The Project Gutenberg eBook of The New York Stock Exchange in the Crisis of 1914, by H. G. S. Noble. (2024)

The Project Gutenberg EBook of The New York Stock Exchange in the Crisisof 1914, by Henry George Stebbins NobleThis eBook is for the use of anyone anywhere at no cost and withalmost no restrictions whatsoever. You may copy it, give it away orre-use it under the terms of the Project Gutenberg License includedwith this eBook or online at www.gutenberg.orgTitle: The New York Stock Exchange in the Crisis of 1914Author: Henry George Stebbins NobleRelease Date: July 18, 2009 [EBook #29443]Language: EnglishCharacter 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 DistributedProofreading Team at https://www.pgdp.net (This file wasproduced from images generously made available by TheInternet Archive/American Libraries.)

Transcriber's Note

Every effort has been made to replicate this text asfaithfully as possible, including obsolete and variant spellings and otherinconsistencies. Text that has been changed to correct an obvious erroris noted at the end of this ebook.

BY

H. G. S. NOBLE
PRESIDENT

GARDEN CITYNEW YORK

THE COUNTRY LIFE PRESS

1915

Copyright, 1915
The Country Life Press

[Pg i]

INTRODUCTION

The year 1914 has no precedent in Stock Exchange history. At thepresent time (1915), when the great events that have come to pass arestill close to us, even their details are vivid in our minds and weneed no one to rehearse them. Time, however, is quick to dim evenacute memories, and Wall Street, of all places, is the land offorgetfulness. The new happenings of all the World crowd upon eachother so fast in the financial district that even the greatest andmost far-reaching of them are soon driven out of sight. This being thecase, it has seemed to the writer of these pages that some recordshould be kept among the brokerage fraternity of what was so great anepoch in their history, and that this record could best be writtendown by one who happened to be very favorably placed to know the storyin its entirety.

Of course the archives of the Exchange will always contain the minutesof Committees and other documentary material embodying the story ofthe past, but this dry chronicle is never likely to see the lightexcept when unearthed by law courts or legislative committees. Itseems worth while, therefore, to disentangle the essential thread ofthe tale of 1914 from the mass of unreadable detail in the minutebooks, and put it in a shape where those who are interested may lookit over.

[Pg ii]

This is not an easy task. To differentiate the interesting and theessential from the mass of routine material is, perhaps, not verydifficult, but to present this segregated matter in a form that willnot be monotonous is much more of a problem. The proceedings of aCommittee that has been in continuous session must, when written down,partake of the nature of a diary, and to that extent be tiresomereading. We shall, therefore, have to ask the indulgence of any onewho happens to look into these pages, and beg him to pass over theform for the sake of the substance. That the substance itself is ofdeep interest goes without saying. It was given to the Stock Exchangeto play a great part in a momentous world crisis, and it must be ofprofound interest to know how that part was played.

Stock Exchanges are a relatively recent product of moderncivilization, and like new comers in every field they are suspectedand misunderstood. The most complex of all problems are economicproblems, and the functions of Stock Exchanges form a most intricatepart of political economy. It has, consequently, been a noticeablephenomenon in all contemporary industrial society that the activitiesof the stock markets have been a constant subject of agitation andlegislative meddling. Most of this meddling has been based uponignorance and misunderstanding, but in a broad view this ignorance andmisunderstanding are excusable owing to the novelty and above all thegreat complexity of the factors at work. One of the needs of the time,therefore, is that the public, and their representatives in theLegislatures, should be enlightened as fast as possible with regard to[Pg iii]the immensely important uses of these institutions, and to theoperation of their very delicate machinery.

The World crisis of 1914 forced upon us an object lesson on thequestion of speculative exchanges in general which ought to be oflasting profit. For years agitators had been hard at work all over thecountry urging the suppression of the Cotton Exchanges, and claimingthat they contained gamblers who depressed the price of the cottongrowers' product. In the summer of 1914 the dreams of these agitatorswere realized. The Cotton Exchanges were all closed and the cottongrower was given an opportunity of testing the benefits of a situationwhere there was no reliable agency to appraise the value of cotton.The result may be summed up in the statement that the reopening of theCotton Exchanges met with no opposition. A similar object lesson wasfurnished in the case of the Stock Exchanges. They were all closed,and for a few weeks some profound thinkers in the radical press statedthat the country was showing its ability to dispense with them. Whenthe time for their reopening came, however, there was no agitation toprevent it. On the contrary it was hailed as a sign of the resumptionof normal financial conditions in the United States.

This evidence that the experience of 1914 has cast a much needed lighton the public value of speculative exchanges, gives a further excusefor describing in some detail how the experience was passed through bythat greatest of all these institutions, the New York StockExchange.

THE NEW YORK STOCK EXCHANGE IN THE CRISIS OF 1914

[Pg 3]

The New York Stock Exchange

CHAPTER I

THE CLOSING OF THE EXCHANGE

The Stock Exchange is in the second century of its existence and inthat long period of time (long relatively to the number of yearsduring which Stock Exchanges have been known to the world) it has beenforced to close its doors only twice. The first occasion was the greatpanic of 1873, the after effect of civil war when trading wassuspended for ten days; the second came with the outbreak of the worldWar in the close of July, 1914. These two remarkable events differprofoundly in the gravity of the circ*mstances which brought themabout. In 1873, although the financial disturbance was one of thegreatest the United States has ever experienced, the trouble wasmainly local and did not seriously involve the entire world. TheExchange was not closed in anticipation of a catastrophe but wasobliged to shut down after the crash had taken place, in order toenable Wall Street to gather up its shattered fragments. The measureof this crisis was the ten days during which trading was suspended.

Far different from these were the circ*mstances surrounding July 31st,1914. On that eventful date a financial earthquake of a violenceabsolutely without[Pg 4] precedent shook every great center of thecivilized world, closing their markets one by one until New York, thelast of all, finally suspended in order to forestall what would havesurely been a ruinous collapse. The four and a half months duringwhich this suspension continued stand to the ten days closing of 1873in a proportion which fitly illustrates the relative gravity of thetwo historic upheavals.

In the light of these facts we are justified in asserting that theevents of 1914 are the most momentous that have so far constituted thelife and history of the New York Stock Exchange, and consequently thatsome record of, and commentary upon, these facts may be of value tothe present members of that body and of interest and profit to itsfuture members.

It is in the nature of panics to be unforeseen, but the statement maybe truly made that some of them can be more unforeseen than others.The panic of 1907 was preceded by anxious forebodings in the minds ofmany well informed people, whereas the Venezuela panic in 1895, beingdue to the sudden act of an individual, came out of a clear sky. Tothe latter class distinctively belongs the great convulsion of 1914.While the standing armies of Europe were a constant reminder ofpossible war, and the frequent diplomatic tension between the GreatPowers cast repeated war shadows over the financial markets, theAmerican public, at least, was entirely unprepared for a worldconflagration. Up to the final moment of the launching of ultimatabetween the European governments no one thought it possible that allour boasted bonds of civilization were to burst[Pg 5] over night and plungeus back into mediæval barbarism. Wall Street was therefore takenunaware, and so terrific was the rapidity with which the world passed,in the period of about a week, from the confidence of long enduringpeace to the frightful realization of strife, that no time was givenfor men to collect their thoughts and decide how to meet theon-rushing disaster.

Added to the paralyzing effect of this unheard of speed of action,there came the disconcerting thought that the conditions produced wereabsolutely without precedent. Experience, the chart on which we relyto guide ourselves through troubled waters, did not exist. No worldwar had ever been fought under the complex conditions of modernindustry and finance, and no one could, for the moment, form anyreliable idea of what would happen or of what immediate action shouldbe taken. These circ*mstances should be kept clearly in mind by allwho wish to form a clear conception of this great emergency, and toestimate fairly the conduct of the financial community in its effortsto save the day.

The conditions on the Stock Exchange, when the storm burst, were insome respects very helpful. Speculation for several years had been ata low ebb, so that values were not inflated nor commitments extended.Had such a war broken out in 1906, with the level of prices thenexisting, one recoils at the thought of what might have happened.Furthermore, the unsettled business outlook due to new and untriedlegislation had fostered a heavy short interest in the market, therebyfurnishing the best safeguard against a sudden and[Pg 6] disastrous drop.This short interest was a leading factor in producing theextraordinary resistance of prices in New York which caused so muchfavorable comment during the few days before the closing. It were wellif ill-informed people who deprecate short selling would note thisfact.

During the week preceding July 31st, therefore, in the face of apractical suspension of dealings in the other world markets, the NewYork 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, andcall money was obtainable at reasonable prices. Here was a perplexingproblem when the closing of foreign Bourses raised the question of howlong we should strive to keep our own Exchange open.

To close the recognized public market for securities, the market whichis organized and safeguarded and depended upon as a standard ofvalues, is an undertaking of great responsibility in any community. Totake this step in New York, which is one of the four preeminentfinancial centers of the world, involved a responsibility of amagnitude difficult adequately to estimate. Upon the continuity ofthis market rest the vast money loans secured by the pledge of listedsecurities; numberless individuals depend upon it in times of crisisto enable them to raise money rapidly by realizing on securityinvestments and thus safeguarding other property that may beunsaleable; the possessor of ready money looks to it as the quickestand safest field[Pg 7] in which to obtain an interest return on his funds;and the business world as a whole depends upon it as a barometer ofgeneral conditions.

Add to this the fact that speculative commitments by individuals fromall over the world, which have been based upon the expectation of anuninterrupted market, are left in hopeless and critical suspense ifthis market is suddenly removed, and it becomes apparent that to closethe Exchange is manifestly to inflict far-reaching hardship upon vastnumbers of people. It is also sure to be productive of much injustice.In bad times sound and solvent firms are anxious to enforce all theircontracts promptly so as to protect themselves against those that areoverextended; an obligatory suspension of business compels thesesolvent firms, in many cases, to help carry the risks of the insecureones and deprives the provident man of the safety to which he isentitled.

When such facts as these are duly weighed by the agencies having theauthority to close the stock market, it becomes clear that dutydictates a policy of hands off as long as a continuous market persistsand purchasers continue to buy as the decline proceeds. This was wellillustrated in the acute panic of 1907 when an enormous open marketnever ceased to furnish the means by which needy sellers constantlyliquidated, and the possessors of savings made most profitableinvestments. To have closed the Exchange during that crisis—assumingit to have been possible—would have been an unmixed evil. The violentdecline in prices was the natural and only remedy for a long period ofover-speculation,[Pg 8] and it would have been worse had it beenartificially postponed.

