Chapter 42 Financial Crisis 1

October 24, 1929 was later known as Black Thursday.

The stock market, which had been rising since the summer of 1919, had risen to 449 points in 1928, reaching an unprecedented peak. More and more Americans invested their life savings in the stock market, and stock gods appeared in large numbers, and the stock market ushered in a hot summer.

Unfortunately, summer is here, can winter be far behind?

In June, seven universities in the United States, including Brown University, Columbia University, Cornell University, Harvard University, Princeton University, University of Pennsylvania and Yale University, jointly issued a notorious statement: "The evaluation of millions of investors has an effect on the amazing market of the New York Stock Exchange. Their unanimous judgment shows that the current stock price is not overvalued... The stock price will reach and remain at a permanent high."

In August, broker loans had reached 17 billion US dollars, and the crazy farce on Wall Street had not yet ended. People still naively believed that the prosperity of the market would never end. However, prosperity will eventually end, only risk will never end. And it is precisely because the risk is unknown that it is more terrible.

In the first week of September, the market suddenly began to jump up and down. Although the bulls temporarily held their ground in the contest, the dark cloud of market collapse had quietly shrouded Wall Street at this time.

On September 5, Babson, a non-famous American "statistician", gave a speech at the annual meeting of the National Business Federation: the collapse will happen sooner or later, and it will be difficult to contain. Like a spell, at 2 pm that day, the New York Stock Exchange fell sharply.

Who is Babson, and how could he have such a mysterious power?

In fact, Babson is not a famous stock commentator at all. His names are dazzling: educator, philosophy lover, believer, statistician, astrology lover, economics lover and supporter of the law of gravity... In short, this person is a "big liar"!

In hindsight, the market fell not because of Babson's genius prediction, but because after the market fell, people discovered that Babson had once made such a big statement.

Wall Street is also organizing forces to fight back against Babson, but there is a problem with the US real economy. Because the industrial production index, steel output, and transportation volume all declined, depression inevitably became one of the topics discussed. Some people who reacted sensitively began to sell and clear their positions, while others planned to buy at a low price. More people hoped that the speeches of important figures could help the stock market escape a disaster.

Because the dark clouds hanging over Wall Street were already clearly visible, when the prosperity of the stock market was about to come to an abrupt end, two events put two heavy pauses on the curtain call of this prosperity and fired two salutes for the four-year depression.

On September 20, 1929, Clarence Hatry of England suddenly went bankrupt. Hatry was an interesting person who was not like the English. For people like him, the English often sighed, although his experience in the financial industry in his early years was reassuring. Hatry built an industrial and financial empire of a truly impressive scale in the 1920s. The most eye-catching core business of this empire was the manufacture and sale of coin-operated automatic cameras. Hartley later abandoned these modest enterprises and moved into investment trusts and wholesale financing. He owed his fortune largely to unlicensed stock offerings and accumulated assets through illegal stock offerings and other equally irregular financing operations. According to legend in 1929, the revelation of Hartley's truth in London was considered to have seriously affected confidence in New York.

In another incident that circulated at the same time as the Hartley incident, the Massachusetts Public Utilities Board refused to allow Boston Edison to split its shares into four shares for each on October 11. As the company pointed out, stock splits were very popular at the time. For Boston Edison, not striving for progress might mean a regression to the company's gaslight era. The ban on stock splits was also unprecedented. The Massachusetts Public Utilities Board immediately responded by announcing an investigation into the company's credit rating and pointing out that the current value of the company's stock "has been realized by speculation" and has now reached the point where "in our judgment, no one would still find it profitable to buy this stock based on its earnings."

These are irresponsible words. It is conceivable that they could have had consequences as serious as the revelation of Clarence Hartley's truth. But it is equally possible that the already precarious balance could be upset simply by a spontaneous decision to exit the market. On September 22, the financial pages of New York newspapers carried an investment service advertisement in bold, eye-catching letters: "Don't stay too long. The bull market will not come again." This advertisement could be understood as: "Most investors who made money in the bull market will eventually have all their profits wiped out by the subsequent stock market correction, and some will even suffer a net loss." The decline in the Federal Reserve Industrial Index, the revelation of Hartley's truth, or the abnormal difficulties of the Massachusetts Public Utilities Board could not have aroused the concern of first dozens, then hundreds, and finally thousands of people that the bull market was about to end. We do not know what caused investors to worry in the first place. But we know that it is not important what caused investors to worry.

These two events occupied the front pages of the news and caused a sensation, because their exposure reminded people that there might really be a bubble in stock prices, giving people who were sleeping a loud slap in the face, but stock prices did not plummet. Wall Street elites and Mitchell (Charles Mitchell, president of the National Commercial Bank of the United States) declared that the stock market was healthy and the upward momentum was unstoppable. The only disturbing thing was that stock prices kept falling.