening of the Stock +Exchange, and the restoration of that great primary market, in some +restricted way, became more and more a subject of public interest and +concern. + +As we have seen, the fundamental reason for closing the Exchange was +that America, when the war broke out, was in debt to Europe, and that +Europe was sure to enforce the immediate payment of that debt in order +to put herself in funds to prosecute this greatest of all wars. To use +an illustration popular in Wall Street at the time, there was to be an +unexpected run on Uncle Sam's Bank and the Stock Exchange was the +paying teller's window through which the money was to be drawn out, so +the window was closed to gain time. How to reopen this window in such +a way as not to pay out any more money to the foreign creditor than +would suit our own convenience was the problem which soon began to +agitate many ingenious minds. As time went on plans for performing +this difficult feat poured in upon the Committee of Five in constantly +increasing volume, and they were frequently accompanied by a request +on the part of their authors that, when adopted, the credit for their +success be publicly attributed to them. An edifying confidence was +thus shown in what were usually the most visionary of these schemes. + + * * * * * + +Space does not permit the presentation of all these multitudinous +suggestions, but as a matter of information we shall quote extracts +from some of them. In point of time, the first communication to the +Committee on this subject came on August 4th when a prominent banker +appeared in person, and gave vent to the following oracular utterance: +"When the Exchange reopens it should not do business from ten till +three, but should open from ten o'clock to one. All transactions +should be for cash, and must be delivered and paid for the same day, +no contract to be allowed to stand over night." He also made the +prediction, which was amply verified, that many weeks would elapse +before the Exchange could be reopened at all. Some little time elapsed +before anything further was presented on the subject, but by the end +of August the flood of plans began and went on increasing until the +Exchange resumed business. + +On August 31st a communication was received from a well known +"Statistical Organization" for "Merchants, Bankers and Investors" +which said, in part: "In behalf of my clients, who are exceedingly +interested in making it possible for the Stock Exchanges to open +safely, I am getting the opinion of important bodies relative to the +proposed legislation suggested on the enclosed slip, or any other +which you think would serve the purpose." On the enclosed slip was the +following proposed legislation "to enable the Stock Exchanges to +open." + + "Be it enacted: That until the President considers European + conditions fairly normal it shall be a misdemeanor in this + country to buy, sell, transfer, give, or accept as collateral, + shares of stock or evidences of indebtedness extending over one + year, unless accompanied by a certificate showing that the owner + is a United States citizen, together with such evidence as the + Secretary of the Treasury may require that the securities have + been owned by United States citizens since July 30th, 1914." + +In answer to this proposition the Secretary of the Stock Exchange sent +the following reply: + + "Answering your letter of August 29th, 1914, I am instructed by + the Special Committee of Five appointed by the Governing + Committee to say that in its opinion such legislation as referred + to would be ruinous to the credit of the United States throughout + the world for many years to come." + +In September a letter was received from a Western banker suggesting +that the slogan "Buy a share of stock" if started "would achieve +success, and by so doing would greatly benefit the stock market +situation. This movement would have to be started so as not to create +the impression among the many thousands of people it would reach, that +it was merely a movement for the purpose of benefiting the stock +brokers, but that it would be instrumental in relieving the strain on +every conceivable business. Were such a movement accepted, and should +it meet with results worthy of the plan it would be found out when the +smoke clears away that American people would own American railway and +industrial shares. This could be only for the great benefit of this +country but for Europe as well, for the reason that if Europe knew +that there was a good absorbing power here it necessarily would not +dump its stocks at frightful sacrifices." + +In October a junior member of one of the big private banking houses +appeared personally and stated that, in his opinion, both domestic and +foreign security holders should be treated alike; that sales should be +conducted as usual; that on reopening transactions should be +restricted and only sales be published and no bids or offers. His idea +of restriction at the start was that all stock purchased should be +paid for on the basis of 10% cash and the balance in certificates of +deposit for cash, which certificates were to be non-negotiable except +between banks. A Committee could, from time to time, remove the +restrictions from such securities as seemed no longer to require them. +The banks should be asked to agree not to call any present loans and +to be very sparing in calling for margins. + +Close upon the heels of this plan came a letter signed "A Friend of +the People" which said "Let the Stock Exchange be opened strictly for +the sale of American securities held by foreign stock holders. If they +wish to throw their stocks over we can buy them at our own price. +After six or