Considerations of this general character, up to July 30th, caused theauthorities of the New York Stock Exchange to take no action, althoughthe other world markets had all virtually suspended dealings. On July30th, the evidences of approaching panic showed themselves. Anenormous business was done accompanied by very violent declines inprices, 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 metin consultation with a number of prominent bankers and bankpresidents, and the question of closing the Exchange was anxiouslydiscussed. While the news from abroad was most critical, and the day'sdecline in prices was alarming, it was also true that no collapse hadtaken place and no money panic had yet appeared. The bankers' opinionwas unanimous that while closing was a step that might becomenecessary at any time, it was not clear that it would be wise to takeit that afternoon, and it was agreed to await the events of thefollowing day. Meanwhile, several members of the Governing Committeeof the Exchange had become convinced that closing was inevitable and,in opposition to the opinion of the bankers, urged that immediatesteps be taken to bring it about. It may seem strange to peopleoutside of Wall Street that the night before the Exchange closed suchapparent indecision and difference of opinion existed. It was,however, a perfectly[Pg 9] natural outcome of an unprecedented situation.The crisis had developed so suddenly, and the conditions were soutterly without historic parallel, that the best informed men foundthemselves at a loss for guidance.

During the evening of July 30th the conviction that closing wasimperative spread with great speed among the large brokerage firms. Upto a late hour of the night the President of the Exchange was therecipient of many messages and telegrams from houses not only in NewYork, but all over the country, urging immediate action. The paralysisof the world's Stock Exchanges had meanwhile become general. TheBourses at Montreal, Toronto and Madrid had closed on July 28th; thoseat Vienna, Budapest, Brussels, Antwerp, Berlin, and Rome on July 29th;St. Petersburg and all South American countries on July 30th, and onthis same day the Paris Bourse was likewise forced to suspenddealings, first on the Coulisse and then on the Bourse itself. OnFriday morning, July 31st, the London Stock Exchange officiallyclosed, so that the resumption of business on that morning would havemade New York the only market in which a world panic could ventit*elf.

The Governing Committee of the Exchange were called to meet at nineo'clock (the earliest hour at which they could all be reached, for itwas summer and many were out of town) and at that hour they assembledin the Secretary's office ready to consider what action should betaken. In addition to the Committee many members of prominent firmsappeared in the room to report that orders to sell stocks at ruinousprices were[Pg 10] pouring in upon them from all over the world and thatsecurity holders throughout the country were in a state of panic. Itwould be hopeless to try to describe the nervous tension andexcitement of the group of perhaps fifty men who consulted togetherunder the oppressive consciousness that within forty-five minutes (itwas then a quarter past nine) an unheard of disaster might overtakethem. It was determined that the Governing Committee should go intosession at once as there was so little time to spare. Just as theystarted for their official meeting room a telephone message wasreceived from a prominent banking house stating that the bankers andbank presidents were holding a consultation and suggesting that theExchange authorities await the conclusion of their deliberations.

There is an employee of the Exchange whose duty it is to ring a gongupon 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 notrecognized. This employee was instructed not to ring the gong until hehad received personal orders to do so from the President; a permanenttelephone connection was established with the office in which thebankers were conferring, and amid a horrible suspense the outcome oftheir conference was awaited. For twenty minutes this straincontinued. It was a quarter before ten and only fifteen minutesremained in which to act. Meanwhile the brokers were fast assemblingupon the board room floor, orders were piling in upon them to sell atpanic prices, ten o'clock was approaching, and although all felt thatthe opening should not be permitted[Pg 11] no one had a word from theGoverning Committee as to what was going to be done.

At a quarter of ten, no word having come from the bankers, thereceiver of the telephone which had been connected with their meetingplace was hung up, and the Governing Committee were called in sessionto take action. As they took their seats two messages reached them.One was brought by a prominent member of their body who had gone tothe office of the President of the bank Clearing House and had beentold by him, after consulting with some of his fellow officers, "Weconcur; under no circ*mstances is it our suggestion, but if theExchange desires to close, we concur." The other was sent, through amember of the Exchange, from one of the leading bank Presidents whostated that closing would be a grave mistake and that he was opposedto it.

The roll was called and thirty-six out of the forty-two membersanswered to their names. The Chair having announced the purpose of themeeting, Mr. Ernest Groesbeck moved that the Exchange be closed untilfurther notice. This motion was carried, not unanimously but by alarge majority. Mr. Groesbeck then moved that the delivery ofsecurities be suspended until further notice, and, this being carriedunanimously, made a third motion that a special Committee consistingof four members of the Governing Committee and the President beappointed to consider all questions relating to the suspension ofdeliveries and report to the Governing Committee at the earliestpossible moment. The third motion, like the second was carriedunanimously[Pg 12] and the Committee adjourned. It was then four minutes often. On the instant that the first motion closing the Exchange waspassed, word was sent to the ticker operators to publish the news onthe tape. In this way the seething crowd of anxious brokers on thefloor got word of the decision before ten o'clock struck. Immediatelyupon the adjournment of the Committee Mr. George W. Ely the Secretaryof the Exchange ascended the Chairman's desk in the board room andmade the formal announcement, which was greeted with cheers ofapprobation. The President promptly appointed Messrs. H. K. Pomroy,Ernest Groesbeck, Donald G. Geddes, and Samuel F. Streit toconstitute, with himself, the Committee of Five, and the long suspenseand anxiety of four months and a half began.

These events, which were crowded into a few feverish hours, and whichseemed to those who participated in them more like a nightmare thanlike a reality, present some aspects that are especially worthy ofdetailed description. It is noticeable that the vote to close theExchange was not unanimous. This shows the immense complexity of asituation, which, even at the last moment, left some two or threeconscientious men undecided. It is a fact of profound importance, andone that never should be forgotten by stock brokers or by the public,that the Exchange closed itself on its own responsibility and withouteither assistance or compulsion from any outside influence. Many falseassertions by professional enemies of the institution have been madeto the effect that the banks forced the closing, or that its memberswere unwillingly[Pg 13] coerced by outside pressure. The facts are that theinfluential part of the membership, the heads of the big commissionhouses, made up their minds on the evening of July 30th that closingwas imperative, and that on the morning of July 31st theirrepresentatives in the Governing Committee took the responsibilityinto their own hands, the bankers having been unable as yet to reach aconclusion.

Immediately after the closing the President of the Exchange visitedthe prominent bank president who had served notice at the last momentof his disapproval of this procedure. He was found in his office inconsultation with a member of one of the great private banking houses.Both the bank president and the private banker agreed that, in theiropinion, the closing had been a most unfortunate mistake. It was anopportunity thrown away to make New York the financial center of theworld. The damage was done and would have to be made the best of, buthad the market been allowed to open the banks would have come to therescue and all would have gone well. These gentlemen admitted that theExchange was to some extent excusable owing to the negligence of thebankers in not notifying them that they were ready to protect themoney market.

It may safely be stated that within twenty-four hours after thisinterview neither the two bankers in question nor any one else in WallStreet entertained these opinions. The rise of exchange on London to$7—a rate never before witnessed; the marking of the Bank ofEngland's official discount rate to 10%, accompanied by a run on[Pg 14] thatinstitution 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 lowfigure of 40% to the paralyzing figure of 14-5/8%; together with thefact that the surplus reserves of our New York Clearing House banksfell $50,000,000 below their legal requirements, were reasons enoughin themselves to convince the most skeptical of the necessity of whathad been done.

The frightful gravity of the situation which had arisen became clearerand more defined in people's minds a few days after the first ofAugust than it was on the morning of July 31st. European selling hadbeen proceeding for some time before the outbreak of War and in thelast few days before closing had been temporarily arrested by theprohibitive level of exchange and the risk of shipment at sea. TheAmerican public itself, however, was seized with panic on the eveningof July 30th, and on the morning of July 31st brokers' offices wereflooded with orders to sell securities for what they would bring andwithout reference to values. Had the market been permitted to open onthat Friday morning the familiar Wall Street tradition of "BlackFriday" would have had a meaning more sinister than ever had beendreamed of before.

In all previous American panics the foreign world markets were countedupon to come to the rescue and break the fall. Imports of gold,foreign loans, and foreign buying were safeguards which in past criseshad been counted upon to prevent utter disaster. On this occasion ourmarket stood by itself unaided; an unthinkable convulsion had seizedthe world; panic had[Pg 15] spread; even the bargain hunter was chilled bythe unprecedented conditions; there were practically no buyers. A halfhour's session of the Exchange that morning would have brought on acomplete collapse in prices; a general insolvency of brokerage houseswould have forced the suspension of all business; the banks, holdingmillions of unsaleable collateral, would have become involved; manybig institutions would have failed and a run on savings banks wouldhave begun. It is idle to speculate upon what the final outcome mighthave been. Suffice it to say that these grave consequences wereprevented in the nick of time by the prompt and determined action ofthe 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 toosoon and thought that the feeling of panic was increased by thisaction. These few were mostly converted from their opinions as thesituation became clearer. There was a larger number who took theground that the Exchange had not closed soon enough, and urged thathad the step been taken a few days sooner a considerable decline invalues would have been prevented. It is strange that the lattercritics did not stop to reflect on how great an advantage it was, allthrough the anxious days of August, to have had the New York marketliquidated as far as it could be without disaster, and the level ofclosing prices relatively low. How vastly greater would have been thetask of safeguarding the situation in the face of declining[Pg 16] prices inthe "New Street Market" had the closing prices on the Exchange beenten or fifteen points higher. The truth is that the Exchange wasclosed at the very best possible moment. The market was kept open aslong as liquidation could safely be carried on (thus immenselydiminishing the pressure to be withstood during the suspension) and itwas closed at the very instant that a collapse was threatened.

The above facts suggest some reflections with regard to the agitationfor governmental interference with or control of the Exchange. The actof closing necessitated the prompt decision of men thoroughly familiarwith the circ*mstances in a period of time actually measured byminutes. If it had been necessary to reach government officialsunfamiliar with details, convince them of the necessity of action, andovercome the invariable friction of public machinery, the financialworld would have been prostrated before the first move had been made.If the Exchange had been an incorporated body, and had been closed inthe face of the difference of opinion and possible conflict ofinterests that existed at the time, it would have been possible for atemporary injunction to have been brought against its managementrestraining its freedom to meet the emergency. Long before the meritsof such an injunction could have been argued in court the harm wouldhave been done, and ruin would have overtaken many innocent people.The full power of a group of individuals thoroughly familiar with theconditions to act without delay or restraint prevented a calamitywhich can safely be described as national.[Pg 17]

It is a fact, which will probably never be appreciated outside of theimmediate confines of Wall Street, that the Exchange was unexpectedlythrown into a position where the interests of the whole country wereput in its hands, and that through the prompt and energetic action ofthe thirty-six men who faced the awful responsibility on July 31stfinancial America was saved. It is true that in saving the communitythey saved themselves, but so do the soldiers who win upon thebattle-field, and in neither case is the obligation cancelled by theselfish considerations involved. When in future the perennial outcryagainst the Exchange is being fostered by those whose minds areexclusively occupied with the evils that are inseparable from everyhuman institution, let us hope that once in a while some friendlyvoice may be raised to remind the world of July thirty-first, nineteenhundred and fourteen.

[Pg 18]

CHAPTER II

THE PERIOD OF SUSPENSION

During the same morning on which the momentous action of closing wastaken the Committee of Five met and elected the President of theExchange as their Chairman. The acute crisis was over, the danger of acataclysm had been averted, but the situation that remained was bigwith problems full of menace and uncertainty.

