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The New York Stock Exchange in the Crisis of 1914
by Henry George Stebbins Noble
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[Transcriber's Note: Every effort has been made to replicate this text as faithfully as possible, including obsolete and variant spellings and other inconsistencies. Text that has been changed to correct an obvious error is noted at the end of this ebook.]



THE NEW YORK STOCK EXCHANGE IN THE CRISIS OF 1914

BY H. G. S. NOBLE PRESIDENT



GARDEN CITY NEW YORK THE COUNTRY LIFE PRESS 1915

Copyright, 1915 THE COUNTRY LIFE PRESS



INTRODUCTION

The year 1914 has no precedent in Stock Exchange history. At the present time (1915), when the great events that have come to pass are still close to us, even their details are vivid in our minds and we need no one to rehearse them. Time, however, is quick to dim even acute memories, and Wall Street, of all places, is the land of forgetfulness. The new happenings of all the World crowd upon each other so fast in the financial district that even the greatest and most far-reaching of them are soon driven out of sight. This being the case, it has seemed to the writer of these pages that some record should be kept among the brokerage fraternity of what was so great an epoch in their history, and that this record could best be written down by one who happened to be very favorably placed to know the story in its entirety.

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

This is not an easy task. To differentiate the interesting and the essential from the mass of routine material is, perhaps, not very difficult, but to present this segregated matter in a form that will not be monotonous is much more of a problem. The proceedings of a Committee that has been in continuous session must, when written down, partake of the nature of a diary, and to that extent be tiresome reading. We shall, therefore, have to ask the indulgence of any one who happens to look into these pages, and beg him to pass over the form for the sake of the substance. That the substance itself is of deep interest goes without saying. It was given to the Stock Exchange to play a great part in a momentous world crisis, and it must be of profound interest to know how that part was played.

Stock Exchanges are a relatively recent product of modern civilization, and like new comers in every field they are suspected and misunderstood. The most complex of all problems are economic problems, and the functions of Stock Exchanges form a most intricate part of political economy. It has, consequently, been a noticeable phenomenon in all contemporary industrial society that the activities of the stock markets have been a constant subject of agitation and legislative meddling. Most of this meddling has been based upon ignorance and misunderstanding, but in a broad view this ignorance and misunderstanding are excusable owing to the novelty and above all the great complexity of the factors at work. One of the needs of the time, therefore, is that the public, and their representatives in the Legislatures, should be enlightened as fast as possible with regard to the immensely important uses of these institutions, and to the operation of their very delicate machinery.

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

This evidence that the experience of 1914 has cast a much needed light on the public value of speculative exchanges, gives a further excuse for describing in some detail how the experience was passed through by that greatest of all these institutions, the New York Stock Exchange.



THE NEW YORK STOCK EXCHANGE IN THE CRISIS OF 1914



The New York Stock Exchange



CHAPTER I

THE CLOSING OF THE EXCHANGE

The Stock Exchange is in the second century of its existence and in that long period of time (long relatively to the number of years during which Stock Exchanges have been known to the world) it has been forced to close its doors only twice. The first occasion was the great panic of 1873, the after effect of civil war when trading was suspended for ten days; the second came with the outbreak of the world War in the close of July, 1914. These two remarkable events differ profoundly in the gravity of the circumstances which brought them about. In 1873, although the financial disturbance was one of the greatest the United States has ever experienced, the trouble was mainly local and did not seriously involve the entire world. The Exchange was not closed in anticipation of a catastrophe but was obliged to shut down after the crash had taken place, in order to enable Wall Street to gather up its shattered fragments. The measure of this crisis was the ten days during which trading was suspended.

Far different from these were the circumstances surrounding July 31st, 1914. On that eventful date a financial earthquake of a violence absolutely without precedent shook every great center of the civilized world, closing their markets one by one until New York, the last of all, finally suspended in order to forestall what would have surely been a ruinous collapse. The four and a half months during which this suspension continued stand to the ten days closing of 1873 in a proportion which fitly illustrates the relative gravity of the two historic upheavals.

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

It is in the nature of panics to be unforeseen, but the statement may be truly made that some of them can be more unforeseen than others. The panic of 1907 was preceded by anxious forebodings in the minds of many well informed people, whereas the Venezuela panic in 1895, being due to the sudden act of an individual, came out of a clear sky. To the latter class distinctively belongs the great convulsion of 1914. While the standing armies of Europe were a constant reminder of possible war, and the frequent diplomatic tension between the Great Powers cast repeated war shadows over the financial markets, the American public, at least, was entirely unprepared for a world conflagration. Up to the final moment of the launching of ultimata between the European governments no one thought it possible that all our boasted bonds of civilization were to burst over night and plunge us back into mediaeval barbarism. Wall Street was therefore taken unaware, and so terrific was the rapidity with which the world passed, in the period of about a week, from the confidence of long enduring peace to the frightful realization of strife, that no time was given for men to collect their thoughts and decide how to meet the on-rushing disaster.

Added to the paralyzing effect of this unheard of speed of action, there came the disconcerting thought that the conditions produced were absolutely without precedent. Experience, the chart on which we rely to guide ourselves through troubled waters, did not exist. No world war had ever been fought under the complex conditions of modern industry and finance, and no one could, for the moment, form any reliable idea of what would happen or of what immediate action should be taken. These circumstances should be kept clearly in mind by all who wish to form a clear conception of this great emergency, and to estimate fairly the conduct of the financial community in its efforts to save the day.

The conditions on the Stock Exchange, when the storm burst, were in some respects very helpful. Speculation for several years had been at a low ebb, so that values were not inflated nor commitments extended. Had such a war broken out in 1906, with the level of prices then existing, one recoils at the thought of what might have happened. Furthermore, the unsettled business outlook due to new and untried legislation had fostered a heavy short interest in the market, thereby furnishing the best safeguard against a sudden and disastrous drop. This short interest was a leading factor in producing the extraordinary resistance of prices in New York which caused so much favorable comment during the few days before the closing. It were well if ill-informed people who deprecate short selling would note this fact.

During the week preceding July 31st, therefore, in the face of a practical suspension of dealings in the other world markets, the New York market stood its ground wonderfully. The decline in prices, though it became violent on July 30th, showed no evidence of collapse. There was a continuous market everywhere up to the last moment, and call money was obtainable at reasonable prices. Here was a perplexing problem when the closing of foreign Bourses raised the question of how long we should strive to keep our own Exchange open.

To close the recognized public market for securities, the market which is organized and safeguarded and depended upon as a standard of values, is an undertaking of great responsibility in any community. To take this step in New York, which is one of the four preeminent financial centers of the world, involved a responsibility of a magnitude difficult adequately to estimate. Upon the continuity of this market rest the vast money loans secured by the pledge of listed securities; numberless individuals depend upon it in times of crisis to enable them to raise money rapidly by realizing on security investments and thus safeguarding other property that may be unsaleable; the possessor of ready money looks to it as the quickest and safest field in which to obtain an interest return on his funds; and the business world as a whole depends upon it as a barometer of general conditions.

Add to this the fact that speculative commitments by individuals from all over the world, which have been based upon the expectation of an uninterrupted market, are left in hopeless and critical suspense if this market is suddenly removed, and it becomes apparent that to close the Exchange is manifestly to inflict far-reaching hardship upon vast numbers of people. It is also sure to be productive of much injustice. In bad times sound and solvent firms are anxious to enforce all their contracts promptly so as to protect themselves against those that are overextended; an obligatory suspension of business compels these solvent firms, in many cases, to help carry the risks of the insecure ones and deprives the provident man of the safety to which he is entitled.

