박재훈투영인
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5 months ago
So what can we learn from the Crash of 1929 to avoid a 21st Century Great Depression?(17 September 2008)
By the end of September 1929, the American stock market on New York’s Wall Street was riding the wave of a decade of intoxicating growth.The Roaring Twenties — that era of the Jazz Age, bootleggers and gangsters like Al Capone — had seen millions of ordinary Americans caught up in the excitement of owning shares, and making money.The Dow Jones Industrial Average of leading shares had grown five-fold in the previous five years.As the social historian Cecil Roberts was to put it later: ‘Everyone was playing the market. Stocks soared dizzily.'I found it hard not to be engulfed. I had invested my American earnings in good stocks.'Should I sell for a profit? Everyone said, “Hang on — it’s a rising market.”’On the last day of a visit to New York that September, Roberts went to have his hair cut.As the barber swept the clean white sheet from his shoulders and bent to brush his collar, he said softly: ‘Buy Standard Gas. I’ve doubled. It’s good for another double.’Stunned, Roberts walked upstairs and said to himself: ‘If the hysteria has reached the barber-level, something must soon happen.’ It did.On October 3, the day after Britain’s widely respected Chancellor of the Exchequer, Philip Snowden, had warned that the Americans had got themselves into a ‘speculative orgy’ on Wall Street, the New York stock market started to fall.Today, almost 80 years later, history seems to be on the verge of repeating itself — with the Dow Jones index of leading shares on Wall Street falling, followed by major stock markets around the world.Back in 1929, as October continued, so the fall in the value of stocks and shares steepened.On Monday, October 21, six million shares swapped hands, the largest number in the history of the exchange.But then, on the morning of Thursday, October 24, 1929, it went into freefall. When the New York Stock Exchange opened there were no buyers, only sellers.The Great Crash had begun. On the floor of the Exchange, there was pandemonium.Watched by none other than Winston Churchill, who was in the United States on a speaking tour and had come to see how his American investments were faring, there was ‘bedlam’ with ‘the jobbers (trying to buy or sell stocks and shares) caught in the middle’.As Selwyn Parker, author of a new book on the Crash puts it: ‘In vain attempts to be heard above the din, they were screaming orders to sell; when that did not work, they hurled their chits at the chalk girls.'Others, transfixed by the plummeting share prices, simply stood where they were in an almost catatonic state.‘What Churchill was watching,’ Parker goes on to say ‘was the collapse of the collective nerve of American shareholders.’On the street, the crowds of onlookers grew ever bigger as rumours of the falls swept New York — with thousands upon thousands of ordinary Americans fearful that they were about to lose everything.By midday police riot squads had to be called to disperse what The New York Times itself called ‘the hysterical crowds’, but they had little or no effect. Rumours spread everywhere — one was that 11 speculators had killed themselves that very morning, though it was not true.One poor workman on the roof of an office building nearby found himself watched by the crowds below — all convinced that he was about to throw himself to the street below.He didn’t, but the legend that one banker did throw himself to his death was to become one of the abiding myths of what became known as ‘Black Thursday’.Almost 13 million shares changed hands on the NYSE that day, the most that had ever done so, and yet the worst of the falls in value were recouped that same afternoon — in the wake of a rescue attempt by leading bankers who had held an emergency meeting at the offices of JP Morgan.Yet the rally didn’t last. By Monday, October 28, the sellers were back, and on Tuesday October 29, the Great Crash finally came to a dreadful conclusion in what The New York Times described as ‘the most disastrous day’ in the American stock market’s history.On that day — ‘Black Tuesday’ — losses approached £4.5 billion ( equivalent to £800 billion today), and more than 16.4million shares changed hands.No matter what the bankers, or wealthy investors like John D. Rockefeller, tried to do to stem the tide of sellers, their efforts were pointless. They were swept aside, as huge blocks of shares were sold, and confidence drained out of the market.Groups of men — ‘with here and there a woman’ in the words of one observer — stood beside the new ‘ticker-tape’ machines, which monitored the price of stocks and shares, watching as their fortunes vanished in front of their eyes.One reporter noted: ‘The crowds about the ticker-tape, like friends around the bedside of a stricken friend, reflected in their faces the story the tape was telling.There were no smiles. There were no tears either. Just the cameraderie of fellow sufferers.’ The comedian Eddie Cantor lost everything, but kept his sense of humour.‘Well, folks,’ he told his radio audience that evening, ‘they got me in the market, just like they got everybody else.'In fact, they’re not calling it the stock market any longer. They’re calling it the stuck market.'Everyone’s stuck. Well, except my uncle. He got a good break. He died in September.’Groucho Marx, star of Duck Soup and Animal Crackers, lost £400,000, while heavyweight boxer Jack Dempsey, one of the first multi-millionaire sportsmen, lost £1.5million.Even the man who was later accused of triggering the stock market boom, economist Professor Irving Fisher, lost everything.Just four months earlier, Fisher had told the readers of an article entitled Everybody Ought To Be Rich: ‘If a man saves £7.50 a week, and invests in good common stocks, and allows the dividends and rights to accumulate, at the end of 20 years he will have at least £40,000 and an income from investments of around £200 a month. He will be rich.