Just what effect the closing of the market would have was a matter ofdoubt. On all previous occasions when the facilities of the Exchangehad been inadequate, or had been shut off, an unregulated market hadestablished itself in public places and proceeded uncontrolled. Thusduring the Civil War, when the volume of speculation had completelyoutgrown the limited machinery of the old Board of Brokers, acontinuous market developed partly in the street and partly in abasem*nt room called the "Coal Hole" and flourished during the day,while in the evening it was continued in the lobby of the Fifth AvenueHotel. This market did more business than was done upon the Exchangeitself, and a few years after the War, many of its members, who hadorganized into the "Open Board of Brokers," were admitted to the StockExchange in a body. The suspension of business in 1873 was too brief[Pg 19]to allow of the formation of a market such as the above, but, while itcontinued, cash transactions for securities were being carried onevery day in the financial district.

Would results such as these obtain on this occasion? Much dependedupon the length of time before the Exchange could re-open, but this initself was a problem for which no one could venture a solution. Again,a vast volume of contracts made on July 30th had been suspended. Howlong could the enforcement of these contracts be successfullyprohibited, and above all how long would the banks and financialinstitutions which were lending money on Stock Exchange collateralrefrain from calling loans when they were deprived of any measure ofthe value of their security? Over its own members the New York StockExchange might exercise a rigid control, and it could safely beassumed that the other Stock Exchanges of the country would coöperatewith it, but numberless outside agencies existed such as independentdealers unaffiliated with exchanges, and auctioneers, any of whommight establish a market. If declining prices were made through mediaof this description, and the press felt called upon to furnish them tothe public, the closing of the Exchange might not suffice to preventpanic and disaster.

Oppressed by these considerations, and by an appalling sense ofresponsibility, the new Committee of Five began its labors in themorning of July 31st. The first step decided upon was to communicatewith the Bank Clearing House Committee. Mr. Francis L. Hine, Presidentof the Clearing House, was invited to meet the Committee of Five whichhe did, a little[Pg 20] later in the day, and presented to them thefollowing statement of the action taken by the Clearing House.

"There was a meeting of the Clearing House Committee this morningin view of the closing of the New York Stock Exchange. It was theopinion of the Committee that the business and financialcondition of New York and the entire country was sound but thatthe situation in Europe justified extreme prudence andself-control on the part of the United States; that the closingof the Stock Exchange was a wise precaution by reason of thedisposition of all Europe to make it the market for whatever itwished to sell, and that in this country there was no occasionfor any serious interruption of the regular course of business,either financial or mercantile."

After the retirement of Mr. Hine, the Chairman of the Committee onClearing House of the Exchange stated that all the checks given to theClearing House had been certified, and a notice was thereupon sent outinstructing members to call for their drafts at the usual hour. Thusall the differences due on the day's transactions of July 30th weresettled, and a first encouraging step was taken. It was also decidedto permit the offering of call money on the floor of the Exchange.

The Committee held its second meeting on August 1st and the first ofthe long series of problems growing out of the closing of the marketwas at once presented to it. A letter from a brokerage house doingbusiness with Europe was received in which it was pointed out that"arbitrageurs" who had sold stocks in New York and bought them inLondon during the previous fortnight had made their deliveries byborrowing stock in New York; that the stock purchased in London wasdue to arrive on this side, and that the usual process of[Pg 21] financingit by returning the previously borrowed stock had been cut off throughthe suspension of unfulfilled contracts. This was likely to lead tovery grave embarrassment because call money had practicallydisappeared and houses to whom this foreign stock was consigned mightnot be able to meet their obligation to pay for it as it arrived.There being no arrivals of foreign stock expected that day, theCommittee deferred action, and thus gained time to think out ways andmeans of meeting the difficulty.

The second problem presented came in the form of a request forpermission to sell securities outside of the Exchange. The firm of S.H. P. Pell & Co. had suspended, and a house which had been lendingthem money wished to be authorized to sell out the collateral. Thiswas the first of many cases brought before the Committee, during itslong tenure of office, in which individuals sought for a specialprivilege to sell securities they were anxious to market while tradingin general was forbidden. In this case the applicants were referred tothat section of the Constitution of the Exchange in which it isprovided that members having contracts with insolvents shall close outthese contracts in the Exchange when the securities involved arelisted. The Exchange being closed, this provision answered thequestion without necessitating any independent action on the part ofthe Committee.

From the moment of the closing of the Exchange a growing pressurearose to determine just when and how it should be re-opened. Thedesire for information[Pg 22] on this point was widespread, and when thegravity of the situation became clearer to the community, a greatanxiety developed that the re-opening should, above all, not bepremature. Realizing that the fear of sudden and ill considered actionon this question was becoming dangerous to the restoration ofconfidence, the Committee of Five, at its meeting of August 3rdauthorized the following statement.

"Announcement is made by the President of the Stock Exchange, inanswer to inquiries as to when the Exchange will open, that amplenotice of such opening will be given."

In spite of this notice fear that the Stock Exchange might actinjudiciously lingered for some time longer until the constantreiteration by its officers of their intention to act only inconjunction and in consultation with the banks permanently allayed it.

By Monday, August 3rd, a steady stream of letters had begun to pour inupon the Committee asking advice and direction upon any number ofquestions raised by the closing of the market, and offering every kindof suggestion and advice. In addition to this it soon became evidentthat interviews would have to be held with large numbers of people forthe purpose of securing their cooperation, influencing their conduct,and obtaining information. The resolution of the Governing Committeeby virtue of which the Committee of Five was brought into being merelystated that questions such as these should be considered and reportedback "at the earliest possible moment." Clearly here was an impossiblesituation. The immense detail of the work which was[Pg 23] beginning tounfold itself could never be handled by so large a body as theGoverning Committee itself. Realizing that this difficulty must be metwithout a moment's delay the Committee of Five requested the callingof a special meeting of the Governors for twelve o'clock the same dayand presented to them the following resolution, which was unanimouslyadopted.

"Resolved: That the Special Committee of Five, appointed by theGoverning Committee on July 31st, be, and it hereby is,authorized during the present closing of the Exchange, to decideall questions relating to the business of the Exchange and itsmembers."

This action of the Governing Committee, while it was renderednecessary by the peculiar requirements of the situation, wasunprecedented in the history of the Exchange, for never before hadsuch powers and such responsibilities been put in the hands of so fewindividuals. It was one of a series of "war measures" by means ofwhich ends were achieved that would not have been reached in any otherway.

Clothed with complete authority the Committee met again in theafternoon of August 3rd and was at once confronted with a request fora ruling on the question of how far members were to be restrained fromdealing outside of the Exchange. After a lengthy discussion thefollowing was approved as their opinion.

"It was the intention in closing the Stock Exchange that tradingshould be stopped and it is the duty of loyal members to comply.If cases come into your office where it is absolutely necessaryto trade, do so as quietly as possible and prevent the quotationfrom being published."

[Pg 24]

It will be noticed that the policy adopted here was less stringentthan what came later when the growth of an outside market increasedthe dangers of the situation.

With the question of outside dealings there at once arose the closelyconnected question of the danger arising from having price quotationsof such dealings made public. The quotation machinery of the Exchangeshad been silenced by the closing of those institutions, but thereremained the public auctioneers whose sales, if they took place, wouldbe disseminated by the press and might spread panic among securityholders and money lenders. The auctioneers in New York, Boston,Philadelphia, and Chicago were at once approached, not only directlybut through their bankers and other advisers. It was a disagreeabletask as these auctioneers had to be urged to cease doing business, butit was rendered unexpectedly easy by the courtesy and friendlinesswith which they coöperated for the general welfare. So loyal werethese various agencies that not a single sale, either of listed orunlisted securities, occurred in any auction room of the country untilthe 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 wasurgent that prices of an alarming character should be kept from thepublic. For this most important purpose the coöperation of the presswas absolutely necessary. To obtain this, at the outset, was no easymatter. The closing of the Stock Exchange placed the financial newswriters[Pg 25] of the daily press in a curious position. With them wereallied that group of financial writers connected with the various WallStreet news agencies, the several financial journals that areexclusively devoted to Wall Street affairs, and the financialcorrespondents of out of town newspapers. All told there were aboutone hundred salaried men in these various groups, men experienced infinancial affairs, widely known and respected, engaged in a work whichhad 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 newspaperadvertising, a rise in the price of paper, and a greatly increasedcost of the news of the day owing to excessive cable charges forforeign dispatches. Thus the newspapers suffered a rapidly diminishingrevenue, and they found it necessary to discharge many of theiremployees and to reduce the salaries of others. With the StockExchange closed, naturally the salaried financial writers were amongthe first to feel this hardship.

Those whose services were retained throughout this crisis wereconfronted with divided responsibilities. It was their duty tointerpret a mass of more or less fantastic rumors at a time whennerves were overwrought and points of view magnified and distorted.They wished to prevent the publication of anything of an incendiarynature, while at the same time a necessity arose for presenting to thepublic the news to which it was entitled. Placed in such a positionthere was a very natural impatience here and there to have theExchange reopened, while now and then a tendency[Pg 26] became manifested topublish certain news of the day which, while interesting to thepublic, tended to handicap the efforts of those bent only onreassurance and calm counsel. At times it became somewhat difficult toprevent the publication of some of these matters, particularly of theprices made in the so called "gutter" market which sprang up in NewStreet. And yet on the whole nothing could have exceeded the fairnessand the spirit of coöperation of these gentlemen in this trying time.One newspaper even went so far as to cease the publication of aremunerative page of small advertisem*nts having to do with dealingsin outside securities. This was done at the request of the Committeewithout hesitation. Others coöperated in the suppression ofadvertising on the part of questionable people, while correspondentsof out of town newspapers, both foreign and domestic, cheerfullyacceded to requests to suppress all disturbing financial reports. In aword, the financial department of the whole newspaper press acceptedthe situation philosophically, bearing their losses without complaintand supporting without cavil the restrictive measures which it wasnecessary to employ.

This loyal conduct of the press and of the auctioneers was one of thegreat factors without which the critical days of the suspension ofbusiness could not have been successfully surmounted.

It will be remembered that in the morning of July 31st, the GoverningCommittee not only voted to close the Exchange but also declared thatthe delivery of[Pg 27] securities should be suspended until further notice.The motive of this latter action was to prevent the possibleinsolvencies that were likely to be forced if purchasers werecompelled to pay for their securities in the absence of a call moneymarket. At the earliest moment that attention could be given to it theCommittee of Five requested the Chairman of the Stock ExchangeClearing House to place before it the exact figures of the outstandingcontracts. These figures when presented showed that there were stockbalances open on Clearing House order amounting to $38,700,000 andEx-Clearing House contracts amounting to about $61,000,000. Roughlyspeaking there had been about $100,000,000 of stock sold in theExchange on July 30th, the delivery of which to the purchasers hadbeen suspended by the action of the Governing Committee. Obviously afirst great step toward clearing up the situation and preparing theground for the ultimate reopening of the market was to get this greatvolume of contracts settled, so that if any failures were inevitablethey would be disposed of beforehand.