eight days' selling from Europe the Exchange could be +open to the world. By that time the market should be on a rising scale +and safe for all." + +This gentleman showed some originality in his view that the foreigner +should be invited to sell at once, instead of being legislated out of +the market as so many other advisers proposed. He seemed to be quite +oblivious of the difficulties, however, that would have been +encountered in inducing American security holders to stand by in +pensive calm while the foreigners unloaded to their heart's content. + +Early in November a Philadelphia banker wrote a long and intricate +letter the full details of which we have not space to reproduce, but +it contained the following fragment which is interesting in its way: + + "Could not a plan be formulated between the Stock Exchanges, + investment bankers and Federal Reserve Banks, by which the + securities could be valued on their intrinsic and market values + at such prices that would be considered reasonable to be obtained + in the next two or three years; that the lenders be guaranteed + against any losses from recession below the stipulated point at + which the securities might later be liquidated, say sometime + during the year 1917, if it had not been voluntarily liquidated + without loss before. Loans so insured would have to be in force + on securities carried prior to a certain date, probably before + the Exchange opened, if not last July 30th, and that an insurance + premium would be charged which would be considered slightly more + than adequate. Any surplus could be eventually pro-rated to the + policy holders. There would need to be no obligation to take out + such insurance unless the borrowers preferred. The banks might, + however, force them to do so in many cases or pay off loans." + +At about this time many letters and suggestions were received +centering round the main idea that the market be opened exclusively +for such stocks as were not much held in Europe. Just as a +correspondent cited above seemed to believe that American security +holders could be compelled to remain inactive while foreigners sold +their holdings, so these people imagined that holders of one class of +securities could be kept quiet while the prices of some other class +were declining in a free market. + +With the above came a letter from a correspondent whose thoughts +carried him back to the old days of buyers' and sellers' options, when +most of the security business was done on 30 or 60 day contracts. He +proposed that the Exchange be reopened so that "all trades made be +'buyer 60'. No other bids or offers to be valid." This would postpone +for two months the settling day for the expected liquidation, and he +felt certain that by that time there could be no trouble in meeting +obligations. Unfortunately at the time he wrote there was no way of +obtaining assurance of this happy outcome. The same idea in a somewhat +different form came from another correspondent who, instead of +deferring payment by a buyer's option, proposed that stocks and bonds +be sold on a 10 per cent. basis "That is, the seller of 100 shares of +Union Pacific at 112 will deliver to buyer 10 per cent. of amount +sold, and receive a check for $1,120, together with a contract in +which the buyer agrees to take 10 per cent. more, or say 10 shares at +the end of six months, 10 shares in 9 months, 10 shares in 12 months, +10 shares in 15 months," etc., etc., at the original price of $112 per +share. This plan seemed to contemplate a bequest of unsettled +contracts to future generations of unsuspecting brokers. The author of +it was particularly solicitous that, in the event of its adoption, his +name should be handed down to posterity along with the unfulfilled +contracts. + +An idea of very wide prevalence, which was touched upon in nearly all +communications to the Committee and which even some bankers approved, +was that a preliminary step to reopening should be an agreement by +the banks not to call loans made prior to July 31st, 1914, for some +specified period of time. This idea was very thoroughly discussed and +looked into by the Committee. It was found to present great practical +difficulties, but was never definitely abandoned until the resumption +of business was shown to be possible without it. + + * * * * * + +The advice which was received by the Committee of Five with regard to +reopening was divided into two classes. There was that large body of +suggestions, some of which we have described above, which were +volunteered either in letters or in interviews, and there was the +advice of well known bankers and men of financial prominence which the +Committee itself solicited. In the latter class figured a member of +one of the largest private banking houses in New York whose opinions +and counsel were of inestimable value. This gentleman, gifted with +clear insight and a thorough grasp of the situation, and generously +anxious to be of service to the Committee, pointed out from the start +that the reopening of the Exchange hung upon a favorable swing in the +balance of trade. When the indebtedness of the United States to Europe +could be offset by our exports the danger of reestablishing our market +would become negligible, and this shrewd adviser predicted that the +desired reaction in foreign exchange was much closer at hand than was +generally supposed. The most valuable of his admonitions, and the +words which did most to strengthen the courage and resolve of the +Committee were these: "You will be given all kinds of advice by all +kinds of people, but remember that in the end the responsibility will +fall upon you, therefore listen attentively to everything you are told +but act on your own independent judgment." This wise course was +successfully followed, and the change in the trend of foreign exchange +came, as he predicted, much sooner than was expected. + +Numerous other prominent men who were turned to for assistance showed +the greatest willingness to render every service within their power, +and placed the Committee under heavy obligations. There was one case +where the zealous desire to work out a very detailed solution of the +reopening problem brought a 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 zeal of an outsider who while trying to pilot the +Committee into safe waters succeeded in running it on a reef of his +own creation. + +Immediately on ascertaining the true situation the following notice +was sent out on Saturday: + + "The Special Committee of Five announces that having consummated + its plan for bond transactions on the Exchange under certain + specified restrictions, the same will, in accordance with the + Constitution of the Exchange, be submitted to the Governing + Committee at the regular meeting to be held on the 24th inst. If + the recommendations of the Special Committee are adopted by the + Governing Committee the plan will go into operation at an early + date." + +Some of the newspapers having announced positively that this new move +with regard to bonds would take place on Monday, the 23rd, they were +very indignant that it should be postponed without supplying them with +a good and sufficient reason. The Committee, on its part, feeling +that it was undesirable to publish the details of an awkward +misunderstanding with a public official, who would not want his name +dragged into a matter that he had in no way concerned himself with, +refused to furnish the reason. This at once let loose upon them those +vials of reportorial wrath which, up to that time, they had been +fortunate in escaping. One journal amicably stated that this incident +merely emphasized a fact which had all along been obvious, namely that +the Committee were, and had been from the start, totally incompetent +to perform the task intrusted to them. + +While a gentle shower of epithets fell upon their devoted heads the +Committee proceeded with their work and, having obtained the necessary +authority from the Governing Committee, they sent out the following +ruling on November 24th: + + "That so much of rule No. 21 as applies to dealings in listed + bonds through the Clearing House be rescinded, to take effect at + the close of business on Friday, November 27th, 1914. Beginning + on Saturday, November 28, 1914, dealings in bonds listed on the + Exchange will be permitted on the floor of the Exchange between + the hours of ten and three o'clock each day except Saturday, when + dealings shall cease at twelve o'clock noon. Such dealings to be + under the supervision and regulation of the Committee, and to be + for 'cash' or 'regular way' only and not below the minimum prices + as authorized by the Committee from time to time. Transactions at + prices other than those allowed by the Committee, or in evasion + of the Committee's rules, are prohibited. All rules of the + Exchange governing delivery and default on contracts covered by + this resolution shall be in force on and after Saturday, November + 28th, 1914, but the closing of contracts 'under the rule' shall + be subject to the foregoing provisions." + +Thus on Saturday, November 28th, the doors of the Stock Exchange were +once more thrown open and a restricted market in listed bonds was +established on the floor under the watchful eye of the Committee of +Three. There was some hesitancy at first as to whether these bond +transactions should be quoted on the ticker in the accustomed way, but +before the day of opening came it was decided to report them as usual. +By requiring that all trades should be for "cash" or "regular way" +and, in a subsequent ruling, by instructing all purchasers of bonds to +report to the Committee when such bonds were not delivered by 2.15 +P.M. on the day following the purchase, it was hoped to impede any +sudden or violent liquidation of foreign securities. + + * * * * * + +The restoration of the bond market to the floor was a complete +success, and at about the same time a general revival of public +confidence showed itself in a rise in prices first in the street +market and then in the Stock Exchange Clearing House itself. +Encouraged by these symptoms the Committee of Five at once formulated +a plan for carrying the reopening a step farther. A list of stocks +which were not international in character was made out and submitted +to the Bank Clearing House Committee, and with their concurrence it +was decided to place these upon the floor of the Exchange to be traded +in at or above certain prescribed minimum prices. + +At a meeting of the Governing Committee on December 7th the following +resolution was adopted: "That the Committee of Five is hereby +empowered to permit dealings on the floor of the Exchange in such +stocks as it may designate under restrictions prescribed by it. That +the Committee of Five is hereby authorized to enforce stock loan +contracts whenever in its judgment it may deem best so to do, and that +the resolution of July 31st, 1914, be modified in this respect." + +A list of minimum prices was fixed upon that averaged some two or +three points below the closing prices of July 31st, and on December +11th the Committee issued a ruling prescribing the conditions for the +partial resumption of stock dealings on the Exchange. We here present +it in full: + + "The Special Committee of Five rules that Rule 13 be rescinded, + in so far as it applies to stocks admitted to dealings in the + Exchange