When such facts as these are duly weighed by the agencies having the authority to close the stock market, it becomes clear that duty dictates a policy of hands off as long as a continuous market persists and purchasers continue to buy as the decline proceeds. This was well illustrated in the acute panic of 1907 when an enormous open market never ceased to furnish the means by which needy sellers constantly liquidated, and the possessors of savings made most profitable investments. To have closed the Exchange during that crisis—assuming it to have been possible—would have been an unmixed evil. The violent decline in prices was the natural and only remedy for a long period of over-speculation, and it would have been worse had it been artificially postponed.

Considerations of this general character, up to July 30th, caused the authorities of the New York Stock Exchange to take no action, although the other world markets had all virtually suspended dealings. On July 30th, the evidences of approaching panic showed themselves. An enormous business was done accompanied by very violent declines in prices, and, although money was still obtainable throughout the day, at the close of business profound uneasiness prevailed.

* * * * *

On the afternoon of July 30th, the officers of the Stock Exchange met in consultation with a number of prominent bankers and bank presidents, and the question of closing the Exchange was anxiously discussed. While the news from abroad was most critical, and the day's decline in prices was alarming, it was also true that no collapse had taken place and no money panic had yet appeared. The bankers' opinion was unanimous that while closing was a step that might become necessary at any time, it was not clear that it would be wise to take it that afternoon, and it was agreed to await the events of the following day. Meanwhile, several members of the Governing Committee of the Exchange had become convinced that closing was inevitable and, in opposition to the opinion of the bankers, urged that immediate steps be taken to bring it about. It may seem strange to people outside of Wall Street that the night before the Exchange closed such apparent indecision and difference of opinion existed. It was, however, a perfectly natural outcome of an unprecedented situation. The crisis had developed so suddenly, and the conditions were so utterly without historic parallel, that the best informed men found themselves at a loss for guidance.

During the evening of July 30th the conviction that closing was imperative spread with great speed among the large brokerage firms. Up to a late hour of the night the President of the Exchange was the recipient of many messages and telegrams from houses not only in New York, but all over the country, urging immediate action. The paralysis of the world's Stock Exchanges had meanwhile become general. The Bourses at Montreal, Toronto and Madrid had closed on July 28th; those at Vienna, Budapest, Brussels, Antwerp, Berlin, and Rome on July 29th; St. Petersburg and all South American countries on July 30th, and on this same day the Paris Bourse was likewise forced to suspend dealings, first on the Coulisse and then on the Bourse itself. On Friday morning, July 31st, the London Stock Exchange officially closed, so that the resumption of business on that morning would have made New York the only market in which a world panic could vent itself.

The Governing Committee of the Exchange were called to meet at nine o'clock (the earliest hour at which they could all be reached, for it was summer and many were out of town) and at that hour they assembled in the Secretary's office ready to consider what action should be taken. In addition to the Committee many members of prominent firms appeared in the room to report that orders to sell stocks at ruinous prices were pouring in upon them from all over the world and that security holders throughout the country were in a state of panic. It would be hopeless to try to describe the nervous tension and excitement of the group of perhaps fifty men who consulted together under the oppressive consciousness that within forty-five minutes (it was then a quarter past nine) an unheard of disaster might overtake them. It was determined that the Governing Committee should go into session at once as there was so little time to spare. Just as they started for their official meeting room a telephone message was received from a prominent banking house stating that the bankers and bank presidents were holding a consultation and suggesting that the Exchange authorities await the conclusion of their deliberations.

There is an employee of the Exchange whose duty it is to ring a gong upon the floor of the big board room at ten o'clock in the morning. Until that gong has rung the market is not open and contracts are not recognized. This employee was instructed not to ring the gong until he had received personal orders to do so from the President; a permanent telephone connection was established with the office in which the bankers were conferring, and amid a horrible suspense the outcome of their conference was awaited. For twenty minutes this strain continued. It was a quarter before ten and only fifteen minutes remained in which to act. Meanwhile the brokers were fast assembling upon the board room floor, orders were piling in upon them to sell at panic prices, ten o'clock was approaching, and although all felt that the opening should not be permitted no one had a word from the Governing Committee as to what was going to be done.

* * * * *

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

The roll was called and thirty-six out of the forty-two members answered to their names. The Chair having announced the purpose of the meeting, Mr. Ernest Groesbeck moved that the Exchange be closed until further notice. This motion was carried, not unanimously but by a large majority. Mr. Groesbeck then moved that the delivery of securities be suspended until further notice, and, this being carried unanimously, made a third motion that a special Committee consisting of four members of the Governing Committee and the President be appointed to consider all questions relating to the suspension of deliveries and report to the Governing Committee at the earliest possible moment. The third motion, like the second was carried unanimously and the Committee adjourned. It was then four minutes of ten. On the instant that the first motion closing the Exchange was passed, word was sent to the ticker operators to publish the news on the tape. In this way the seething crowd of anxious brokers on the floor got word of the decision before ten o'clock struck. Immediately upon the adjournment of the Committee Mr. George W. Ely the Secretary of the Exchange ascended the Chairman's desk in the board room and made the formal announcement, which was greeted with cheers of approbation. The President promptly appointed Messrs. H. K. Pomroy, Ernest Groesbeck, Donald G. Geddes, and Samuel F. Streit to constitute, with himself, the Committee of Five, and the long suspense and anxiety of four months and a half began.

These events, which were crowded into a few feverish hours, and which seemed to those who participated in them more like a nightmare than like a reality, present some aspects that are especially worthy of detailed description. It is noticeable that the vote to close the Exchange was not unanimous. This shows the immense complexity of a situation, which, even at the last moment, left some two or three conscientious men undecided. It is a fact of profound importance, and one that never should be forgotten by stock brokers or by the public, that the Exchange closed itself on its own responsibility and without either assistance or compulsion from any outside influence. Many false assertions by professional enemies of the institution have been made to the effect that the banks forced the closing, or that its members were unwillingly coerced by outside pressure. The facts are that the influential part of the membership, the heads of the big commission houses, made up their minds on the evening of July 30th that closing was imperative, and that on the morning of July 31st their representatives in the Governing Committee took the responsibility into their own hands, the bankers having been unable as yet to reach a conclusion.

Immediately after the closing the President of the Exchange visited the prominent bank president who had served notice at the last moment of his disapproval of this procedure. He was found in his office in consultation with a member of one of the great private banking houses. Both the bank president and the private banker agreed that, in their opinion, the closing had been a most unfortunate mistake. It was an opportunity thrown away to make New York the financial center of the world. The damage was done and would have to be made the best of, but had the market been allowed to open the banks would have come to the rescue and all would have gone well. These gentlemen admitted that the Exchange was to some extent excusable owing to the negligence of the bankers in not notifying them that they were ready to protect the money market.

It may safely be stated that within twenty-four hours after this interview neither the two bankers in question nor any one else in Wall Street entertained these opinions. The rise of exchange on London to $7—a rate never before witnessed; the marking of the Bank of England's official discount rate to 10%, accompanied by a run on that institution which resulted in a loss of gold in one week of $52,500,000; the decline of the Bank's ratio of reserve from the low figure of 40% to the paralyzing figure of 14-5/8%; together with the fact that the surplus reserves of our New York Clearing House banks fell $50,000,000 below their legal requirements, were reasons enough in themselves to convince the most skeptical of the necessity of what had been done.

The frightful gravity of the situation which had arisen became clearer and more defined in people's minds a few days after the first of August than it was on the morning of July 31st. European selling had been proceeding for some time before the outbreak of War and in the last few days before closing had been temporarily arrested by the prohibitive level of exchange and the risk of shipment at sea. The American public itself, however, was seized with panic on the evening of July 30th, and on the morning of July 31st brokers' offices were flooded with orders to sell securities for what they would bring and without reference to values. Had the market been permitted to open on that Friday morning the familiar Wall Street tradition of "Black Friday" would have had a meaning more sinister than ever had been dreamed of before.