It being probable that many of the purchasers of stock on July 30thwere in a position to finance their purchases even in the midst of thecrisis the Committee deemed it wise to offer every possible facilityfor the immediate settlement of contracts when the purchaser was inthis position. They therefore issued the following notice on August4th:

"The Special Committee of Five appointed to consider questionsconnected with the closing of the Exchange state that theresolution of the Governing Committee suspending deliveries[Pg 28]until further notice does not mean that settlement may not bemade by mutual consent wherever feasible. The Clearing House ofthe Exchange is prepared to advise and assist, and inquiriesshould be made in person there."

At the request of the Committee of Five the Committee on ClearingHouse at once undertook the task of assisting members of the Exchangein closing up these contracts and used its clerical force for thatpurpose, thus involving much careful and detailed work. They helddaily continuous meetings, giving their personal attention inassisting members, and using a care that involved both tact andarduous labor. Through their efforts such extraordinary progress wasmade, in this complex and difficult task, that by September 22ndannouncement was made that the delivery of all Clearing House balanceshad been completed with the exception of those of the few firms whoseaffairs were in the hands of receivers. These were settled shortlyafterwards and at the same time the great volume of Ex-Clearing Housecontracts were also completely fulfilled.

This is one of the most extraordinary and gratifying experiences ofthe great crisis. In about seven weeks, at a time when money wasunobtainable and the condition of panic was at its height, this hugevolume of unsettled contracts was met and consummated by voluntarycoöperation and without compulsion of any kind. In some few casesselfishness or indifference delayed action on the part of individuals,but these were all brought to a final adjustment by the influence andpersuasion of the Committee.[Pg 29]

This achievement not only reflects undying credit upon the members ofthe Exchange by showing both the sound condition of their business andtheir zeal to act for the general welfare, and creates a deep sense ofobligation to the Clearing House Committee who for many long weeksworked unceasingly to overcome the difficulties that beset the path,but it justifies and confirms the wisdom of the New York StockExchange in adhering to the practice of daily settlements. In all thegreat European centers, where trading on the fortnightly settlementbasis is in vogue, the restoration of dealings was terriblycomplicated by the herculean task of clearing up back contracts thatextended over many days. In New York, when conditions so shapedthemselves as to warrant reopening the Exchange, the back contracts ofits members had all been settled up two months before. Had oursystem, like the European, involved "trading for the account," everyadditional day of back contracts added to the $100,000,000 worth ofJuly 30th would have stood in the way of a final settlement, and thereopening of the market (which was long postponed as it was) wouldhave been much further delayed.

On August 4th, a problem which had loomed upon the horizon the dayafter the closing of the Exchange, was brought squarely before theCommittee. A delegation of houses dealing in securities for Europeanaccount appeared and stated that approximately $40,000,000 to$50,000,000 of securities were to arrive "this week, beginningto-morrow, Wednesday,"[Pg 30] and that they would be accompanied by sightdrafts which would have to be financed. This alleged great volume ofsecurities had been sold in this market for foreign account andborrowed in New York in order to make the immediate deliveries thatour day to day system requires. The suspension of the fulfillment ofcontracts declared by the Exchange made it impossible to return thisborrowed stock, and the houses doing this business were thereforeobliged either to allow the drafts to go to protest or finance theincoming stock until the free enforcement of contracts was againpermitted.

With money practically unobtainable, and general panic prevailing, itis needless to say that these statements of the delegation of housesdoing foreign business were a severe shock to the Committee of Five. Aremedy proposed by one or two of these banking houses was that thepeople from whom they were borrowing stock should be required to takeit back. This simple expedient, while eminently satisfactory from thestandpoint of the borrower of stock, was not very helpful to theCommittee, as it would merely have shifted the problem of financingthe stock from one set of brokers to another, and would have raisedthe dangerous question of a general enforcement of contracts inborrowed securities. It was an interesting illustration, among someothers to be subsequently experienced, of the manner in which certainminds can become entirely absorbed in that aspect of a question whichdeals solely with personal interest. After careful discussion it wasdetermined that the coöperation of the Clearing House banks should besought in solving the difficulty. The Committee of Five thereupon[Pg 31]sent a communication to the Bank Clearing House committee settingforth all the circ*mstances connected with the expected consignment ofsecurities as stated by the delegation of banking houses and requestedan appointment to meet them, or a sub-committee of their members, anddiscuss the matter. The appointment was obtained for the followingmorning, August 5th, and the Chairman and Mr. H. K. Pomroy wereappointed a sub-committee to confer with the Bankers and directed totake Mr. Richard Sutro with them as a representative of the housesdoing foreign business.

At the meeting with the Clearing House bankers it was very properlydecided that a solution of the problem could only be reached when anexact knowledge of the amount of money required to pay for theincoming securities had been obtained, the figures stated by thebanking houses which were seeking assistance being only estimates. Therepresentatives of the Stock Exchange agreed to obtain this exactinformation at once, and having returned and stated the circ*mstancesto the Committee of Five, it was directed that the followingcommunication be sent to a list of members of the Exchange who, it wasunderstood, were to have foreign drafts presented to them:—

"The Special Committee of Five requests that by three o'clockto-day they may have in their possession from you information asto the number and amount of drafts which you expect will bepresented to you from Europe on any steamers arriving to-day orsubsequently. They would particularly like to know how much youexpect on each steamer. In case any of these have already beenfinanced please so state in your communication.[Pg 32]
"The Committee would also like to have you tabulate in yourreply, so far as you can, the banks, trust companies or bankersfrom whom you expect drafts to be presented.
"This communication is confidential and it is requested that youdo not discuss this matter with any one outside your own firm.Your answer is expected by bearer, in order that the financing ofthese drafts may be facilitated."

By three o'clock, the same afternoon, replies had been received fromthirteen houses that they expected securities on the Olympic andMauretania, and had also received advices of other securitiesforwarded but did not know on what steamers; the drafts to bepresented they said would be approximately for four and one halfmillions. Replies from twelve other houses stated it as a possibilitybut not a certainty that securities might reach them on the steamersabove mentioned to the amount of about four millions; and, finally,twelve firms sent replies stating that they either expected nosecurities or had made the necessary arrangements to finance what wascoming. These facts—so far below the estimate at first presented tothe Committee—came as a great relief, and were at once taken beforethe Bank Clearing House Committee. After a careful discussion withthese gentlemen the Committee of Five again met and sent the followingcommunication to the firms who had reported that securities and draftswere about to be tendered to them.

"Members of the Exchange to whom foreign drafts are presented forpayment, are requested to confer with the Committee of Five at 9a.m. to-morrow, Thursday, the 6th inst., in the Secretary'soffice, with details of such transactions in hand, when effortswill be made to facilitate the adjustment."

[Pg 33]

The next morning the few firms who had drafts to meet on that day wereprovided with the necessary loans by two banks and a trust company at8 per cent. The amount of securities due from Europe was undoubtedlylarge, but the great bulk of it had not been shipped and the shipmentof it was postponed for many weeks afterward. The extraordinarystatement that $40,000,000 or $50,000,000 were about to be landed inNew York is interesting as showing the hysterical state of mind towhich many business men had been reduced at that time. The actualamount of stocks sold to arrive, against which borrowings had beeneffected in New York, was finally shown to amount to $20,000,000. Thatthis amount was not increased at an embarrassing period in theseimportant negotiations was due in large measure to the action of theCommittee in calling together the various foreign arbitrage houses,and securing from them an agreement to cable to their correspondentsin Europe not to make further shipments of securities, becauseborrowed stocks could not be returned and deliveries effected. This asit turned out was an important step in the right direction.

Owing to the sudden and severe pressure of business to which theCommittee of Five was subjected almost from the moment of itsorganization, some matters were unavoidably overlooked which shouldhave had immediate attention. Conspicuous among these was the questionof the rate of interest to be charged upon open contracts which theaction of the Governing Committee had suspended. This matter was notreached[Pg 34] until the meeting of August 4th, when the following rulingwas made:

"The Special Committee rules that interest on the delivery at therate of 6 per cent. shall accrue from August 5th on all unsettledcontracts for delivery of securities, except that interest shallcease when a receiver of securities gives one day's notice to adeliverer that he is ready to receive and pay for same.
"The Special Committee further rules that sales of bonds on July30th carry interest at the rate specified in the bond to July31st, and that between July 31st and August 5th they are 'flat';interest thereafter to be 6 per cent. on the amount of moneyinvolved, subject to the exemption stated in the previousruling."

In view of the fact that no action had been taken up to August 4th andthat a number of private settlements had been arranged in the meantimethe Committee thought it wise to avoid a retroactive ruling, andimposed the 6 per cent. rate from August 5th. Injustice was done, insome cases, by permitting a lapse of five days when no interest chargewas required, but this injustice was cheerfully borne owing to theunusual exigencies of the situation.

On this same day the Committee received the first communication whichindicated that some members of the Exchange had not yet appreciatedthe necessities and dangers of the situation. This came in the form ofa letter from the Baltimore Stock Exchange which contained thefollowing passage:—

"A representative New York Stock Exchange house has been guiltyof going directly to one of the Trust Companies here, and madeofferings of bonds dealt in on both your Exchange and our own, ata large concession."

[Pg 35]

The Committee directed the Secretary to make the following reply:—

"In the matter of your letter of August 1, 1914, I am instructedby the Special Committee appointed by the Governing Committee onJuly 31, 1914, to inform you that in the opinion of saidCommittee the offering down of securities in places where moneyis loaned on securities is most reprehensible, and that membersof this Exchange ought not to engage therein. If possible, Iwould like the name of the member of the New York Stock Exchangewho made such offer."

It may be urged in extenuation of the act of the Stock Exchange housethat, August 1st being only one day after the closing, a thoroughappreciation of the gravity of the situation had not yet becomegeneral.

By August 5th the work of the Committee had assumed the form that wasto continue unremittingly until the Exchange reopened four and onehalf months later. A constant stream of communications either byletter or by personal appearance filled the days sometimes from nineo'clock in the morning until six in the afternoon. The communicationsasked advice and made suggestions of every conceivable kind, but,above all, they were loaded with problems and difficult situationswhich had grown out of the breakdown of the financial machinery ingeneral.

The labors of the Committee in striving to straighten out thisformidable tangle of business affairs led to their issuing a series ofrulings, which were binding upon all members of the Exchange. Theserulings were sent over the "Ticker" whenever they were passed, but on[Pg 36]August 5th it was decided to supplement the "Ticker" by distributingthe rulings in circular form, and thus insure the possession by everymember 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 berescinded, and that they were all accepted without cavil or seriouscriticism by the members. In the relatively few cases where anindisposition to live up to these rulings was brought to the attentionof the Committee, an appeal from them to loyalty and good judgmentnever failed to bring a recalcitrant member to terms.

On this day, August 5th, a special circular was sent out to answer theconstant inquiries as to whether purchases or sales of securities werein any way permissible during the period of closing. It contained thefollowing:

"When the Governing Committee ordered the Exchange closed it wastheir intention that all dealings in securities should cease,pending the adjustment of the financial situation and thereopening of the Exchange.
"It is possible that cases may occur where an exception would bewarranted provided such dealings were for the benefit of thesituation, and in no sense of a speculative character, orconducted in public. Any member, however, taking part in suchtransactions must have in mind, his loyalty to the Exchange,whether or not he is living up to the spirit of the laws, andthat he is not committing an act detrimental to the publicwelfare."