from time to time by the Committee of Five, said + rescission to take effect at the close of business on Friday, + December 11, 1914. + + "Beginning on Saturday, December 12, 1914, dealings in certain + specified stocks listed on the Exchange will be permitted on the + floor of the Exchange between the hours of ten and three o'clock + each day except Saturday, when dealings shall cease at twelve + o'clock noon. + + "Dealings in such stocks as shall be specified by, and be under + the supervision and regulation of the Committee, shall be for + 'cash' or 'regular way' _only_ and not below the minimum prices + authorized by the Committee from time to time. Transactions at + prices below those allowed by the Committee, or in evasion of its + rules are prohibited. + + "A list of stocks to be admitted to dealings on the Exchange + accompanies these rulings. Minimum prices on same will be + announced on December 11, 1914. + + "All stocks quoted on July 30th at or below 15 per cent., or $15 + per share, may be dealt in without restriction as to price, but + are included in the list for your guidance, and will be marked + 'Free' in the price column. + + "All stocks admitted to dealings as above, which were being + cleared through the Stock Exchange Clearing House at the close of + business on July 30, 1914, will be similarly cleared from the + opening of business on the 12th day of December, 1914. + + "All stocks admitted to dealings, which were being dealt in + 'Ex-Clearing House' at the close of business on July 30, 1914, + will be similarly dealt in from the opening of business on the + 12th day of December, 1914. + + "Stocks admitted to dealings on the Exchange will cease to be + dealt in through the Stock Exchange Committee on Clearing House. + Stocks not so admitted will continue to be dealt in through the + Committee on Clearing House until further notice. + + "All rules of the Exchange governing delivery and default on + contracts covered by these rules shall be in force on and after + the 12th day of December, 1914, but the closing of contracts + 'Under the Rule' shall be subject to the foregoing provisions. + + + STOCKS LOANED + + "The Loan Market for stocks will reopen at ten o'clock, A.M. on + the 12th day of December, 1914, for such stocks _only_ as are + admitted to dealings on the Exchange, from and after which date + all rules of the Exchange governing the borrowing and loaning of + such stocks shall be in force, but the closing of contracts + 'Under the Rule' shall be subject to the foregoing provisions. + + "The above rule shall apply to stocks borrowed and loaned prior + to and since July 30, 1914. + + "Borrowed and loaned stocks will be cleared as before July 30th + last, but only in cases where such stocks are admitted to + dealings on the Exchange. + + "Loans of stocks _not_ admitted to dealings on the Exchange will + continue to stand until further notice, unless otherwise agreed + to by both parties to the contract." + +On Monday, December 14th, the next business day after the limited list +of stocks had been placed upon the floor of the Exchange, it was +reported to the Committee that the volume of transactions taking place +in the Stock Exchange Clearing House, in the stocks not yet admitted +to the floor, had risen to such proportions as seriously to embarrass +that institution. As this activity was taking place on a rising market +and signs of increasing confidence were constantly multiplying, the +Committee quickly resolved, on the same day, to transfer all stocks to +the floor on the following morning, and notice to that effect was at +once sent out. The unexpected appearance of this notice on the tape +was greeted with cheers of approbation in the Exchange, and on +December 15th the long hoped for reopening of the entire market had +become a reality. + + * * * * * + +The Committee of Five by this act brought their own rule to a close. +Arbitrary power had been put in their hands to be exercised while the +Exchange remained closed, but now that it was reopened authority +naturally returned to its legitimate channels. The Committee therefore +presented the following report to the Governing Committee on December +15th: + + "The Special Committee of Five beg leave to report that in as + much as the crisis that existed on July 31st, 1914, has passed, + and financial affairs in this country have resumed a practically + normal condition, the necessity for the Committee's continuance + no longer exists and hence they request to be discharged. Before + being discharged they desire to express their appreciation of the + trust and confidence placed in them by the Governing Committee. + They also wish to express to the members of the Exchange their + appreciation of the manner in which their rulings have been + respected, even though in many cases it involved great + sacrifices. + + Resolved, That the report of the Special Committee of Five be + received, and the Committee be discharged." + +Thus, like the sudden and unexpected shifting of a dream, the +Committee of Five who so recently had almost despaired of fixing a +date for reopening the Exchange, found the Exchange open and +themselves a memory of the past. The abruptness of their exit was +tempered, however, in the following manner. As above described, the +reopening was accompanied by the restraint of certain arbitrary +minimum prices below which securities could not be sold. It was felt +that, owing to the critical and indecisive state of the war, there was +a continuing possibility of some news that might renew a crisis in the +market. While this possibility lasted the maintenance of minimum +prices furnished an automatic check upon sudden panic which would +avoid raising