‘And because income can do that, I am firm in my belief that anyone not only can be rich, but ought to be rich.’Small wonder that the most popular song of 1929 was Irving Berlin’s Blue Skies — with its unforgettable lines: ‘Blue skies smiling at me/Nothing but blue skies, do I see.’Millions of Americans had taken Fisher’s advice, often borrowing the money to do so. And, in another parallel with today’s financial crisis, ordinary people were encouraged to take exceptional risks — risks they did not appreciate, and which they would come to regret.Some had their doubts, but not many. One investor later recalled: I knew something was terribly wrong because I heard bellboys, everybody, talking about the stock market.’But, just like today, many of them were gulled by the slick salesmen of the investment houses and banks.As Parker explains: ‘In the five-year run up to the Crash, gullible investors borrowed wildly to get into the market, and many were systematically duped by Wall Street and the stock market fraternity at large.’After the Crash, one expert in the Department of Commerce estimated that almost half the £25 billion of stocks and shares sold in the United States during the Roaring Twenties was ‘undesirable or worthless’.But the other half clearly reflected the growing American economy — with shares in General Electric, for example, tripling in value in the 18 months before the Crash; while a £5,000 investment in General Motors in 1920 would have produced an astonishing £750,000 by 1929.By the end of 1928 most investors had come to expect incredible gains, and the presidential election campaign that November did nothing to quell the fever.Indeed, the Republican candidate Herbert Hoover, who’d been commerce secretary throughout the 1920s, took to the hustings to announce: ‘We shall soon, with the help of God, be in sight of the day when poverty will be banished from this nation.’It was to take a generation — and a World War — to see any semblance of prosperity return.The Great Crash of 1929 plunged America, and the rest of the world, into an economic depression that was to last for the next decade.As one commentator memorably explained afterwards: ‘Anyone who bought stocks in mid 1929 and held onto them saw most of his or her adult life pass by before getting back to even.’So why did the Crash — which had been precipitated by government increases in interest rates to cool off the stock market boom — turn into a depression?Simply because of the uncertainty the Crash fuelled.No one knew what consequences of the Crash were going to be — so everyone decided to stop trading until things settled down.Banks stopped lending money. Consumers stopped buying durable goods from shops.The stores, in turn, stopped buying from the manufacturers.Firms, therefore, cut back on production and laid off workers. And all of this fed on itself to make the depression still worse.In the following ten years 13 million Americans lost their jobs, with 12,000 losing their jobs every single working day.Some 20,000 companies went bankrupt, including 1,616 banks, and one in every 20 farmers was evicted from his land.In 1932, the worst year of the Great Depression which continued until the beginning of the war, an astounding 23,000 Americans committed suicide in a single year.And the pain was not restricted to the U.S.Weimar Germany, which had built its foundations in the aftermath of World War I with the help of American loans, found itself struggling with ever mounting debts.This, in turn, helped to usher in the brownshirts of Adolf Hitler’s National Socialist party.The impact on American self-confidence was devastating.As the Broadway lyricist Yip Harburg, who lived through those times, explained almost 40 years later: ‘We thought American business was the Rock of Gibraltar.'We were the prosperous nation, and nothing could stop us now. There was a feeling of continuity. If you made it, it was there for ever. Suddenly the big dream exploded’.Another writer, who lived through those days, M. A. Hamilton, said the Great Crash of 1929 shattered the dreams of millions of Americans —and that the average working man ‘found his daily facts reeling and swimming about him, in a nightmare of continuous disappointment’.‘The bottom had fallen out of the market, for good,’ wrote Hamilton. ‘And that market had a horrid connection with his bread and butter, his automobile, and his instalment purchases.'Worst of all, unemployment became a hideous fact and one that lacerated and tore at self-respect.’Suddenly, there were lines of men and women queuing up for free soup from the soup kitchens established by the Salvation Army, or provided by the wealthy men who had not been hurt financially, like the millionaire publisher William Randolph Hearst.And everywhere Americans were struggling to eke out a living.Once-successful businessmen were condemned to selling apples on street corners in New York, and, if they couldn’t afford apples, they offered to shine shoes.By the summer of 1932, according to the police, there were about 7,000 of these ‘shine boys’ making a living on New York’s streets.Just three years before they were almost non-existent and most were boys under 17.The New York Times reported ‘an army of new salesmen, peddling everything from large rubber balls to cheap neckties’, while unemployment also brought back the ‘newsboy’ (often men in their 40s) in increasing numbers.‘He avoids the busy corners, where news-stands are frequent,’ the paper explained. ‘And hawks his papers in the side streets with surprising success.'His best client is the man who is too tired to walk down to the corner for a paper’.The Great Depression was an economic apocalypse that no one could possibly wish to see happen again. But could it?There are worrying parallels. The American economist J. K. Galbraith blamed the Great Depression that followed the Crash on credit growth, as did his British counterpart, Lionel Robbins.And few doubt that it is the credit crunch — as well as the greed among bankers who took unacceptable risks with their clients’ money — that lies at the heart of the present falls in stock markets around the world.Certainly, Selwyn Parker believes this. In the past decade, he writes, ‘ somehow the banks managed to slip the regulators’ leash, distributing credit around the world like so much chaff. Casinos were better regulated than the banking industry.’The result of this credit binge, he adds, is the record levels of personal debt that we are seeing now, which leads, when things start to go wrong, ‘to general belt-tightening, fast-slowing growth and banks hoarding capital — the conditions we have right now’.‘The financial system and people’s material wealth today,’ Parker warns darkly, are much more vulnerable than anybody thought.’As stock markets fall around the world, we can only pray we are not on the brink of another economic apocalypse.But history suggests that the omens are far from good.