On August 7th the question of the reopening of the Exchange again cameto the front. A letter from Baltimore was received urging that theExchange reopen[Pg 37] for dealings in bonds only, and the newspapers wereso urgent for some statement on the subject that the Committeeauthorized the following:

"The Special Committee of Five will not recommend to theGoverning Committee the reopening of the Exchange until in theirjudgment the financial situation warrants it, and as beforestated, ample notice will be given of the proposed opening."

The question of borrowed and loaned stocks came up at this time in twoaspects, one the interest rate to be charged, and the other thedetermination 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 onall borrowed and loaned stocks shall be 6%." In the latter case theyruled (August 10th) that "borrowed and loaned stocks must be marked tothe closing prices on Thursday, July 30th, 1914, at the request ofeither party to the loan."

The effect of this second ruling was to establish the policy ofregarding the closing prices of July 30th, as the market forsecurities, so that all loans, whether cash loans or stock loans,should be figured at this level. The making of any prices below thoseof July 30th was to be resisted by every available means, and themoney-lending institutions were to be urged to coöperate byrecognizing them as a basis for exacting margins. As long as thispolicy could be successfully carried out the danger of financialcollapse would be averted.

It having been ruled that a lender of stock, by notifying the borrowerof his willingness to take the[Pg 38] stock back, could stop the interestcharge on the contract, a considerable demand arose for new stockloans to replace those in which this privilege had been exercised. Thematter of facilitating these new stock loans was taken up by the StockExchange Clearing House, and this together with the negotiations forvoluntary settlement of back contracts now brought upon the ClearingHouse Committee that great volume of work which increased steadilyuntil the reopening of the Exchange.

One step tending to increase this work was taken on August 11th, whenthe Committee ruled as follows:

"Whenever a loaner of stocks gives one day's notice ofwillingness to have the same returned and the borrower fails toso return, the interest thereon shall cease. The Clearing Houseof the Exchange is prepared to advise and assist in making newstock loans and inquiries should be made in person there."

The effect of this ruling was to create a borrowing demand for stocksat current interest rates and the Clearing House Committee became theagency through which these stock loans were negotiated.

A further ruling, on August 11th, relative to the interest rate was tothis effect:

"That on all loans of stock made between members after this datethe rate of interest is subject to agreement between the partiesto the transactions, but should not exceed 6 per cent."

By the eleventh of August the question of the growth of an outsideunregulated market began to force itself upon the attention of theCommittee. All the organized[Pg 39] Stock Exchanges of the country wereclosed, the auctioneers had loyally agreed to abstain from makingsales, the "Curb" or recognized outside market was faithfullycoöperating to prevent dealing, the unaffiliated bankers and moneyinstitutions were refraining even from the private sale of bonds inwhich they were interested, so that for a brief period there was apractically complete embargo on the marketing of securities. Naturallyenough, so absolute a restraint brought on a pressure which was boundto force a vent somewhere. At first an occasional group of mysteriousindividuals were seen loitering in New Street behind the Exchange. Amember of the Committee of Five, who was prone to see the humorousside of things even in those dark days, remarked as he observed themlate one afternoon "the outside market seems to consist of four boysand a dog."

Before long, however, this furtive little group developed into a goodsized crowd of men who assembled at ten o'clock in the morning andcontinued in session until three in the afternoon. At first they metimmediately outside of the Exchange, but later they took up a positionsouth of Exchange Place and close to the office of the Stock ExchangeClearing House. Their dealings increased gradually as time went on andnever ceased entirely until the Exchange reopened. In all probabilitythe existence of this market was a safeguard as long as its dimensionscould be kept restricted. An absolute prohibition of the sale ofsecurities, if continued too long, might have brought on some kind ofan explosion and defeated the very end which it was sought toachieve.[Pg 40]

This irregular dealing, as long as it remained within narrow limitsand was not advertised in the press, furnished a safety valve bypermitting very urgent liquidation. It was, however, continuallyaccompanied by the great danger that it might grow to large andthreatening proportions. If, in consequence of the facilities whichthese unattached brokers were offering, responsible interests shouldbegin to take part in and help to create an open air market, the verydisasters which the closed Exchange was intended to prevent might bebrought about.

It was necessary, therefore, that the Stock Exchange authoritiesshould do all in their power to hold the development of this market incheck. With this end in view they not only prohibited their ownmembers from resorting to it, but they exerted what influence theycould upon others not to lend it their support. The banks and moneylenders were urged not to recognize the declining prices which wereestablished there as a basis for margining loans, as such recognitionmight tend to increase the dealings. One or two large institutionswhich, at first, were disposed to finance the operations conducted inthe Street were persuaded to refrain from continuing to do so, and thepress, while giving publicity now and then to the very low figures atwhich some leading stocks were quoted, was induced to avoid thepractice of regularly tabulating these prices.

It having become apparent that some members of the Exchange, whileobeying the mandate to do no trading in New Street, were indirectlyhelping the practice along by clearing stocks for the parties who[Pg 41]were making the market there, the Committee ruled (August 11th) "thatmembers of the Exchange are prohibited from furnishing the facilitiesof their offices to clear transactions made by non-members while theExchange remains closed."

The final outcome was that the New Street market did more good thanharm. It relieved the situation by facilitating some absolutelynecessary liquidation, and never grew to such proportions as toprecipitate disaster, but during the long suspense and uncertainty ofthe closing of the Exchange it was a constant and keen source ofanxiety to the Committee of Five.

Toward the end of the first fortnight after the closing of theExchange, the communications received by the Committee made it plainthat there were quite a large number of purchasers, attracted by thelow figures reached in the last day's trading, who were ready andanxious to buy securities at or above the closing prices. Obviouslypurchases of this kind by investors who happened to be in a positionto take securities out of the market, promised to bring relief tointerests whose position was critical and thus to fortify the generalsituation. This facility could not be extended in the form of ageneral permission to the members of the Exchange to make transactionsprivately at or above closing prices. To have permitted as farreaching a relaxation of restraint as this in so critical a time wouldhave entailed too great a risk. If any one of the eleven hundredmembers had proved disloyal in the exercise of so dangerous aprivilege and privately negotiated sales at prices[Pg 42] below those of theclosing, the whole plan of sustaining values might have beenjeopardized.

After considering the matter very carefully the Committee concludedthat the machinery and clerical force of the Stock Exchange ClearingHouse could be advantageously used to supervise and controltransactions of this character, and, on August 12th, they issued thefollowing ruling:

"Members of the Exchange desiring to buy securities for cash maysend a list of same to the Committee on Clearing House, 55 NewStreet, giving the amounts of securities wanted and the pricesthey 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 inorder to relieve the necessities of themselves or theircustomers, may send a list of same to the Committee on ClearingHouse, 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 Housewhich was kept in operation until the complete reopening of theExchange. Immense labor and difficulty were brought upon the ClearingHouse Committee in order to handle and supervise this unusual methodof trading, and the extraordinary success with which it was carriedthrough has entitled them to the lasting gratitude of their fellowmembers. The business was conducted by having a large clerical forcetabulate the orders received and bring purchasers and sellers togetherwho were willing to trade in similar amounts and at similar prices. Inorder to consummate[Pg 43] a trade the Clearing House would notify bothparties, leaving it to them to carry out the delivery and payment, andrequiring them to inform the Clearing House when the transaction hadbeen completed.

The first effect of furnishing this means for establishing arestricted market was very encouraging. A very considerable amount ofbusiness began at once to be entered into. Many people with readymoney, who felt that securities had fallen to bargain prices, appearedas purchasers and relieved the necessities of those who had beenembarrassed by the war crisis. A little later, however, when theprogress of the war took on a more discouraging aspect, this "ClearingHouse Market" fell to the arbitrary minimum of the closing prices witha large excess of selling as compared to buying orders, and the "NewStreet Market" grew in proportion. During the darkest days ofdepression the prices of a few leading stocks such as U. S. Steel andAmalgamated Copper dropped in the Street ten points or more belowtheir July 30th closings, and business in the Clearing House almostceased, but in the later Autumn, when the rapid rise in the volume ofAmerican exports began to foreshadow a readjustment in foreignexchange, the New Street prices rose again to the Clearing House leveland a relatively small business in the "outlaw" market was transformedinto a relatively large business conducted under the supervision ofthe Exchange.

It is an interesting detail, worth mentioning, that the ruling of theCommittee quoted above, which established[Pg 44] a market in the ClearingHouse, used the permissive word "may" in stating that orders to buyand sell might be sent to that institution. This was soon takenadvantage of by a few individuals who proceeded to conduct privatetransactions among themselves. Their excuse was that if transactionswere merely permitted in the Clearing House it became optional as towhether they should take place there or elsewhere. Within a few daysthereafter the Committee amended the ruling by substituting the word"must" for the word "may." The great responsibility attached topromulgating rulings, which were to be the law during this criticalperiod, is made more apparent when it is realized that the illconsidered use of a single word might bring on unforeseen and perhapsdangerous consequences.

During the month of August a constantly increasing pressure from everyconceivable direction was exerted to break down the dam with which theCommittee was striving to hold back the natural flow of dealings insecurities. By letter and by personal appearance before the Committeeindividuals, in and out of the Exchange, strove to induce them tocountenance transactions at prices below the arbitrary level of theclosing. In addition to this agitation among individuals and firms,restlessness began to show itself in some of the other Exchanges. Atone time the Stock Exchange of a great neighboring city, which hadpermitted restricted dealings exactly similar to those carried on inNew York, wished to have those dealings regularly quoted in thenewspapers; at another time a movement developed[Pg 45] on the ConsolidatedStock Exchange to establish some kind of restricted public dealing ontheir floor. The Committee of Five were obliged to labor hard andassiduously to hold this pressure back and keep the dam intact, andits efforts were ably and loyally seconded by the Committee of theBank Clearing House whose great influence was unremittingly exerted toprevent the danger of premature action of any kind.

On September 1st the Clearing House banks were anxious to determinewhat was the amount, measured in money, of securities sold in New Yorkby Europe and not yet received. The object of obtaining thisinformation was to know what demand would be made upon the loan marketif, at any time, these securities should be shipped. At thesuggestions of the bankers the Committee of Five summoned before themrepresentatives of all the houses doing a foreign business andrequested them to send answers, as promptly as possible, to thefollowing two questions:

First: "Amount due Europe for securities received to date andnot yet paid."
Second: "Amount due Europe for securities already sold but notreceived from Europe."

On the following morning answers were handed in showing that theamount received and not yet paid for was $699,576.11, and that theamount due Europe on securities sold but not yet received was$18,236,614.15. The rapidity and accuracy with which this importantinformation was obtained, without any publicity or disturbance ofconfidence, is interesting as showing the[Pg 46] efficiency of the intimatecoöperation between the banks and the Stock Exchange.

