The Wall Street crash - 31 October 1997

Until last Monday, there was no question in my mind what had to be talked about this week: the very delicate topic of China and America.

But Monday was the day when the skies went dark at noon and scared, you might say, the living daylights out of everybody. And at 3.30 in the afternoon, the president of the New York Stock Exchange did something that had been done only twice before: immediately after the assassination of President Kennedy, and then again after the wounding of President Reagan.

It was feared that if trading was allowed to go on, the market might reel into chaos. The market always closes at 4pm, but on Monday the gavel fell and the bell rang at 3.30, and by that time stocks had plunged 554 points, the largest absolute number ever – 46 points more than the well-remembered drop almost exactly ten years ago.

But the experts were quick to point out that in 1987, the volume of the market was much smaller and the percentage drop was over 22%; whereas on Monday the drop was just over 7%.

It used to be, as late as a dozen years ago, that a drop as small as 30 points in the market would be the lead item on the television evening news. But the bull market has been going on so long and the recovery from bigger drops so swift that, till now, even a 90-point drop comes late in the news. Until last Monday.

Five hundred and fifty-four scared everybody for a night and a day, though Tuesday’s rousing rally offered a temporary gasp of relief.

Throughout all of Monday and on into the American night, during which the Hong Kong market starts up again, all that time we saw on our screens, like the endless credit crawl of a long film, a running procession of figures, the battle casualties, on the exchanges of the countries that matter most these days to Americans: Sydney, Singapore, Hong Kong, Bangkok, Jakarta, Tokyo, Berlin.

How the life of man (and woman) has changed since the days when we woke up in the morning and seized the newspaper to see what happened to the franc and the pound.

Well to a hardnosed observer resigned to the fact that what happened to him was happening to everybody else, the most cold-bloodedly interesting thing about the whole event was the trotting out by the experts of all the judgements, the usual phrases that have been used after every stock market crash since 1929. Maybe since 1873, when the most famous historian wrote, "Overproduction of goods, overcapitalisation of property and railroads and feverish speculation in all sorts of corporate enterprise" – does it sound familiar? – "brought the financial panic of 1873."

It took the country four or five years to get to its knees again.

Towards the end of last Tuesday when the 554 drop was a fact to accept and explain, the experts were first telling us in a breathless tone not to panic, and then the sages came in. What had happened had been a long overdue correction, a balancing act, an attempt to seek a healthy haven, and – I love this – a shaking out of weak money and those investors with no spine. Asked to define a spineless investor, the man said, “Investors who cannot stand the strain on a daily basis.” The ones, I guess, who at the first plunge were desperate to sell.

Tuesday, when the market bounded back over 300 points, we heard about a smart recovery, a wild rally, and (another favourite) an opportunity.

By Wednesday, when the rally was more modest but apparently on its way up, we heard such technical gobbledegook as “the shorts getting squeezed” and “money taking a flight to quality.” And with two or three more wobbly days to ponder the deeper meaning of all this, the experts dared to use our own sort of English. “Is,” asked one sage, “is the ball rolling over?” The second wizard replied slowly, “Well I think the bear is coming out of hibernation.”

By the end of the week, it was the consensus of the Wall Street wizards that the market had taken, might still be taking if not a rout, at the very least, one man said, “a haircut.”

I imagine that everywhere around the globe today people are wanting to believe that the whole scare is over and that the early discovery of a healthy market level will save us from the hobgoblin, the nightmare that haunts us all whenever there’s a halfway dramatic fall in the stock market: the ghost of 1929.

In listening this week to bankers, brokers and other financial magicians about 1929, I find a surprising general belief that on the so-called Black Thursday, 24 October, the market crashed with a bang and that was the beginning of the Great Depression. It didn’t happen that way, and since so few people are alive even among the wizards of Wall Street, who were there at the time, it might be useful for one who remembers it well to sketch the unfamiliar sequence of events that eventually made Thursday 24 October, but only in retrospect the beginning of the end.