In all previous American panics the foreign world markets were counted upon to come to the rescue and break the fall. Imports of gold, foreign loans, and foreign buying were safeguards which in past crises had been counted upon to prevent utter disaster. On this occasion our market stood by itself unaided; an unthinkable convulsion had seized the world; panic had spread; even the bargain hunter was chilled by the unprecedented conditions; there were practically no buyers. A half hour's session of the Exchange that morning would have brought on a complete collapse in prices; a general insolvency of brokerage houses would have forced the suspension of all business; the banks, holding millions of unsaleable collateral, would have become involved; many big institutions would have failed and a run on savings banks would have begun. It is idle to speculate upon what the final outcome might have been. Suffice it to say that these grave consequences were prevented in the nick of time by the prompt and determined action of the Stock Exchange, and by that alone.

* * * * *

Any decisive step whether right or wrong always finds its critics. There were a few people who criticised the Exchange for closing too soon and thought that the feeling of panic was increased by this action. These few were mostly converted from their opinions as the situation became clearer. There was a larger number who took the ground that the Exchange had not closed soon enough, and urged that had the step been taken a few days sooner a considerable decline in values would have been prevented. It is strange that the latter critics did not stop to reflect on how great an advantage it was, all through the anxious days of August, to have had the New York market liquidated as far as it could be without disaster, and the level of closing prices relatively low. How vastly greater would have been the task of safeguarding the situation in the face of declining prices in the "New Street Market" had the closing prices on the Exchange been ten or fifteen points higher. The truth is that the Exchange was closed at the very best possible moment. The market was kept open as long as liquidation could safely be carried on (thus immensely diminishing the pressure to be withstood during the suspension) and it was closed at the very instant that a collapse was threatened.

The above facts suggest some reflections with regard to the agitation for governmental interference with or control of the Exchange. The act of closing necessitated the prompt decision of men thoroughly familiar with the circumstances in a period of time actually measured by minutes. If it had been necessary to reach government officials unfamiliar with details, convince them of the necessity of action, and overcome the invariable friction of public machinery, the financial world would have been prostrated before the first move had been made. If the Exchange had been an incorporated body, and had been closed in the face of the difference of opinion and possible conflict of interests that existed at the time, it would have been possible for a temporary injunction to have been brought against its management restraining its freedom to meet the emergency. Long before the merits of such an injunction could have been argued in court the harm would have been done, and ruin would have overtaken many innocent people. The full power of a group of individuals thoroughly familiar with the conditions to act without delay or restraint prevented a calamity which can safely be described as national.

It is a fact, which will probably never be appreciated outside of the immediate confines of Wall Street, that the Exchange was unexpectedly thrown into a position where the interests of the whole country were put in its hands, and that through the prompt and energetic action of the thirty-six men who faced the awful responsibility on July 31st financial America was saved. It is true that in saving the community they saved themselves, but so do the soldiers who win upon the battle-field, and in neither case is the obligation cancelled by the selfish considerations involved. When in future the perennial outcry against the Exchange is being fostered by those whose minds are exclusively occupied with the evils that are inseparable from every human institution, let us hope that once in a while some friendly voice may be raised to remind the world of July thirty-first, nineteen hundred and fourteen.



CHAPTER II

THE PERIOD OF SUSPENSION

During the same morning on which the momentous action of closing was taken the Committee of Five met and elected the President of the Exchange as their Chairman. The acute crisis was over, the danger of a cataclysm had been averted, but the situation that remained was big with problems full of menace and uncertainty.

Just what effect the closing of the market would have was a matter of doubt. On all previous occasions when the facilities of the Exchange had been inadequate, or had been shut off, an unregulated market had established itself in public places and proceeded uncontrolled. Thus during the Civil War, when the volume of speculation had completely outgrown the limited machinery of the old Board of Brokers, a continuous market developed partly in the street and partly in a basement room called the "Coal Hole" and flourished during the day, while in the evening it was continued in the lobby of the Fifth Avenue Hotel. This market did more business than was done upon the Exchange itself, and a few years after the War, many of its members, who had organized into the "Open Board of Brokers," were admitted to the Stock Exchange in a body. The suspension of business in 1873 was too brief to allow of the formation of a market such as the above, but, while it continued, cash transactions for securities were being carried on every day in the financial district.

Would results such as these obtain on this occasion? Much depended upon the length of time before the Exchange could re-open, but this in itself was a problem for which no one could venture a solution. Again, a vast volume of contracts made on July 30th had been suspended. How long could the enforcement of these contracts be successfully prohibited, and above all how long would the banks and financial institutions which were lending money on Stock Exchange collateral refrain from calling loans when they were deprived of any measure of the value of their security? Over its own members the New York Stock Exchange might exercise a rigid control, and it could safely be assumed that the other Stock Exchanges of the country would cooperate with it, but numberless outside agencies existed such as independent dealers unaffiliated with exchanges, and auctioneers, any of whom might establish a market. If declining prices were made through media of this description, and the press felt called upon to furnish them to the public, the closing of the Exchange might not suffice to prevent panic and disaster.

Oppressed by these considerations, and by an appalling sense of responsibility, the new Committee of Five began its labors in the morning of July 31st. The first step decided upon was to communicate with the Bank Clearing House Committee. Mr. Francis L. Hine, President of the Clearing House, was invited to meet the Committee of Five which he did, a little later in the day, and presented to them the following statement of the action taken by the Clearing House.

"There was a meeting of the Clearing House Committee this morning in view of the closing of the New York Stock Exchange. It was the opinion of the Committee that the business and financial condition of New York and the entire country was sound but that the situation in Europe justified extreme prudence and self-control on the part of the United States; that the closing of the Stock Exchange was a wise precaution by reason of the disposition of all Europe to make it the market for whatever it wished to sell, and that in this country there was no occasion for any serious interruption of the regular course of business, either financial or mercantile."

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

The Committee held its second meeting on August 1st and the first of the long series of problems growing out of the closing of the market was at once presented to it. A letter from a brokerage house doing business with Europe was received in which it was pointed out that "arbitrageurs" who had sold stocks in New York and bought them in London during the previous fortnight had made their deliveries by borrowing stock in New York; that the stock purchased in London was due to arrive on this side, and that the usual process of financing it by returning the previously borrowed stock had been cut off through the suspension of unfulfilled contracts. This was likely to lead to very grave embarrassment because call money had practically disappeared and houses to whom this foreign stock was consigned might not be able to meet their obligation to pay for it as it arrived. There being no arrivals of foreign stock expected that day, the Committee deferred action, and thus gained time to think out ways and means of meeting the difficulty.

The second problem presented came in the form of a request for permission to sell securities outside of the Exchange. The firm of S. H. P. Pell & Co. had suspended, and a house which had been lending them money wished to be authorized to sell out the collateral. This was the first of many cases brought before the Committee, during its long tenure of office, in which individuals sought for a special privilege to sell securities they were anxious to market while trading in general was forbidden. In this case the applicants were referred to that section of the Constitution of the Exchange in which it is provided that members having contracts with insolvents shall close out these contracts in the Exchange when the securities involved are listed. The Exchange being closed, this provision answered the question without necessitating any independent action on the part of the Committee.

* * * * *

From the moment of the closing of the Exchange a growing pressure arose to determine just when and how it should be re-opened. The desire for information on this point was widespread, and when the gravity of the situation became clearer to the community, a great anxiety developed that the re-opening should, above all, not be premature. Realizing that the fear of sudden and ill considered action on this question was becoming dangerous to the restoration of confidence, the Committee of Five, at its meeting of August 3rd authorized the following statement.