Among the many agencies for dealing in securities, whose activitieswere suddenly cut off on July 31st, the first in importance next tothe Stock Exchanges themselves were the so-called bond houses. Thesefirms, which included in their number many prominent private bankers,were dealers on a great scale in investment bonds, and when thethunderbolt of war struck they were carrying large lines of thosebonds on borrowed money which, in the ordinary course of events, wouldhave been placed among their numerous clients. When the crisis ofearly August had developed, all these houses (some of them not beingmembers of the Stock Exchange) loyally coöperated in closing up themarket, and abstained from negotiating their securities even in themost private manner. By the middle of August, however, a number ofthem began to show decided restlessness over the embargo upon theirbusiness. The cutting off of their accustomed income, while expensescontinued as usual, was not what influenced them, for this hardshipwas shared by all Wall Street, but the enforced carrying of securitiesin bank loans at so critical a time when they felt that thesesecurities might be disposed of became a grievance.

It was urged by many of them that the careful placing of thesesecurities would be a great aid to the situation because everyinvestor who made a purchase would facilitate the liquidation of theirloans, ease the strain on the money market, and diminish the volume[Pg 47]of securities for sale. There was undoubtedly much to be said in favorof this view when looked at from the standpoint of the effect upon thebond houses themselves or upon the loan market, but there was anotheraspect of the question which was less reassuring. If these housesstarted, at this terribly critical time, to place their securitiesamong their clients at declining prices, and if these prices becameknown, which they certainly would, no one could foretell what theconsequences might be. Many large institutions, such as InsuranceCompanies and Savings Banks, had funds invested in bonds, and manymoney lenders held loans upon bonds as security; what would be theeffect upon these interests if a declining market even in unlistedbonds should be publicly quoted?

Influenced by this grave uncertainty the Committee of Five resistedthe pressure brought upon them by certain representatives of the bonddealers who raised this question first on the nineteenth of August.Several of these gentlemen represented important firms andinstitutions which were not members of the Exchange, and their freedomfrom any obligation to be controlled by the Committee created asituation which threatened to become strained. In all cases of thiskind, where an independent outsider and the Committee could not cometo an understanding, the practice had become established of appealingto the Clearing House Bankers to act as a court of last resort. Thebanks, with their power to call loans, exerted an influence whichcould reach every nook and corner of the business world, and, at thesame time, their immense facilities for feeling[Pg 48] the financial pulsemade them the best judges of what risks it was as yet safe to take. Aseries of meetings consequently took place between the Bank ClearingHouse Committee, the representatives of the bond houses, and theCommittee of Five. At the first of these meetings the bank Presidentsleaned very decidedly to the views of the Stock Exchange, and it wasdecided to postpone any consideration of a departure from the statusquo for at least a fortnight.

CHAPTER III

THE REOPENING OF THE EXCHANGE

The fact that the Stock Exchange closed on July 31st and did notreopen fully until December 15th, might lead to the supposition thatthe question of reopening was not taken up before December. Far fromthis being the case, the truth is that reopening began to be discussedimmediately after the institution was closed. Within twenty-four hoursof the closing the minority, who had not been at first convinced ofthe wisdom of that action, joined with the majority in urgentlyadvising that the Exchange be not reopened soon. All through the monthof August a growing anxiety over the possibility of some hasty actionby the Exchange authorities showed itself among brokers, bankers, andeven some government officials. For this anxiety there was never anybasis, because the officers of the Exchange having exceptional meansof knowing what the dangers were, had no intention of assuming theimmense responsibilities of re-establishing the market without thebacking and approval of the entire banking fraternity. Gradually theexcited solicitude about a premature reopening subsided as theultra-conservative attitude of the Exchange was understood, and thiswas followed ere long by the first symptoms of agitation for theestablishment of some form of restricted market.[Pg 65]

As we have already shown the restraints of July 31st were relaxed oneby one with the lapse of time. First a market at or above the closingprices was organized under the Committee on Clearing House; thenCommittees to facilitate trading in listed and unlisted bonds wereformed; and finally a market was provided for unlisted stocks. Allthese devices, however, while they brought about readjustment anddiminution of strain, did not constitute a reopening of the StockExchange, and the restoration of that great primary market, in somerestricted way, became more and more a subject of public interest andconcern.

As we have seen, the fundamental reason for closing the Exchange wasthat America, when the war broke out, was in debt to Europe, and thatEurope was sure to enforce the immediate payment of that debt in orderto put herself in funds to prosecute this greatest of all wars. To usean illustration popular in Wall Street at the time, there was to be anunexpected run on Uncle Sam's Bank and the Stock Exchange was thepaying teller's window through which the money was to be drawn out, sothe window was closed to gain time. How to reopen this window in sucha way as not to pay out any more money to the foreign creditor thanwould suit our own convenience was the problem which soon began toagitate many ingenious minds. As time went on plans for performingthis difficult feat poured in upon the Committee of Five in constantlyincreasing volume, and they were frequently accompanied by a requeston the part of their authors that, when adopted, the credit for theirsuccess be publicly attributed to them. An[Pg 66] edifying confidence wasthus shown in what were usually the most visionary of these schemes.

Space does not permit the presentation of all these multitudinoussuggestions, but as a matter of information we shall quote extractsfrom some of them. In point of time, the first communication to theCommittee on this subject came on August 4th when a prominent bankerappeared in person, and gave vent to the following oracular utterance:"When the Exchange reopens it should not do business from ten tillthree, but should open from ten o'clock to one. All transactionsshould 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 theprediction, which was amply verified, that many weeks would elapsebefore the Exchange could be reopened at all. Some little time elapsedbefore anything further was presented on the subject, but by the endof August the flood of plans began and went on increasing until theExchange 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 exceedinglyinterested in making it possible for the Stock Exchanges to opensafely, I am getting the opinion of important bodies relative to theproposed legislation suggested on the enclosed slip, or any otherwhich you think would serve the purpose." On the enclosed slip was thefollowing proposed legislation "to enable the Stock Exchanges toopen."[Pg 67]

"Be it enacted: That until the President considers Europeanconditions fairly normal it shall be a misdemeanor in thiscountry to buy, sell, transfer, give, or accept as collateral,shares of stock or evidences of indebtedness extending over oneyear, unless accompanied by a certificate showing that the owneris a United States citizen, together with such evidence as theSecretary of the Treasury may require that the securities havebeen owned by United States citizens since July 30th, 1914."

In answer to this proposition the Secretary of the Stock Exchange sentthe following reply:

"Answering your letter of August 29th, 1914, I am instructed bythe Special Committee of Five appointed by the GoverningCommittee to say that in its opinion such legislation as referredto would be ruinous to the credit of the United States throughoutthe world for many years to come."

In September a letter was received from a Western banker suggestingthat the slogan "Buy a share of stock" if started "would achievesuccess, and by so doing would greatly benefit the stock marketsituation. This movement would have to be started so as not to createthe impression among the many thousands of people it would reach, thatit was merely a movement for the purpose of benefiting the stockbrokers, but that it would be instrumental in relieving the strain onevery conceivable business. Were such a movement accepted, and shouldit meet with results worthy of the plan it would be found out when thesmoke clears away that American people would own American railway andindustrial shares. This could be only for the great benefit of thiscountry but for Europe as well, for the reason that if Europe knewthat there was a good absorbing[Pg 68] power here it necessarily would notdump its stocks at frightful sacrifices."

In October a junior member of one of the big private banking housesappeared personally and stated that, in his opinion, both domestic andforeign security holders should be treated alike; that sales should beconducted as usual; that on reopening transactions should berestricted and only sales be published and no bids or offers. His ideaof restriction at the start was that all stock purchased should bepaid for on the basis of 10% cash and the balance in certificates ofdeposit for cash, which certificates were to be non-negotiable exceptbetween banks. A Committee could, from time to time, remove therestrictions from such securities as seemed no longer to require them.The banks should be asked to agree not to call any present loans andto be very sparing in calling for margins.

Close upon the heels of this plan came a letter signed "A Friend ofthe People" which said "Let the Stock Exchange be opened strictly forthe sale of American securities held by foreign stock holders. If theywish to throw their stocks over we can buy them at our own price.After six or eight days' selling from Europe the Exchange could beopen to the world. By that time the market should be on a rising scaleand safe for all."

This gentleman showed some originality in his view that the foreignershould be invited to sell at once, instead of being legislated out ofthe market as so many other advisers proposed. He seemed to be quiteoblivious of the difficulties, however, that would have[Pg 69] beenencountered in inducing American security holders to stand by inpensive calm while the foreigners unloaded to their heart's content.

Early in November a Philadelphia banker wrote a long and intricateletter the full details of which we have not space to reproduce, butit 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 thesecurities could be valued on their intrinsic and market valuesat such prices that would be considered reasonable to be obtainedin the next two or three years; that the lenders be guaranteedagainst any losses from recession below the stipulated point atwhich the securities might later be liquidated, say sometimeduring the year 1917, if it had not been voluntarily liquidatedwithout loss before. Loans so insured would have to be in forceon securities carried prior to a certain date, probably beforethe Exchange opened, if not last July 30th, and that an insurancepremium would be charged which would be considered slightly morethan adequate. Any surplus could be eventually pro-rated to thepolicy holders. There would need to be no obligation to take outsuch 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 receivedcentering round the main idea that the market be opened exclusivelyfor such stocks as were not much held in Europe. Just as acorrespondent cited above seemed to believe that American securityholders could be compelled to remain inactive while foreigners soldtheir holdings, so these people imagined that holders of one class ofsecurities could be kept quiet while the prices of some other classwere declining in a free market.[Pg 70]

With the above came a letter from a correspondent whose thoughtscarried him back to the old days of buyers' and sellers' options, whenmost of the security business was done on 30 or 60 day contracts. Heproposed that the Exchange be reopened so that "all trades made be'buyer 60'. No other bids or offers to be valid." This would postponefor two months the settling day for the expected liquidation, and hefelt certain that by that time there could be no trouble in meetingobligations. Unfortunately at the time he wrote there was no way ofobtaining assurance of this happy outcome. The same idea in a somewhatdifferent form came from another correspondent who, instead ofdeferring payment by a buyer's option, proposed that stocks and bondsbe sold on a 10 per cent. basis "That is, the seller of 100 shares ofUnion Pacific at 112 will deliver to buyer 10 per cent. of amountsold, and receive a check for $1,120, together with a contract inwhich the buyer agrees to take 10 per cent. more, or say 10 shares atthe 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 pershare. This plan seemed to contemplate a bequest of unsettledcontracts to future generations of unsuspecting brokers. The author ofit was particularly solicitous that, in the event of its adoption, hisname should be handed down to posterity along with the unfulfilledcontracts.

An idea of very wide prevalence, which was touched upon in nearly allcommunications to the Committee and which even some bankers approved,was that a preliminary step to reopening should be an agreement[Pg 71] bythe banks not to call loans made prior to July 31st, 1914, for somespecified period of time. This idea was very thoroughly discussed andlooked into by the Committee. It was found to present great practicaldifficulties, but was never definitely abandoned until the resumptionof business was shown to be possible without it.

