great secrecy. The following day, the New York Times reported as follows:
RESERVE COUNCIL CONFERS IN HASTE
Atmosphere of Mystery Is Thrown
about Its Meeting in Washington
An atmosphere of deep mystery was thrown about the
proceedings both by the board and the council. No advance announcement had been made that an extraordinary session of the council was contemplated, and the fact that the members were in the city became known only when
1. Quoted by Greider, p. 298.
498
THE CREATURE FROM JEKYLL ISLAND
newspaper correspondents happened to see some of them
entering the Treasury Department building. Even after that, evasive replies were given.... While the joint meeting w a s in progress at the Treasury Department, every effort w a s m a d e to guard the proceedings, and a group of newspaper correspondents w e r e asked to leave the corridor.
Let us return briefly to Montagu Norman. His biographer tells us that, after he became head of the Bank of England, his custom was to journey to the United States several times each year, although his arrival was seldom noted by the press. He travelled in disguise, wearing a long, black cloak and a large, broad-brimmed hat, and he used the pseudonym of Professor Skinner. It was on one of those unpublicized trips that he ran into a young Australian by the name of W.C. Wentworth. Sixty years later, Wentworth wrote a letter to The Australian, a newspaper in Sydney, and told of his encounter:
In 1929 I was a member of the Oxford and Cambridge athletic team, visiting America to run against American Universities. Late in July we split up to return, and I, together with some other members, boarded a smallish passenger vessel in New York. (There were, of course, no aeroplanes in those days.)
A fellow passenger was 'Mr. Skinner,' and a member of our team recognized him. He was Montagu Norman, returning to London, after a secret visit to the US Central Bank, travelling incognito.
When we told him we knew who he was, he asked us not to blow his cover, because if the details of his movement were made public, it could have serious financial consequences. Naturally, we agreed, and on the days following, as we crossed the Atlantic, he talked to us very frankly.
He said, 'In the next few months there is going to be a shake-out But don't worry—it won't last for long.'3
On August 9, just a few weeks after that ship-board encounter, the Federal Reserve Board reversed its easy- credit policy and raised the discount rate to six per cent. A few days later, the Bank of England raised its rate also. Bank reserves in both countries began to shrink and, along with them, so did the money supply. Simulta-1. 'Reserve Council Confers in Haste,'
2. Hargrave, p. 1.
3. 'Letters to the editor,'
THE GREAT DUCK DINNER
499
neously, the System began to sell securities in the open market, a maneuver that also contracts the money supply. Call rates on margin loans had jumped to fifteen, then twenty per cent. The pin had been inserted.
THE DUCK DINNER BEGINS
The securities market reached its high point on September 19.
Then, it began to slide. The public was not yet aware that the end had arrived. The roller coaster had dipped before. Surely it would shoot upward again. For five more weeks, the public bought heavily on the way down. More than a million shares were traded during that period. Then, on Thursday, October 24, like a giant school of fish suddenly turning direction in response to an unseen signal, thousands of investors stampeded to sell. The ticker tape was hopelessly overloaded. Prices tumbled. Thirteen million shares exchanged hands. Everyone said the bottom had dropped out of the market. They were wrong. Five days later, it did.
On Tuesday, October 29, the exchanges were crushed by an
avalanche of selling. At times there were no buyers at all. By the end of the trading session, over sixteen million shares had been dumped, in most cases at any price that was offered. Within a single day, millions of investors were wiped out. Within a few weeks of further decline, $3 billion of wealth had disappeared. Within twelve months, $40 billion had vanished. People who had counted their paper profits and thought they were rich suddenly found themselves to be very poor.
The other side of the coin is that, for every seller, there was a buyer. The insiders who had moved their investments into cash and gold were the buyers. It must be remembered that falling stock prices didn't necessarily mean that there was anything wrong with the stocks. Those representing solid companies were still paying dividends and were good investments—at a realistic price. In the panic, prices had tumbled far below their natural levels. Those who had the cash picked them up for a small fraction of their true worth.
Giant holding companies were formed for that task, such as Marine Midland Corporation, the Lehman