"Announcement is made by the President of the Stock Exchange, in answer to inquiries as to when the Exchange will open, that ample notice of such opening will be given."

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

By Monday, August 3rd, a steady stream of letters had begun to pour in upon the Committee asking advice and direction upon any number of questions raised by the closing of the market, and offering every kind of suggestion and advice. In addition to this it soon became evident that interviews would have to be held with large numbers of people for the purpose of securing their cooperation, influencing their conduct, and obtaining information. The resolution of the Governing Committee by virtue of which the Committee of Five was brought into being merely stated that questions such as these should be considered and reported back "at the earliest possible moment." Clearly here was an impossible situation. The immense detail of the work which was beginning to unfold itself could never be handled by so large a body as the Governing Committee itself. Realizing that this difficulty must be met without a moment's delay the Committee of Five requested the calling of a special meeting of the Governors for twelve o'clock the same day and presented to them the following resolution, which was unanimously adopted.

"RESOLVED: That the Special Committee of Five, appointed by the Governing Committee on July 31st, be, and it hereby is, authorized during the present closing of the Exchange, to decide all questions relating to the business of the Exchange and its members."

This action of the Governing Committee, while it was rendered necessary by the peculiar requirements of the situation, was unprecedented in the history of the Exchange, for never before had such powers and such responsibilities been put in the hands of so few individuals. It was one of a series of "war measures" by means of which ends were achieved that would not have been reached in any other way.

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

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

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

* * * * *

With the question of outside dealings there at once arose the closely connected question of the danger arising from having price quotations of such dealings made public. The quotation machinery of the Exchanges had been silenced by the closing of those institutions, but there remained the public auctioneers whose sales, if they took place, would be disseminated by the press and might spread panic among security holders and money lenders. The auctioneers in New York, Boston, Philadelphia, and Chicago were at once approached, not only directly but through their bankers and other advisers. It was a disagreeable task as these auctioneers had to be urged to cease doing business, but it was rendered unexpectedly easy by the courtesy and friendliness with which they cooperated for the general welfare. So loyal were these various agencies that not a single sale, either of listed or unlisted securities, occurred in any auction room of the country until the urgent phases of the crisis had passed.

It was not in auction rooms alone, however, that prices might be made; dealings were liable to occur in any unexpected locality, and it was urgent that prices of an alarming character should be kept from the public. For this most important purpose the cooperation of the press was absolutely necessary. To obtain this, at the outset, was no easy matter. The closing of the Stock Exchange placed the financial news writers of the daily press in a curious position. With them were allied that group of financial writers connected with the various Wall Street news agencies, the several financial journals that are exclusively devoted to Wall Street affairs, and the financial correspondents of out of town newspapers. All told there were about one hundred salaried men in these various groups, men experienced in financial affairs, widely known and respected, engaged in a work which had never been interrupted and which, as far as could be foreseen, promised to furnish them with a continuous vocation.

The first effect of the war was a general curtailment of newspaper advertising, a rise in the price of paper, and a greatly increased cost of the news of the day owing to excessive cable charges for foreign dispatches. Thus the newspapers suffered a rapidly diminishing revenue, and they found it necessary to discharge many of their employees and to reduce the salaries of others. With the Stock Exchange closed, naturally the salaried financial writers were among the first to feel this hardship.

Those whose services were retained throughout this crisis were confronted with divided responsibilities. It was their duty to interpret a mass of more or less fantastic rumors at a time when nerves were overwrought and points of view magnified and distorted. They wished to prevent the publication of anything of an incendiary nature, while at the same time a necessity arose for presenting to the public the news to which it was entitled. Placed in such a position there was a very natural impatience here and there to have the Exchange reopened, while now and then a tendency became manifested to publish certain news of the day which, while interesting to the public, tended to handicap the efforts of those bent only on reassurance and calm counsel. At times it became somewhat difficult to prevent the publication of some of these matters, particularly of the prices made in the so called "gutter" market which sprang up in New Street. And yet on the whole nothing could have exceeded the fairness and the spirit of cooperation of these gentlemen in this trying time. One newspaper even went so far as to cease the publication of a remunerative page of small advertisements having to do with dealings in outside securities. This was done at the request of the Committee without hesitation. Others cooperated in the suppression of advertising on the part of questionable people, while correspondents of out of town newspapers, both foreign and domestic, cheerfully acceded to requests to suppress all disturbing financial reports. In a word, the financial department of the whole newspaper press accepted the situation philosophically, bearing their losses without complaint and supporting without cavil the restrictive measures which it was necessary to employ.

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

* * * * *

It will be remembered that in the morning of July 31st, the Governing Committee not only voted to close the Exchange but also declared that the delivery of securities should be suspended until further notice. The motive of this latter action was to prevent the possible insolvencies that were likely to be forced if purchasers were compelled to pay for their securities in the absence of a call money market. At the earliest moment that attention could be given to it the Committee of Five requested the Chairman of the Stock Exchange Clearing House to place before it the exact figures of the outstanding contracts. These figures when presented showed that there were stock balances open on Clearing House order amounting to $38,700,000 and Ex-Clearing House contracts amounting to about $61,000,000. Roughly speaking there had been about $100,000,000 of stock sold in the Exchange on July 30th, the delivery of which to the purchasers had been suspended by the action of the Governing Committee. Obviously a first great step toward clearing up the situation and preparing the ground for the ultimate reopening of the market was to get this great volume of contracts settled, so that if any failures were inevitable they would be disposed of beforehand.

It being probable that many of the purchasers of stock on July 30th were in a position to finance their purchases even in the midst of the crisis the Committee deemed it wise to offer every possible facility for the immediate settlement of contracts when the purchaser was in this position. They therefore issued the following notice on August 4th:

"The Special Committee of Five appointed to consider questions connected with the closing of the Exchange state that the resolution of the Governing Committee suspending deliveries until further notice does not mean that settlement may not be made by mutual consent wherever feasible. The Clearing House of the Exchange is prepared to advise and assist, and inquiries should be made in person there."

At the request of the Committee of Five the Committee on Clearing House at once undertook the task of assisting members of the Exchange in closing up these contracts and used its clerical force for that purpose, thus involving much careful and detailed work. They held daily continuous meetings, giving their personal attention in assisting members, and using a care that involved both tact and arduous labor. Through their efforts such extraordinary progress was made, in this complex and difficult task, that by September 22nd announcement was made that the delivery of all Clearing House balances had been completed with the exception of those of the few firms whose affairs were in the hands of receivers. These were settled shortly afterwards and at the same time the great volume of Ex-Clearing House contracts were also completely fulfilled.

This is one of the most extraordinary and gratifying experiences of the great crisis. In about seven weeks, at a time when money was unobtainable and the condition of panic was at its height, this huge volume of unsettled contracts was met and consummated by voluntary cooperation and without compulsion of any kind. In some few cases selfishness or indifference delayed action on the part of individuals, but these were all brought to a final adjustment by the influence and persuasion of the Committee.

This achievement not only reflects undying credit upon the members of the Exchange by showing both the sound condition of their business and their zeal to act for the general welfare, and creates a deep sense of obligation to the Clearing House Committee who for many long weeks worked unceasingly to overcome the difficulties that beset the path, but it justifies and confirms the wisdom of the New York Stock Exchange in adhering to the practice of daily settlements. In all the great European centers, where trading on the fortnightly settlement basis is in vogue, the restoration of dealings was terribly complicated by the herculean task of clearing up back contracts that extended over many days. In New York, when conditions so shaped themselves as to warrant reopening the Exchange, the back contracts of its members had all been settled up two months before. Had our system, like the European, involved "trading for the account," every additional day of back contracts added to the $100,000,000 worth of July 30th would have stood in the way of a final settlement, and the reopening of the market (which was long postponed as it was) would have been much further delayed.