The advice which was received by the Committee of Five with regard toreopening was divided into two classes. There was that large body ofsuggestions, some of which we have described above, which werevolunteered either in letters or in interviews, and there was theadvice of well known bankers and men of financial prominence which theCommittee itself solicited. In the latter class figured a member ofone of the largest private banking houses in New York whose opinionsand counsel were of inestimable value. This gentleman, gifted withclear insight and a thorough grasp of the situation, and generouslyanxious to be of service to the Committee, pointed out from the startthat the reopening of the Exchange hung upon a favorable swing in thebalance of trade. When the indebtedness of the United States to Europecould be offset by our exports the danger of reëstablishing our marketwould become negligible, and this shrewd adviser predicted that thedesired reaction in foreign exchange was much closer at hand than wasgenerally supposed. The most valuable of his admonitions, and thewords which did most to strengthen the courage and resolve of theCommittee were these: "You will be given all kinds of advice[Pg 72] by allkinds of people, but remember that in the end the responsibility willfall upon you, therefore listen attentively to everything you are toldbut act on your own independent judgment." This wise course wassuccessfully followed, and the change in the trend of foreign exchangecame, as he predicted, much sooner than was expected.

Numerous other prominent men who were turned to for assistance showedthe greatest willingness to render every service within their power,and placed the Committee under heavy obligations. There was one casewhere the zealous desire to work out a very detailed solution of thereopening problem brought a ray of humor into these otherwise seriousand anxious discussions. A certain private banker presented his schemein approximately the following words: "Before you can reopen theExchange you must be in a position to know to what extent Europe isgoing to throw our securities upon this market, and the only way toobtain this information is to send some members of your Committeeabroad. This delegation should go first to London and settle there fora long enough time to get intimately acquainted with leading personsin the financial world. This could be done by cultivating socialintercourse, dining and consorting with these people until a frankstatement from them could be obtained concerning the probable volumeof American securities for sale."

As this statement proceeded visible signs of painful emotionsmanifested themselves among the Committee. The Exchange had alreadybeen closed three months,[Pg 73] and they were being informed that a planrequiring a lapse of some six months more must be carried out beforethe happy day of resumption would be in sight. The banker havingpaused for a few minutes' reflection, resumed: "Then there is France.Many American securities are held there, and as under their system theaction of individual investors is largely controlled by the financialinstitutions, it will be quite feasible to determine the probableselling of French investors when you have got in intimate touch withthese institutions." Another additional six months' delay loomed tothe vision of the demoralized Committee, and sad words of reproachfulprotest were about to burst from some of them when their mentor againbroke the chilly silence of the meeting room. "Now that I think of itthere is Switzerland. The Swiss are a thrifty and saving people andundoubtedly have much money in our properties. In spite of herneutrality Switzerland will feel the economic pinch of this war andher people will have to liquidate many of their foreign holdings. Itwill be wise, therefore, for you to extend your inquiries from Franceinto Switzerland."

Here the reaction came, the heart-sick feeling which had plunged therespectfully attentive Committee into gloom vanished, and mirthfulemotions so possessed them that it was a hard task to maintain properdignity and decorum. The temptation to inquire whether thiscontemplated trip around the globe was to include an effort to tracesome American railroad bond into the sacred precincts of Thibet, or adash to the South Pole to search the abandoned luggage of somedeceased[Pg 74] explorer, was resisted, and the worthy banker whoseimagination had taken such distant flights retired unconscious of thevery mixed emotions he had aroused. In the light of the actualreopening that took place only six weeks later this interview becomesa curiosity worth preserving.

Along with other prominent men who consented to meet and consult withthe Committee there came Sir George Paish and Mr. Basil G. Blackett.These two gentlemen had come over from England to consult ourgovernment and our banking fraternity with regard to the abnormalexchange situation created by the outbreak of war. Before theCommittee of Five they, of course, dwelt mainly upon the question ofreopening the market. Sir George Paish, being by nature an optimist,took a very roseate view of the outlook, so much so that some membersof the Committee were at first disposed to fear (his mission beingthat of a collector of debts who sought prompt payment) that hisdiagnosis of the situation was prompted more by his hopes than by hisconvictions. He proceeded to Washington, where he spent a considerabletime negotiating with the national authorities, and on his way home heagain appeared before the Committee, on November 23rd, and stated hisbelief that the Exchange could be reopened at once.

In the light of what followed it is plain that Sir George Paish'sviews were very nearly correct and not by any means over-optimistic.The rapidity with which the readjustment of exchange solved theproblem presented[Pg 75] to the American market was entirely in harmony withhis predictions and very flattering to his judgment. His companion,Mr. Basil G. Blackett, was a reticent young man who seldom intrudedhimself into the discussion, but it was noticeable that whenever hewas asked for an expression of opinion he showed himself to bethoroughly informed as to facts and sound in judgment. The Committeewas certainly under an obligation to these gentlemen for the time theywere willing to give to its deliberations. In this connection it is apleasure to record that the authorities of the London Stock Exchangeshowed a similarly friendly disposition. All through the period ofcrisis communications passed between the London and New York Exchangesand were accompanied by a most friendly spirit of mutual assistance.

While plans for reopening the Exchange were discussed from an earlydate, nothing definite took shape up to the end of October, and atthat time the Committee of Five were still in the dark as to how longbusiness would continue to be suspended. Whether the New Year wouldfind Wall Street still bound and muzzled was an open question onNovember 1st. As the month advanced, however, a very rapid change inconditions began to manifest itself. On November 10th two significantsteps were taken. Mr. Smithers, Chairman of the Unlisted StocksCommittee, appeared and stated that his Committee intended making areport recommending their own discontinuance. He was followed, on thesame day, by Mr. E. R. McCormick,[Pg 76] Chairman of the Board ofRepresentatives of the Curb Market Association, who urged that thetime for a formal reopening of the Curb was at hand. On the followingday the Committee on Unlisted Stocks, having submitted a proposedcircular which they wished to issue in announcement of theirdissolution, the Committee of Five adopted the following rule:

"The Special Committee of Five being of the opinion that themarket for unlisted stocks has arrived at a condition that makessupervision of dealings no longer necessary, hereby approve theact of the Committee on Unlisted Stocks in dissolving theirorganization.
"Ruling No. 23, dated September 24, 1914, is hereby rescinded."

It is needless to say that this action, together with its ratificationby the Committee of Five, was first submitted to and approved by theClearing House banks. Unlisted stocks comprised a group of propertieswhich were practically not held abroad, and the reason for holdingthem under close restraint at first was the danger of the sentimentaleffect on a panicky situation in case their prices should undergo aviolent decline. It having been demonstrated that such a decline wasnot to be feared, the Committee in charge were only too glad torelinquish the difficult duty of supervising the trading and open afree market. It was further decided that the restraint upon freequotation and publication of prices be simultaneously removed from theunlisted dealings.

As a natural sequence to the above action, on November 12th, the CurbAssociation issued the following notice:[Pg 77]

"To the Members of the New York Curb Market Association:
"Gentlemen:
"It has been decided that the improvement in the generalfinancial situation has removed the necessity for restrictionsover trading in unlisted stocks, therefore you are herebynotified that the New York Curb Market will officially resumebusiness on Monday, November 16th, 1914, at 10 o'clock a.m.
"This action on the part of the Chairman of the New York CurbMarket Association has received the approval and sanction of theCommittee 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 fordomestic account may now be resumed, but that all transactionsfor future delivery must be submitted for approval, asheretofore, to the Sub-Committee of Three on Bonds at theClearing House of the New York Stock Exchange."

On November 16th, Mr. Frank W. Thomas, Vice-President of the ChicagoStock Exchange and also Chairman of their "Trading Committee,"appeared before the Committee of Five and stated that it was theintention of the authorities of their Exchange to meet on the comingWednesday to discuss the advisability of opening on Monday, November23rd. He asked for information regarding the attitude of the New YorkStock Exchange in the matter of securities listed on both exchanges.The Committee requested him not to permit dealings in Chicago, in suchsecurities, at prices below the minimum prices established in NewYork.[Pg 78]

Thus one after another came the evidences of a sudden transformationin the financial conditions and of a consequent movement toward theresumption of business, all of which rested fundamentally on animmense increase of our exports and the resulting favorable movementof foreign exchange.

Encouraged by these happenings the Committee of Five actively took upnumerous plans for letting down the bars. There had been for some timeconsiderable pressure exerted by those members of the Exchange whowere distinctively bond brokers, to have the bond business transferredfrom the Clearing House to the floor of the Exchange. They thoughtthat this step would make a wider and more satisfactory market forbonds and that the supervision of the Committee of Three could beexerted in one locality as well as in the other. In view of the rapidimprovement in conditions, and the fact that unlisted bonds had beengiven an unrestrained market by the dissolution of the Committee ofSeven, it was thought that the moment had come for taking this step inadvance. Preparations were at once set on foot to restore therestricted bond market to the floor and thereby insure that partialopening of the doors of the Exchange which would be the entering wedgeto ultimate resumption.

Unfortunately the plans of the Committee in this regard were notsufficiently safeguarded. Through some unforeseen leak the news oftheir intentions got abroad, and brought on some awkward consequences.The first of these was the appearance of a private banker, the[Pg 79] sameone who early in August had predicted a long period of suspension, toprotest against greater freedom in bond dealings. He foresaw terribleresults if this rash act were permitted and claimed to haveinformation that European holders of bonds were awaiting this chanceto swamp the market. The Committee were not much alarmed by thisgentleman's warnings and were proceeding with their nefarious schemewhen a further warning was addressed to them. There was a certainmember of a Stock Exchange firm who was on friendly terms with some ofthe Washington authorities, and who seems to have felt it his duty tosee that the Exchange did nothing to give offense in these highquarters. When this individual learned what the Committee had in mindhe sent word that it would be prudent for them to let a particulargovernment officer know their plans before putting them intoexecution. Thinking that this warning must be based on some specialinformation the Committee at once authorized this gentleman to informhis friend in the Government of their plan. This was on Wednesday,November 18th, and the intention of the Committee was to place thebond market upon the floor of the Exchange on the following Monday. OnThursday this well meaning but somewhat misguided go-between reportedthat he had communicated with Washington and that his friend there hadexpressed the desire to see some member of the Committee before anyfurther steps were taken.

This news hit the plans of the Committee somewhat after the manner ofa submarine torpedo. They had everything in readiness for Monday, andthe newspapers,[Pg 80] which had also got wind of their intentions, hadalready announced to the public unequivocally that a restricted bondmarket would be started on that day. With such limited time to act inthere was nothing to resort to but postponement and a notice wasimmediately given to the press in the following words:

"The Special Committee of Five states that while the planoutlined by the newspapers concerning a further extension of thepresent method of dealing in bonds was substantially that underconsideration by the Committee, the magnitude of the interestsaffected has led to unforeseen difficulties which willnecessitate further consideration. When a decision is reachedample notice will be given to the public officially."

A letter was at once sent to the Government official notifying him ofthe readiness of the Committee to visit him at his convenience, andthe following day, Saturday, he very courteously sent them a telegramexplaining that the suggestion of an interview had in no way emanatedfrom him but that he had misunderstood the intermediary (who hadcommunicated by telephone) and supposed that the interview was beingsought by the Exchange. So this mighty tempest in a tea pot resultedfrom the excessive zeal of an outsider who while trying to pilot theCommittee into safe waters succeeded in running it on a reef of hisown creation.