Historians date the beginning of the end at the previous 3 September, but nobody at the time did. It happened to be, we can now see, the peak of the stock market’s rise, the peak of the so-called Coolidge-Hoover prosperity. But the stock market figure was not surprising at the time, made no headlines, no comment. It was just higher than yesterday.

The headlines were about a speech in Geneva by the Prime Minister of Great Britain, announcing that the United States and Britain were on the way to an agreement to limit naval armaments. The German dirigible, the Graf Zeppelin, had just triumphantly circled the world.

Bigger headlines in this country were in the form of a question, which men and women who knew absolutely nothing about sport were eager to have answered: would the wonderful Bobby Jones win his fifth National Amateur Golf Championship?

After the 3 September though, the market dropped, surged a little, dropped again, and at the end of the month went into a slow slide. Nobody was really scared. There had been lurches and recoveries in the big bull market of the preceding two years. Brokers’ loans rose to their peak, yet into October the market drifted and went on sagging. European investors began to pull out and some (maybe too many) Americans were equally prudent.

After another three weeks, famous stocks began to lose 10 points, 25 points, 40 points.

Tuesday, 22 October, a rally, and several big men, chairmen of the big banks put out warming assurances about the soundness of the economy and the healthiness of what they called “the shakeout.”

Nothing prepared anyone for Thursday the 24th. The rush of selling was now a deluge.

Five of the biggest bankers formed an emergency pool to move in and buy and steady prices, which they did for three or four days. But the bankers’ stopgap heroics were no more than a thumb in the dyke. Tuesday, another deluge.

One appalling but by no means unique example: a famous sewing company’s stock, which had been at 48, closed on the Monday, the 28th, at 11. Next day, a messenger boy had the gall to offer a dollar a share and bought a packet. Two days later, John D Rockefeller announced he was buying common stocks. The exchange declared a holiday to help the sleepless floor clerks rest and then climb through the mountains of unfilled orders.

But the market fell, and fell again, and in the middle of November the deluge hit rock bottom. In two weeks, $30billion no longer existed on paper or in life, which was just about the money the United States had spent to fight the First World War.

President Hoover called to Washington every sort of business and industrial expert – labour, farm leaders – and announced a programme of public building, capital expenditures, no cuts in wages, expansion of public works that cheered the country. The president and the bankers assured the nation that a crisis had been met and overcome; that the economy was fundamentally sound and that “Prosperity is just around the corner.”

Well throughout the winter and into the spring of 1930, the stock market rose to its feet again, and again there were mergers, combinations and many what were then called amalgamations. Pool operators got busy again pushing up prices.

All through the spring of 1930, most of the American people had read about the panic, but the thought of 1929 was that of a very nasty jar, a sickness they were recovering from. It took more dips and surges before, for one thing, the extent of unemployment dawned on the employed. It took almost two years after the infamous Black Thursday for the whole country to know positively it was now in a deep depression.

Three years after the first crash, I arrived in New York along with half a dozen other Britons, coming to take up fellowships at American universities.

The chairman of the fund that had brought us over told us that evening that there was by then – the end of September 1932 – the real possibility of a revolution. We could stay with our fellowships or sail back home. We were young and callow, not to say callous, and thought a revolution might be fun to be in on.

If there’s anything to learn from 1929/30, I think it is that a true depression is unlikely to develop from one or two sensational plunges and alternating surges in the market. The time to get seriously concerned is when the market slides gradually, slowly and steadily and tries from time to time to lift its head above water and doesn’t make it. Till then, all the stock responses of the Wall Street wizards I’ve quoted are of little use.

In the light of the 14 stock market crashes since 1873 none is quite the same. There is no dependable pattern of positive decline or positive recovery. Everything is very different or slightly different. All we can do is watch and wait, keep our fingers crossed, distrust the experts and hope for the best.

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