* * * * *

On August 4th, a problem which had loomed upon the horizon the day after the closing of the Exchange, was brought squarely before the Committee. A delegation of houses dealing in securities for European account appeared and stated that approximately $40,000,000 to $50,000,000 of securities were to arrive "this week, beginning to-morrow, Wednesday," and that they would be accompanied by sight drafts which would have to be financed. This alleged great volume of securities had been sold in this market for foreign account and borrowed in New York in order to make the immediate deliveries that our day to day system requires. The suspension of the fulfillment of contracts declared by the Exchange made it impossible to return this borrowed stock, and the houses doing this business were therefore obliged either to allow the drafts to go to protest or finance the incoming stock until the free enforcement of contracts was again permitted.

With money practically unobtainable, and general panic prevailing, it is needless to say that these statements of the delegation of houses doing foreign business were a severe shock to the Committee of Five. A remedy proposed by one or two of these banking houses was that the people from whom they were borrowing stock should be required to take it back. This simple expedient, while eminently satisfactory from the standpoint of the borrower of stock, was not very helpful to the Committee, as it would merely have shifted the problem of financing the stock from one set of brokers to another, and would have raised the dangerous question of a general enforcement of contracts in borrowed securities. It was an interesting illustration, among some others to be subsequently experienced, of the manner in which certain minds can become entirely absorbed in that aspect of a question which deals solely with personal interest. After careful discussion it was determined that the cooperation of the Clearing House banks should be sought in solving the difficulty. The Committee of Five thereupon sent a communication to the Bank Clearing House committee setting forth all the circumstances connected with the expected consignment of securities as stated by the delegation of banking houses and requested an appointment to meet them, or a sub-committee of their members, and discuss the matter. The appointment was obtained for the following morning, August 5th, and the Chairman and Mr. H. K. Pomroy were appointed a sub-committee to confer with the Bankers and directed to take Mr. Richard Sutro with them as a representative of the houses doing foreign business.

At the meeting with the Clearing House bankers it was very properly decided that a solution of the problem could only be reached when an exact knowledge of the amount of money required to pay for the incoming securities had been obtained, the figures stated by the banking houses which were seeking assistance being only estimates. The representatives of the Stock Exchange agreed to obtain this exact information at once, and having returned and stated the circumstances to the Committee of Five, it was directed that the following communication be sent to a list of members of the Exchange who, it was understood, were to have foreign drafts presented to them:—

"The Special Committee of Five requests that by three o'clock to-day they may have in their possession from you information as to the number and amount of drafts which you expect will be presented to you from Europe on any steamers arriving to-day or subsequently. They would particularly like to know how much you expect on each steamer. In case any of these have already been financed please so state in your communication.

"The Committee would also like to have you tabulate in your reply, so far as you can, the banks, trust companies or bankers from whom you expect drafts to be presented.

"This communication is confidential and it is requested that you do not discuss this matter with any one outside your own firm. Your answer is expected by bearer, in order that the financing of these drafts may be facilitated."

By three o'clock, the same afternoon, replies had been received from thirteen houses that they expected securities on the Olympic and Mauretania, and had also received advices of other securities forwarded but did not know on what steamers; the drafts to be presented they said would be approximately for four and one half millions. Replies from twelve other houses stated it as a possibility but not a certainty that securities might reach them on the steamers above mentioned to the amount of about four millions; and, finally, twelve firms sent replies stating that they either expected no securities or had made the necessary arrangements to finance what was coming. These facts—so far below the estimate at first presented to the Committee—came as a great relief, and were at once taken before the Bank Clearing House Committee. After a careful discussion with these gentlemen the Committee of Five again met and sent the following communication to the firms who had reported that securities and drafts were about to be tendered to them.

"Members of the Exchange to whom foreign drafts are presented for payment, are requested to confer with the Committee of Five at 9 A.M. to-morrow, Thursday, the 6th inst., in the Secretary's office, with details of such transactions in hand, when efforts will be made to facilitate the adjustment."

The next morning the few firms who had drafts to meet on that day were provided with the necessary loans by two banks and a trust company at 8 per cent. The amount of securities due from Europe was undoubtedly large, but the great bulk of it had not been shipped and the shipment of it was postponed for many weeks afterward. The extraordinary statement that $40,000,000 or $50,000,000 were about to be landed in New York is interesting as showing the hysterical state of mind to which many business men had been reduced at that time. The actual amount of stocks sold to arrive, against which borrowings had been effected in New York, was finally shown to amount to $20,000,000. That this amount was not increased at an embarrassing period in these important negotiations was due in large measure to the action of the Committee in calling together the various foreign arbitrage houses, and securing from them an agreement to cable to their correspondents in Europe not to make further shipments of securities, because borrowed stocks could not be returned and deliveries effected. This as it turned out was an important step in the right direction.

* * * * *

Owing to the sudden and severe pressure of business to which the Committee of Five was subjected almost from the moment of its organization, some matters were unavoidably overlooked which should have had immediate attention. Conspicuous among these was the question of the rate of interest to be charged upon open contracts which the action of the Governing Committee had suspended. This matter was not reached until the meeting of August 4th, when the following ruling was made:

"The Special Committee rules that interest on the delivery at the rate of 6 per cent. shall accrue from August 5th on all unsettled contracts for delivery of securities, except that interest shall cease when a receiver of securities gives one day's notice to a deliverer that he is ready to receive and pay for same.

"The Special Committee further rules that sales of bonds on July 30th carry interest at the rate specified in the bond to July 31st, and that between July 31st and August 5th they are 'flat'; interest thereafter to be 6 per cent. on the amount of money involved, subject to the exemption stated in the previous ruling."

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

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

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

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

"In the matter of your letter of August 1, 1914, I am instructed by the Special Committee appointed by the Governing Committee on July 31, 1914, to inform you that in the opinion of said Committee the offering down of securities in places where money is loaned on securities is most reprehensible, and that members of this Exchange ought not to engage therein. If possible, I would like the name of the member of the New York Stock Exchange who made such offer."

It may be urged in extenuation of the act of the Stock Exchange house that, August 1st being only one day after the closing, a thorough appreciation of the gravity of the situation had not yet become general.

* * * * *

By August 5th the work of the Committee had assumed the form that was to continue unremittingly until the Exchange reopened four and one half months later. A constant stream of communications either by letter or by personal appearance filled the days sometimes from nine o'clock in the morning until six in the afternoon. The communications asked advice and made suggestions of every conceivable kind, but, above all, they were loaded with problems and difficult situations which had grown out of the breakdown of the financial machinery in general.

The labors of the Committee in striving to straighten out this formidable tangle of business affairs led to their issuing a series of rulings, which were binding upon all members of the Exchange. These rulings were sent over the "Ticker" whenever they were passed, but on August 5th it was decided to supplement the "Ticker" by distributing the rulings in circular form, and thus insure the possession by every member of a full copy of the entire number. It is a gratifying fact, both from the standpoint of the Committee and of the Stock Exchange, that no one of the very numerous rulings was a failure or had to be rescinded, and that they were all accepted without cavil or serious criticism by the members. In the relatively few cases where an indisposition to live up to these rulings was brought to the attention of the Committee, an appeal from them to loyalty and good judgment never failed to bring a recalcitrant member to terms.

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

"When the Governing Committee ordered the Exchange closed it was their intention that all dealings in securities should cease, pending the adjustment of the financial situation and the reopening of the Exchange.