the question of a second closing of the Exchange. In +order to regulate these minimum prices and so change them from time to +time as to keep in accord with normal supply and demand, it was +necessary to appoint a Committee, and the original Five were continued +in office with this sole regulative power. As bonds were similarly +restricted, the Committee of Three also lingered on the scene for the +same purpose. The two Committees performed this unusual function up to +the first of April, 1915, when the very marked improvement in +conditions led to the abandonment of this last vestige of artificial +restraint. + +It is instructive, as showing the workings of some minds, that +although the Committee of Five, in its capacity of regulator of +minimum prices, issued a public statement that they were under no +circumstances going to valorize or sustain prices but merely expected +to maintain a safeguard against some unforeseen shock to confidence, +many people wrote them urgent letters asking that in certain +properties a minimum should be maintained which would render selling +impossible. It was quite futile to try to disabuse some of these +correspondents of the idea that no decline should be allowed in +properties that they were interested in. + + * * * * * + +To one who meditates upon the singular experience which was thus +abruptly brought to a close, there are a few features of it which +stand out as meriting the especial attention of all members of the +Stock Exchange. First of all it was most impressively shown what +apparently hopeless tasks can be accomplished by loyal cooperation. If +at any time up to July, 1914, any Wall Street man had asserted that +the stock market could be kept closed continually for four and +one-half months he would have been laughed to scorn, and yet this +supposed impossibility was performed by the joint and determined +action of the financial community. On the other hand, and as a +counterpart to this valuable experience, it must never be lost sight +of that the extraordinary war measures of 1914 may be a danger to the +future if they are misinterpreted. There is a possibility (even a +probability) that when ordinary crises arise in times to come, people +who find themselves financially embarrassed will bring enormous +pressure upon the authorities of the Exchange to renew the drastic +expedients of the famous thirty-first of July. It is to be sincerely +hoped that there will always be firmness enough in the Governing +Committee to resist this pressure. The great world war coming, as it +did, without warning was a rare and epoch-making event that warranted +unheard of action and to indulge in such action for any lesser cause +would be utterly disastrous. + +The Committee of Five seems to have been brought into existence under +a lucky star. That five men called together so suddenly in such an +emergency should have worked with absolute harmony for so long a time +is quite remarkable. Their unanimity was never troubled but once. On +one of the first few days of their career a rather positive and +aggressive member, arguing with a colleague, said "you must remember +that you are only one of this Committee." The Committeeman thus +addressed responded with calm determination "and you must not forget +that you are not the other four." This encounter excited much +amusement among the remaining members and was the one and only +occasion where anything resembling a serious difference appeared. + +In addition to being blessed with harmony they were very fortunate in +having passed rulings for so long a time without giving forth anything +that had to be recalled. In view of the complexity of the conditions, +fortune must have aided in this as well as judgment. They were, of +course, treated to much wisdom (after the event) by their critics. +They were told that they might have opened the Exchange sooner after +the actual opening had proved a success, and they were informed in +the editorial columns of a prominent journal that their fear of +foreign liquidation had been an "obsession" which lacked +justification. These critics never were heard from while the event was +in doubt, and consequently the Committee did not profit much by their +learned sayings. + +It can be stated with confidence that the intelligent resourcefulness +of the Stock Exchange, in conjunction with the splendid public +spirited work of the New York banks and the press, warded off a +calamity the possible magnitude of which it would be difficult to +measure. The success of this undertaking should be a source of pride +and emulation to those future generations of brokers who will have to +solve the problems of the great financial market when in the words of +Tyndall, "you and I, like streaks of morning cloud, shall have melted +into the infinite azure of the past." + + + + +THE END + + +[Illustration] + +THE COUNTRY LIFE PRESS GARDEN CITY, N. Y. + + +[Transcriber's Notes: + +The transcriber made these changes to the text to correct obvious +errors: + + 1. p. 49, from 11 A.M. to 12 M. (note missing "A" or "P"), + left as published + 2. p. 54, "We think that if ... (added opening quote) + 3. p. 83, rescision --> rescission + 4. p. 87, unforseen --> unforeseen + +End of Transcriber's Notes] + + + + + +End of the Project Gutenberg EBook of The New York Stock Exchange in the +Crisis of 1914, by Henry George Stebbins Noble + +*** END OF THIS PROJECT GUTENBERG EBOOK NY STOCK EXCH--CRISIS OF 1914 *** + +***** This file should be named 29443.txt or 29443.zip ***** +This and all associated files of various formats will be found in: + https://www.gutenberg.org/2/9/4/4/29443/ + +Produced by Richard J. 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