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September 13, 2015


Today is September 13, 2015. Next month on October 24 will be the 86th anniversary of the day Wall Street crashed, October 24, 1929, known as “Black Thursday.” I was two and one-half years old on Black Thursday and destined along with millions of other Americans to live in poverty as a result of this greatest economic catastrophe in American history during the Great Depression that followed.

It was a time of utter despair and hopelessness not just for Wall Street brokers and investors (some of whom committed suicide) but for sons of coal miners such as I and millions of other children the sons and daughters of chronically unemployed workers in America. Even my research for this essay gives me a queasy sense of this big hole in my life and the pain and suffering my family and my community and country had to endure as a result of the unregulated credit and stock-buying binges of the “Roaring Twenties.” (I set out the foregoing to inform the reader that I and millions of others have personally been victimized by lack of regulation of banks and stock markets and know whereof I speak, as the old saying goes. There is never a time when those who hold us by the economic throat do not need to be regulated for both their benefit as well as ours and during either the best or worst of times – never!)

(The following research, as sometimes paraphrased, is from the 1995 edition of a Readers Digest book on the crash and ensuing Depression.) Black Thursday on the New York Stock Exchange started the day routinely, but brokers were nervous because the past few weeks had seen violent swings both in prices and between optimism and fear. On this day, fear won. The 1920s (aka The Roaring Twenties) up to Black Thursday were a time when we were on a spending binge in America. Credit was freely available for a wide range of purchases, including an orgy in speculative stock purchases financed largely by loans from brokers (“margin loans”). No one was worried about repayment of such loans because they were confident that ever-rising values of the stock would secure their investments, i.e., they could sell the stock later on, pay off their loans, and put a tidy profit in their pockets. They should have known better, but the herd mentality took over – “Hey, everyone. Borrow some money, buy some stock, and when the stock prices go up, sell, pay off your broker(s) and get rich.” Regulation would have cooled such ardor to get rich by shuffling paper, but there was none and Herbert Hoover (in typical Republican laissez faire fashion) did little to nothing to end such madness. Our economy was in freefall; we were helpless spectators bereft of regulatory weapons. Relief (FDR) was still four poverty-stricken years ahead.

By mid-October 1929, prices had fallen so drastically that thousands of shareholders – whose “fortunes” existed only on paper – were forced to sell their investments. This, of course, caused a further downward spiral in prices, and by Black Thursday, the dam broke. There was an orgy of selling by panic-stricken investors. Panic seized the market an hour after opening time on Black Thursday. Investors who had bought shares in what they were told were thriving and expanding companies instructed their brokers to sell – at any price, and sometimes for virtually nothing. The New York Times vividly reported that: “Fear struck. . . Thousands (of brokers) threw their holdings into the whirling Stock Exchange pit for what they could bring.” The morning that the bubble burst, investors worth a fortune on paper were financially wiped out faster than the ticker tapes could pass on the bad news.

On the Stock Exchange floor there was a mad scramble to sell. Brokers turned white with shock, some ran about shouting wildly as fear and uncertainty grew. Because of the undignified chaos, officials closed the visitors’ gallery. A rescue operation by bankers began about noon, and an hour later Richard Whitney, vice president of the New York Stock Exchange, appeared on the trading floor with $20 million and bought stock above the asking price in order to redress “a little distress selling,” thus propping up the market. This dramatic rescue effort failed. After a temporary rally, the market resumed its fall. Brokers stayed up all night on Black Thursday to tally the number of shares sold and investments lost, and found that 12,894,650 shares were sold on Black Thursday and at ever-falling prices compared with a daily average of only 4 million in the previous month.

The Sunday newspapers said the worst was over and that business would pick up in the week ahead. They were wrong. Shares began to fall again on Monday, and the next day, “Terrifying Tuesday,” saw more shares sold than on Black Thursday, to wit: 16.5 million shares. The bottom dropped out of the market as there was no one left to sell shares to and $14 billion in paper profits were wiped out in a single day, and get this: At one point an Exchange messenger boy offered 1 dollar for a block of stock that six days earlier had been worth $100,000 – and got it! John D. Rockefeller announced that he and his family were buying “sound common stocks,” and the comedian Eddie Cantor, who said he had “lost everything” in the crash quipped: “He can afford to. Who else has any money left?” (End of blow-by-blow description of the chaos and almost end of America due to under-regulation of our markets.)

When you only have to put up 10 percent of the stock price and your broker lends you the other 90 percent (while holding the stock as security), that’s a great deal! The stock doubles in price, you sell it, pay off your broker, and make a bundle (which you can use to buy more stock and make more money). However, at some point in time, these profit-hungry buyers should have looked at the performance of the companies whose stock they were buying, but they didn’t as they were caught up in the paper profit craze. One did. Roger W. Babson, economist, warned on September 5, 1929, that “Sooner or later, a crash is coming.” His words were prescient. Black Thursday and Terrifying Tuesday showed up the next month, and along with the brokers and investors and bankers, my doom and that of millions of other innocent Americans was sealed. The “Roaring Twenties” morphed into the “Poverty Thirties.”

Presidents Calvin Coolidge and Herbert Hoover (especially the former) were responsible for the economic collapse and Great Depression. They did not have the regulatory tools with which to have averted such catastrophes, but they did not actively seek to gain such handles, either. It was largely the failure of the Republican Coolidge to seek the regulatory tools to curb the speculative binge in the stock market and the easy credit that brought about our economic catastrophe. Seven months after he left office and with Hoover (who promised a “chicken in every pot”) in charge, the Great Depression began.

Writing this has brought back memories I’d as soon forget since I lived out the despair and economic pain and suffering of the Great Depression from day one. Never could I have dreamed in 1935 that I would someday be a lawyer and sometime judge, but thanks to New Deal-Fair Deal programs and with such regulatory authorities as the SEC to checkmate market greed (though lately in need of additional   authority) it happened. 1929 reminds us with its banker-broker-investor suicides that regulation is good for the rich as well as for coal miners’ sons, so let’s not be misled by claims to the contrary.   GERALD   E

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