"It is possible that cases may occur where an exception would be warranted provided such dealings were for the benefit of the situation, and in no sense of a speculative character, or conducted in public. Any member, however, taking part in such transactions must have in mind, his loyalty to the Exchange, whether or not he is living up to the spirit of the laws, and that he is not committing an act detrimental to the public welfare."

On August 7th the question of the reopening of the Exchange again came to the front. A letter from Baltimore was received urging that the Exchange reopen for dealings in bonds only, and the newspapers were so urgent for some statement on the subject that the Committee authorized the following:

"The Special Committee of Five will not recommend to the Governing Committee the reopening of the Exchange until in their judgment the financial situation warrants it, and as before stated, ample notice will be given of the proposed opening."

The question of borrowed and loaned stocks came up at this time in two aspects, one the interest rate to be charged, and the other the determination of the market price at which such loans should stand. With regard to the former the Committee ruled on August 5th that "until further notice, from and after this date, the interest rate on all borrowed and loaned stocks shall be 6%." In the latter case they ruled (August 10th) that "borrowed and loaned stocks must be marked to the closing prices on Thursday, July 30th, 1914, at the request of either party to the loan."

The effect of this second ruling was to establish the policy of regarding the closing prices of July 30th, as the market for securities, so that all loans, whether cash loans or stock loans, should be figured at this level. The making of any prices below those of July 30th was to be resisted by every available means, and the money-lending institutions were to be urged to cooperate by recognizing them as a basis for exacting margins. As long as this policy could be successfully carried out the danger of financial collapse would be averted.

It having been ruled that a lender of stock, by notifying the borrower of his willingness to take the stock back, could stop the interest charge on the contract, a considerable demand arose for new stock loans to replace those in which this privilege had been exercised. The matter of facilitating these new stock loans was taken up by the Stock Exchange Clearing House, and this together with the negotiations for voluntary settlement of back contracts now brought upon the Clearing House Committee that great volume of work which increased steadily until the reopening of the Exchange.

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

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

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

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

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

By the eleventh of August the question of the growth of an outside unregulated market began to force itself upon the attention of the Committee. All the organized Stock Exchanges of the country were closed, the auctioneers had loyally agreed to abstain from making sales, the "Curb" or recognized outside market was faithfully cooperating to prevent dealing, the unaffiliated bankers and money institutions were refraining even from the private sale of bonds in which they were interested, so that for a brief period there was a practically complete embargo on the marketing of securities. Naturally enough, so absolute a restraint brought on a pressure which was bound to force a vent somewhere. At first an occasional group of mysterious individuals were seen loitering in New Street behind the Exchange. A member of the Committee of Five, who was prone to see the humorous side of things even in those dark days, remarked as he observed them late one afternoon "the outside market seems to consist of four boys and a dog."

Before long, however, this furtive little group developed into a good sized crowd of men who assembled at ten o'clock in the morning and continued in session until three in the afternoon. At first they met immediately outside of the Exchange, but later they took up a position south of Exchange Place and close to the office of the Stock Exchange Clearing House. Their dealings increased gradually as time went on and never ceased entirely until the Exchange reopened. In all probability the existence of this market was a safeguard as long as its dimensions could be kept restricted. An absolute prohibition of the sale of securities, if continued too long, might have brought on some kind of an explosion and defeated the very end which it was sought to achieve.

This irregular dealing, as long as it remained within narrow limits and was not advertised in the press, furnished a safety valve by permitting very urgent liquidation. It was, however, continually accompanied by the great danger that it might grow to large and threatening proportions. If, in consequence of the facilities which these unattached brokers were offering, responsible interests should begin to take part in and help to create an open air market, the very disasters which the closed Exchange was intended to prevent might be brought about.

It was necessary, therefore, that the Stock Exchange authorities should do all in their power to hold the development of this market in check. With this end in view they not only prohibited their own members from resorting to it, but they exerted what influence they could upon others not to lend it their support. The banks and money lenders were urged not to recognize the declining prices which were established there as a basis for margining loans, as such recognition might tend to increase the dealings. One or two large institutions which, at first, were disposed to finance the operations conducted in the Street were persuaded to refrain from continuing to do so, and the press, while giving publicity now and then to the very low figures at which some leading stocks were quoted, was induced to avoid the practice of regularly tabulating these prices.

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

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

* * * * *

Toward the end of the first fortnight after the closing of the Exchange, the communications received by the Committee made it plain that there were quite a large number of purchasers, attracted by the low figures reached in the last day's trading, who were ready and anxious to buy securities at or above the closing prices. Obviously purchases of this kind by investors who happened to be in a position to take securities out of the market, promised to bring relief to interests whose position was critical and thus to fortify the general situation. This facility could not be extended in the form of a general permission to the members of the Exchange to make transactions privately at or above closing prices. To have permitted as far reaching a relaxation of restraint as this in so critical a time would have entailed too great a risk. If any one of the eleven hundred members had proved disloyal in the exercise of so dangerous a privilege and privately negotiated sales at prices below those of the closing, the whole plan of sustaining values might have been jeopardized.

After considering the matter very carefully the Committee concluded that the machinery and clerical force of the Stock Exchange Clearing House could be advantageously used to supervise and control transactions of this character, and, on August 12th, they issued the following ruling:

"Members of the Exchange desiring to buy securities for cash may send a list of same to the Committee on Clearing House, 55 New Street, giving the amounts of securities wanted and the prices they are willing to pay.

"No offer to buy at less than the closing prices of Thursday, July 30, 1914, will be considered.

"Members of the Exchange desiring to sell securities, but only in order to relieve the necessities of themselves or their customers, may send a list of same to the Committee on Clearing House, giving the amounts of securities for sale.

"No prices less than the closing prices of Thursday, July 30th, 1914, will be considered."

Thus was established a market in the Stock Exchange Clearing House which was kept in operation until the complete reopening of the Exchange. Immense labor and difficulty were brought upon the Clearing House Committee in order to handle and supervise this unusual method of trading, and the extraordinary success with which it was carried through has entitled them to the lasting gratitude of their fellow members. The business was conducted by having a large clerical force tabulate the orders received and bring purchasers and sellers together who were willing to trade in similar amounts and at similar prices. In order to consummate a trade the Clearing House would notify both parties, leaving it to them to carry out the delivery and payment, and requiring them to inform the Clearing House when the transaction had been completed.

* * * * *

The first effect of furnishing this means for establishing a restricted market was very encouraging. A very considerable amount of business began at once to be entered into. Many people with ready money, who felt that securities had fallen to bargain prices, appeared as purchasers and relieved the necessities of those who had been embarrassed by the war crisis. A little later, however, when the progress of the war took on a more discouraging aspect, this "Clearing House Market" fell to the arbitrary minimum of the closing prices with a large excess of selling as compared to buying orders, and the "New Street Market" grew in proportion. During the darkest days of depression the prices of a few leading stocks such as U. S. Steel and Amalgamated Copper dropped in the Street ten points or more below their July 30th closings, and business in the Clearing House almost ceased, but in the later Autumn, when the rapid rise in the volume of American exports began to foreshadow a readjustment in foreign exchange, the New Street prices rose again to the Clearing House level and a relatively small business in the "outlaw" market was transformed into a relatively large business conducted under the supervision of the Exchange.

It is an interesting detail, worth mentioning, that the ruling of the Committee quoted above, which established a market in the Clearing House, used the permissive word "may" in stating that orders to buy and sell might be sent to that institution. This was soon taken advantage of by a few individuals who proceeded to conduct private transactions among themselves. Their excuse was that if transactions were merely permitted in the Clearing House it became optional as to whether they should take place there or elsewhere. Within a few days thereafter the Committee amended the ruling by substituting the word "must" for the word "may." The great responsibility attached to promulgating rulings, which were to be the law during this critical period, is made more apparent when it is realized that the ill considered use of a single word might bring on unforeseen and perhaps dangerous consequences.

