1929 Crash and Bankers

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

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

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

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

Then at 1:30 p. m., a popular broker and huntsman named Richard F. Whitney
strode through the mob of desperate traders, made swiftly for Post No. 2 where,
under the supervision of specialists like that doughty warrior, General Oliver
C. Bridgeman, the stock of the United States Steel Corp., most pivotal of all U.
S. stocks, is traded in. Steel too, had been sinking fast. Having broken down
through 200, it was now at 190. If it should sink further, Panic with its most
awful leer, might surely take command. Loudly, confidently at Post No. 2, Broker
Whitney made known that he offered $205 per share for 25,000 shares of Steel—an
order for $5,000,000 worth of stock at 15 points above the market. Soon tickers
were flashing the news: "Steel, 205 bid.” More and more steel was bought, until
200,000 shares had been purchased against constantly rising quotations. Other
buyers bought other pivotal stocks. In an hour General Electric was up 21
points, Montgomery Ward up 23, Radio up 16, A. T. & T. up 22. How far the
market would have gone downward on its unchecked momentum is difficult to say.
But brokers and traders alike agreed that the man who bid 205 for 25,000 shares
of Steel had made himself a hero of a financially historic moment.

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

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

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

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

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

The full Time magazine is linked below . . .

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Update: July 19, 2006 12:45pm

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

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

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Update 2: July 19, 2006 1:52pm

A reader provides the following political angle on this mess:

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


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

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The request went up (in comments) for a who’s who list of the post 9/11 stock option granters and grantees.

I put in a request to the WSJ journalists on the story; Meanwhile, the best I can offer up are some excerpts from the WSJ sidebar (with graphics).

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The short list of egregious offenders is after the jump.

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