Immediately on ascertaining the true situation the following noticewas sent out on Saturday:

"The Special Committee of Five announces that having consummatedits plan for bond transactions on the Exchange under certainspecified restrictions, the same will, in accordance with theConstitution of the Exchange, be submitted to the Governing[Pg 81]Committee at the regular meeting to be held on the 24th inst. Ifthe recommendations of the Special Committee are adopted by theGoverning Committee the plan will go into operation at an earlydate."

Some of the newspapers having announced positively that this new movewith regard to bonds would take place on Monday, the 23rd, they werevery indignant that it should be postponed without supplying them witha good and sufficient reason. The Committee, on its part, feeling thatit was undesirable to publish the details of an awkwardmisunderstanding with a public official, who would not want his namedragged into a matter that he had in no way concerned himself with,refused to furnish the reason. This at once let loose upon them thosevials of reportorial wrath which, up to that time, they had beenfortunate in escaping. One journal amicably stated that this incidentmerely emphasized a fact which had all along been obvious, namely thatthe Committee were, and had been from the start, totally incompetentto perform the task intrusted to them.

While a gentle shower of epithets fell upon their devoted heads theCommittee proceeded with their work and, having obtained the necessaryauthority from the Governing Committee, they sent out the followingruling on November 24th:

"That so much of rule No. 21 as applies to dealings in listedbonds through the Clearing House be rescinded, to take effect atthe close of business on Friday, November 27th, 1914. Beginningon Saturday, November 28, 1914, dealings in bonds listed on theExchange will be permitted on the floor of the Exchange[Pg 82] betweenthe hours of ten and three o'clock each day except Saturday, whendealings shall cease at twelve o'clock noon. Such dealings to beunder the supervision and regulation of the Committee, and to befor 'cash' or 'regular way' only and not below the minimum pricesas authorized by the Committee from time to time. Transactions atprices other than those allowed by the Committee, or in evasionof the Committee's rules, are prohibited. All rules of theExchange governing delivery and default on contracts covered bythis resolution shall be in force on and after Saturday, November28th, 1914, but the closing of contracts 'under the rule' shallbe subject to the foregoing provisions."

Thus on Saturday, November 28th, the doors of the Stock Exchange wereonce more thrown open and a restricted market in listed bonds wasestablished on the floor under the watchful eye of the Committee ofThree. There was some hesitancy at first as to whether these bondtransactions should be quoted on the ticker in the accustomed way, butbefore 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 toreport to the Committee when such bonds were not delivered by 2.15p.m. on the day following the purchase, it was hoped to impede anysudden or violent liquidation of foreign securities.

The restoration of the bond market to the floor was a completesuccess, and at about the same time a general revival of publicconfidence showed itself in a rise in prices first in the streetmarket and then in the Stock Exchange Clearing House itself.Encouraged by these symptoms the Committee of Five at once formulated[Pg 83]a plan for carrying the reopening a step farther. A list of stockswhich were not international in character was made out and submittedto the Bank Clearing House Committee, and with their concurrence itwas decided to place these upon the floor of the Exchange to be tradedin at or above certain prescribed minimum prices.

At a meeting of the Governing Committee on December 7th the followingresolution was adopted: "That the Committee of Five is herebyempowered to permit dealings on the floor of the Exchange in suchstocks as it may designate under restrictions prescribed by it. Thatthe Committee of Five is hereby authorized to enforce stock loancontracts whenever in its judgment it may deem best so to do, and thatthe resolution of July 31st, 1914, be modified in this respect."

A list of minimum prices was fixed upon that averaged some two orthree points below the closing prices of July 31st, and on December11th the Committee issued a ruling prescribing the conditions for thepartial resumption of stock dealings on the Exchange. We here presentit 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 theExchange from time to time by the Committee of Five, saidrescission to take effect at the close of business on Friday,December 11, 1914.
"Beginning on Saturday, December 12, 1914, dealings in certainspecified stocks listed on the Exchange will be permitted on thefloor of the Exchange between the hours of ten and three o'clockeach day except Saturday, when dealings shall cease at twelveo'clock noon.
"Dealings in such stocks as shall be specified by, and be underthe supervision and regulation of the Committee, shall be for[Pg 84]'cash' or 'regular way' only and not below the minimum pricesauthorized by the Committee from time to time. Transactions atprices below those allowed by the Committee, or in evasion of itsrules are prohibited.
"A list of stocks to be admitted to dealings on the Exchangeaccompanies these rulings. Minimum prices on same will beannounced on December 11, 1914.
"All stocks quoted on July 30th at or below 15 per cent., or $15per share, may be dealt in without restriction as to price, butare 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 beingcleared through the Stock Exchange Clearing House at the close ofbusiness on July 30, 1914, will be similarly cleared from theopening 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 the12th day of December, 1914.
"Stocks admitted to dealings on the Exchange will cease to bedealt in through the Stock Exchange Committee on Clearing House.Stocks not so admitted will continue to be dealt in through theCommittee on Clearing House until further notice.
"All rules of the Exchange governing delivery and default oncontracts covered by these rules shall be in force on and afterthe 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. onthe 12th day of December, 1914, for such stocks only as areadmitted to dealings on the Exchange, from and after which dateall rules of the Exchange governing the borrowing and loaning ofsuch 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 priorto and since July 30, 1914.
"Borrowed and loaned stocks will be cleared as before July 30thlast, but only in cases where such stocks are admitted todealings on the Exchange.
"Loans of stocks not admitted to dealings on the Exchange willcontinue to stand until further notice, unless otherwise agreedto by both parties to the contract."

[Pg 85]

On Monday, December 14th, the next business day after the limited listof stocks had been placed upon the floor of the Exchange, it wasreported to the Committee that the volume of transactions taking placein the Stock Exchange Clearing House, in the stocks not yet admittedto the floor, had risen to such proportions as seriously to embarrassthat institution. As this activity was taking place on a rising marketand signs of increasing confidence were constantly multiplying, theCommittee quickly resolved, on the same day, to transfer all stocks tothe floor on the following morning, and notice to that effect was atonce sent out. The unexpected appearance of this notice on the tapewas greeted with cheers of approbation in the Exchange, and onDecember 15th the long hoped for reopening of the entire market hadbecome 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 theExchange remained closed, but now that it was reopened authoritynaturally returned to its legitimate channels. The Committee thereforepresented the following report to the Governing Committee on December15th:

"The Special Committee of Five beg leave to report that in asmuch as the crisis that existed on July 31st, 1914, has passed,and financial affairs in this country have resumed a practicallynormal condition, the necessity for the Committee's continuanceno longer exists and hence they request to be discharged. Beforebeing discharged they desire to express their appreciation of thetrust and confidence placed in them by the Governing Committee.They also wish to express to the members of the[Pg 86] Exchange theirappreciation of the manner in which their rulings have beenrespected, even though in many cases it involved greatsacrifices.
Resolved, That the report of the Special Committee of Five bereceived, and the Committee be discharged."

Thus, like the sudden and unexpected shifting of a dream, theCommittee of Five who so recently had almost despaired of fixing adate for reopening the Exchange, found the Exchange open andthemselves a memory of the past. The abruptness of their exit wastempered, however, in the following manner. As above described, thereopening was accompanied by the restraint of certain arbitraryminimum prices below which securities could not be sold. It was feltthat, owing to the critical and indecisive state of the war, there wasa continuing possibility of some news that might renew a crisis in themarket. While this possibility lasted the maintenance of minimumprices furnished an automatic check upon sudden panic which wouldavoid raising the question of a second closing of the Exchange. Inorder to regulate these minimum prices and so change them from time totime as to keep in accord with normal supply and demand, it wasnecessary to appoint a Committee, and the original Five were continuedin office with this sole regulative power. As bonds were similarlyrestricted, the Committee of Three also lingered on the scene for thesame purpose. The two Committees performed this unusual function up tothe first of April, 1915, when the very marked improvement inconditions led to the abandonment of this last vestige of artificialrestraint.[Pg 87]

It is instructive, as showing the workings of some minds, thatalthough the Committee of Five, in its capacity of regulator ofminimum prices, issued a public statement that they were under nocirc*mstances going to valorize or sustain prices but merely expectedto maintain a safeguard against some unforeseen shock to confidence,many people wrote them urgent letters asking that in certainproperties a minimum should be maintained which would render sellingimpossible. It was quite futile to try to disabuse some of thesecorrespondents of the idea that no decline should be allowed inproperties that they were interested in.

To one who meditates upon the singular experience which was thusabruptly brought to a close, there are a few features of it whichstand out as meriting the especial attention of all members of theStock Exchange. First of all it was most impressively shown whatapparently hopeless tasks can be accomplished by loyal coöperation. Ifat any time up to July, 1914, any Wall Street man had asserted thatthe stock market could be kept closed continually for four andone-half months he would have been laughed to scorn, and yet thissupposed impossibility was performed by the joint and determinedaction of the financial community. On the other hand, and as acounterpart to this valuable experience, it must never be lost sightof that the extraordinary war measures of 1914 may be a danger to thefuture if they are misinterpreted. There is a possibility (even aprobability) that when ordinary crises arise in times to come, peoplewho find themselves financially[Pg 88] embarrassed will bring enormouspressure upon the authorities of the Exchange to renew the drasticexpedients of the famous thirty-first of July. It is to be sincerelyhoped that there will always be firmness enough in the GoverningCommittee to resist this pressure. The great world war coming, as itdid, without warning was a rare and epoch-making event that warrantedunheard of action and to indulge in such action for any lesser causewould be utterly disastrous.

The Committee of Five seems to have been brought into existence undera lucky star. That five men called together so suddenly in such anemergency should have worked with absolute harmony for so long a timeis quite remarkable. Their unanimity was never troubled but once. Onone of the first few days of their career a rather positive andaggressive member, arguing with a colleague, said "you must rememberthat you are only one of this Committee." The Committeeman thusaddressed responded with calm determination "and you must not forgetthat you are not the other four." This encounter excited muchamusem*nt among the remaining members and was the one and onlyoccasion where anything resembling a serious difference appeared.

In addition to being blessed with harmony they were very fortunate inhaving passed rulings for so long a time without giving forth anythingthat had to be recalled. In view of the complexity of the conditions,fortune must have aided in this as well as judgment. They were, ofcourse, treated to much wisdom (after the event) by their critics.They were told that they might have opened the Exchange sooner afterthe actual[Pg 89] opening had proved a success, and they were informed inthe editorial columns of a prominent journal that their fear offoreign liquidation had been an "obsession" which lackedjustification. These critics never were heard from while the event wasin doubt, and consequently the Committee did not profit much by theirlearned sayings.

It can be stated with confidence that the intelligent resourcefulnessof the Stock Exchange, in conjunction with the splendid publicspirited work of the New York banks and the press, warded off acalamity the possible magnitude of which it would be difficult tomeasure. The success of this undertaking should be a source of prideand emulation to those future generations of brokers who will have tosolve the problems of the great financial market when in the words ofTyndall, "you and I, like streaks of morning cloud, shall have meltedinto the infinite azure of the past."

THE END

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

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