During the month of August a constantly increasing pressure from every conceivable direction was exerted to break down the dam with which the Committee was striving to hold back the natural flow of dealings in securities. By letter and by personal appearance before the Committee individuals, in and out of the Exchange, strove to induce them to countenance transactions at prices below the arbitrary level of the closing. In addition to this agitation among individuals and firms, restlessness began to show itself in some of the other Exchanges. At one time the Stock Exchange of a great neighboring city, which had permitted restricted dealings exactly similar to those carried on in New York, wished to have those dealings regularly quoted in the newspapers; at another time a movement developed on the Consolidated Stock Exchange to establish some kind of restricted public dealing on their floor. The Committee of Five were obliged to labor hard and assiduously to hold this pressure back and keep the dam intact, and its efforts were ably and loyally seconded by the Committee of the Bank Clearing House whose great influence was unremittingly exerted to prevent the danger of premature action of any kind.

On September 1st the Clearing House banks were anxious to determine what was the amount, measured in money, of securities sold in New York by Europe and not yet received. The object of obtaining this information was to know what demand would be made upon the loan market if, at any time, these securities should be shipped. At the suggestions of the bankers the Committee of Five summoned before them representatives of all the houses doing a foreign business and requested them to send answers, as promptly as possible, to the following two questions:

First: "Amount due Europe for securities received to date and not yet paid."

Second: "Amount due Europe for securities already sold but not received from Europe."

On the following morning answers were handed in showing that the amount received and not yet paid for was $699,576.11, and that the amount due Europe on securities sold but not yet received was $18,236,614.15. The rapidity and accuracy with which this important information was obtained, without any publicity or disturbance of confidence, is interesting as showing the efficiency of the intimate cooperation between the banks and the Stock Exchange.

* * * * *

Among the many agencies for dealing in securities, whose activities were suddenly cut off on July 31st, the first in importance next to the Stock Exchanges themselves were the so-called bond houses. These firms, which included in their number many prominent private bankers, were dealers on a great scale in investment bonds, and when the thunderbolt of war struck they were carrying large lines of those bonds on borrowed money which, in the ordinary course of events, would have been placed among their numerous clients. When the crisis of early August had developed, all these houses (some of them not being members of the Stock Exchange) loyally cooperated in closing up the market, and abstained from negotiating their securities even in the most private manner. By the middle of August, however, a number of them began to show decided restlessness over the embargo upon their business. The cutting off of their accustomed income, while expenses continued as usual, was not what influenced them, for this hardship was shared by all Wall Street, but the enforced carrying of securities in bank loans at so critical a time when they felt that these securities might be disposed of became a grievance.

It was urged by many of them that the careful placing of these securities would be a great aid to the situation because every investor who made a purchase would facilitate the liquidation of their loans, ease the strain on the money market, and diminish the volume of securities for sale. There was undoubtedly much to be said in favor of this view when looked at from the standpoint of the effect upon the bond houses themselves or upon the loan market, but there was another aspect of the question which was less reassuring. If these houses started, at this terribly critical time, to place their securities among their clients at declining prices, and if these prices became known, which they certainly would, no one could foretell what the consequences might be. Many large institutions, such as Insurance Companies and Savings Banks, had funds invested in bonds, and many money lenders held loans upon bonds as security; what would be the effect upon these interests if a declining market even in unlisted bonds should be publicly quoted?

Influenced by this grave uncertainty the Committee of Five resisted the pressure brought upon them by certain representatives of the bond dealers who raised this question first on the nineteenth of August. Several of these gentlemen represented important firms and institutions which were not members of the Exchange, and their freedom from any obligation to be controlled by the Committee created a situation which threatened to become strained. In all cases of this kind, where an independent outsider and the Committee could not come to an understanding, the practice had become established of appealing to the Clearing House Bankers to act as a court of last resort. The banks, with their power to call loans, exerted an influence which could reach every nook and corner of the business world, and, at the same time, their immense facilities for feeling the financial pulse made them the best judges of what risks it was as yet safe to take. A series of meetings consequently took place between the Bank Clearing House Committee, the representatives of the bond houses, and the Committee of Five. At the first of these meetings the bank Presidents leaned very decidedly to the views of the Stock Exchange, and it was decided to postpone any consideration of a departure from the status quo for at least a fortnight.

The general situation remaining very critical all through August, no further steps were taken until September 8th. By that date a new factor had intruded itself into the situation. Certain corporate obligations were about to come due and the refunding of these obligations, whether in fresh issues of bonds or in short term notes, was going to make it necessary to withdraw the prohibition against placing investment securities upon the market. When this necessity became clear it was decided that some strict supervision and safeguarding of the sale of bonds and notes was necessary and the so-called "Committee of Seven," appointed by the bond dealers, were requested to formulate a plan for this purpose. This Committee of Seven consisted of members of the firms of: Brown Brothers & Co.; Guaranty Trust Co.; Harris, Forbes & Co.; Kissel, Kinnicutt & Co.; Wm. A. Read & Co.; Remick, Hodges & Co., and White, Weld & Co.

On September 9th, this Committee issued the following notice to bond dealers:

"Your Committee is pleased to report that New York City's financial needs have been taken care of satisfactorily, thereby considerably clearing the foreign exchange situation which existed when our communication of September 3d was sent out.

"The Committee is therefore of the opinion that the placing of securities owned by dealers with their private customers should be approved where the securities can be sold without disturbing the collateral loan situation and your Committee will be glad to continue to advise whenever such opportunities arise. Anything tending toward public quotations or the creating of the impression of an active or even semi-active market would unquestionably seriously disturb the loan situation.

"Transactions with bargain hunters should not be countenanced and your Committee will not approve the closing of transactions coming under this head. Prices should conform to the spirit which has prevailed during the past few weeks.

"Recognizing the support which banks and other lenders of money have given to dealers in securities, it should be the policy of such dealers when securities are sold to apply the proceeds toward the liquidation of loans.

"The Committee has considered questions of maturing obligations of cities and corporations and believes that the present situation does not warrant any attempt to issue long time bonds, but that such refunding should be accomplished through short time financing.

"The Clearing House Committee and the Stock Exchange Committee have expressed appreciation of the cooperation shown by the dealers in listed and unlisted securities and if all will endeavor to live up to the spirit of the policy thus far adhered to we are sure there will be no cause for criticisms on the part of the banks or the Stock Exchange Committee.

"Your Committee of Seven will continue to meet in the Directors' Room of the Chase National Bank daily, from 11 A.M. to 12 M., for advice on any cases where we can be of any assistance whatever."

The practical plan adopted was as follows:

Bond houses having securities of their own for sale could place them with their clients at prices approved by the Committee of Seven. All purchasers and sellers of bonds, acting as brokers only, were required to file their orders with the Committee of Seven when dealing in unlisted bonds, and with the Stock Exchange Clearing House when dealing in listed bonds, and these two agencies were empowered to determine minimum prices below which sales could not be made.

It will be seen that a very important step in the direction of relaxation of restraints was here taken. Not only was the prohibition of all dealings which had marked the beginning of the crisis withdrawn, but prices below the closing sales of July 30th were to be permitted subject to the supervision of a Committee.

* * * * *

As has already been stated, the Committee on Clearing House had their hands full from the time the Exchange closed, first with bringing about the settlement of the contracts of July 30th, and secondly with carrying on the business of making new contracts for members wishing to trade in securities at or above the closing prices. It was impossible, therefore, for the members of that Committee to give personal attention to the difficult problem of determining the prices below which listed bonds should not be sold. To meet this difficulty it was decided that a small additional Committee of men known to be thoroughly familiar with the bond business should be organized, and that it should be their duty to control the liquidation of listed bonds.

The carrying out of this plan at first met with a technical obstacle. The power to appoint a Special Committee rested exclusively with the Governing Committee of the Exchange; in order to secure action a special meeting of that body would have to be called; in the early weeks of September sentiment was still in so critical a state and every act of the Exchange was so keenly watched that it was feared the holding of an extraordinary meeting might start rumors and cause alarm. In view of these considerations the Committee of Five hit upon the makeshift of inviting three members of the Governing Committee, who possessed the desired qualifications, to volunteer their services as an advisory body in the matter of fixing prices for listed bonds. The three members selected were Messrs. C. M. Newcombe, Vice President of the Exchange, W. H. Remick, and W. D. Wood.

On the 19th of September these three gentlemen cheerfully undertook the difficult and onerous task urged upon them, and for three months they abandoned their own private interests and devoted their entire time to it. Owing to the intelligent and judicious manner in which they handled the delicate problem of conducting a liquidation in listed bonds that should at once be effective and yet not lead to demoralization, they placed themselves among the foremost of those to whom the financial community owes a debt of gratitude.

* * * * *

By the latter part of September methods, as described above, had been found for facilitating a restricted liquidation of listed stocks, and of listed and unlisted bonds. Nothing, however, had been done to make an outlet for unlisted stocks. The "Curb" market and certain prominent unaffiliated houses dealing in these securities had loyally played their part in suspending dealings, but symptoms began to show themselves of possible revolt, and the Committee of Five set to work to find a safety valve for this department also. The device of a supervisory Committee had proven so efficacious in other directions, that it was naturally turned to in this instance. The circumstances differed, however, in one particular. The bond dealers had spontaneously created for themselves the very efficient Committee of Seven who took their affairs in hand, but the interests involved in unlisted stocks did not show the same solidarity, and it was necessary for the Committee of Five to take a hand in initiating action.

With this end in view they consulted Mr. Herbert B. Smithers, of the firm of F. S. Smithers & Co., concerning the feasibility of having a committee formed to pass upon and control a resumption of dealings in unlisted stocks. Mr. Smithers was singled out for the reason that he was a member of the Stock Exchange whose firm was among the most prominent dealers in these securities, and the prompt and energetic way in which he undertook the task proposed to him soon convinced the Committee that they had not erred in resorting to him. He set about organizing a Committee at once and on September 24th he appeared before the Committee of Five accompanied by Messrs. A. C. Gwynne, F. H. Hatch, A. H. Lockett, and E. K. McCormick. These gentlemen announced that they were willing to act, with Mr. Smithers as their Chairman, and a plan for the control of the market in unlisted stocks was agreed upon.

In order to clothe this Committee (which included two Stock Exchange members, two representatives of prominent outside dealers, and the President of the Curb Association) with authority, the Committee of Five directed members of the Exchange to submit proposed dealings in unlisted stocks to them and abide by their rulings. The Stock Exchange Committee could, of course, only control its own members, but it being a fact that a very large part of the unlisted business emanated from Stock Exchange houses, it was probable that their action would determine that of unattached dealers. This expectation was, in the main, borne out, and business in unlisted stocks began to be carried on actively under the jurisdiction above described.

It is necessary to record, however, in the interest of preserving a correct picture of the happenings of this momentous time, that the smooth and gratifying operation of the various other Committees, which sprang into being to handle the numerous problems presented, was not entirely repeated in this case.

The conditions surrounding unlisted stocks seemed on the surface to be identical with those pertaining to unlisted bonds. In both cases a business that was partly in the hands of Stock Exchange members and partly in those of outside concerns was to be presided over by a mixed Committee representing both interests. In the case of the Bond Committee of Seven this supervision was accepted and cheerfully lived up to by practically all concerned. A different situation soon developed in unlisted stocks. Almost immediately certain individuals in the business began to assert that the unlisted Committee was a self appointed body which did not represent the people most concerned, and that being themselves dealers in the properties the trades in which were under their supervision, these gentlemen could not be trusted to act fairly in making their rulings. After much preliminary growling which vented itself in interviews with the Committee of Five, this antagonistic sentiment crystallized into a written protest.

On October 1st, the following statement was presented to the Committee of Five.

"GENTLEMEN:

"Owing to a general feeling of dissatisfaction amongst members and non-members of the New York Stock Exchange resulting from the formation of a Committee of Five to supervise dealings in Unlisted Securities, we, the undersigned, desire to suggest the following recommendations for your consideration:

"First: The personnel of the Committee be changed to the effect that same be composed of parties not identified as dealers.

"Second: That in stocks which have an open or active market, transactions may be made without restriction or necessity of report to the Committee, when at or above the closing prices of July 30, 1914.

"Third: That where securities have not had an active or open market the bid prices as published in the Chronicle of August 1st, be accepted as the closing prices.

"Fourth: That in the case of securities where the Committee may deem it possible to trade at prices below those prevailing on July 30th, they establish minimum prices good for as long a time as the Committee deems practical, and that a list of these prices be furnished to those making application for same."

"We think that if the above recommendations are put into force, it will do away with the criticism which has been made as to the Committee as at present constituted, and by so doing increase the efficiency of this Committee on Unlisted Securities, by securing thorough and hearty cooperation on the part of all brokers and dealers in these issues."

In reply to this appeal the Committee of Five pointed out that whenever, in other cases, the action of a Committee had been invoked to supervise the transaction of business, confidence in the integrity of that Committee had been general and unquestioned. The Committee of Seven, the Committee on Clearing House, the Committee of Three, and the Committee of Five themselves had all been vested with dictatorial powers over a business in which their members were personally engaged. In order to render trading in unlisted stocks a possibility, at the time, similar powers must be granted and similar confidence must be given to some one. The Unlisted Stock Committee were not self-appointed because they came into being at the instigation and suggestion of the Committee of Five, and to disband them after they had started upon their work, substituting other individuals in their places, would merely stimulate fresh antagonism that might wreck the entire project. The fact that these men were dealers in outside properties especially fitted them to pass upon the reasonableness of the prices that were to be made, and there was no more reason to question their integrity of purpose than there would be to doubt that of any individuals who might take their place.

A firm stand was thus taken in defence of this new Committee, and they succeeded in carrying on their work successfully up to the time when the amelioration of conditions enabled them to disband. It must be regretfully recorded, however, that the petty jealousy and distrust which had appeared in connection with this episode continued to show themselves in a desultory way until the end. A few individuals threw what impediments they could in the path of this Committee, and thereby furnished the only exception to the wonderful exhibition of loyalty and self effacement that manifested itself in every other department.

* * * * *

When the Exchange suddenly closed its doors, an immense number of people, consisting of employees of the Exchange itself and the clerical forces of all the many brokerage houses, were rendered idle. As soon as it became evident that the suspension of business was going to be indefinitely prolonged, the grave question arose as to the extent to which these people would be thrown out of employment. The Stock Exchange at once set the generous example of deciding to retain its entire force without reduction of wages, and this decision was carried through for the entire four and one half months of suspension. A more difficult problem, however, confronted the brokerage houses. Many of these firms had very heavy office rents and fixed charges of various kinds; their business had been showing meager profits and even losses for some years and, the length of the period of closing being impossible to forecast, they did not dare to undertake burdens that might get them into difficulties. The result was that a few strong houses, with philanthropic proclivities, carried their clerical forces through on full pay, but the majority were obliged to cut them down in various ways. In some cases the full force was retained on greatly reduced salaries, in others salaries were reduced and part of the force discharged, and the net result was that a great number of unfortunates were either thrown into unemployment altogether or placed in very straightened circumstances.

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