The Crash Of 1929: "Somewhere, Deep Down, They Knew The Party Was Over"

Via Jesse's Cafe Americain blog,

History may not repeat... but it sure ryhmes...

"...people believed that everything was going to be great always, always. There was a feeling of optimism in the air that you cannot even describe today."

"There was great hope. America came out of World War I with the economy intact. We were the only strong country in the world. The dollar was king. We had a very popular president in the middle of the decade, Calvin Coolidge, and an even more popular one elected in 1928, Herbert Hoover. So things looked pretty good."

"The economy was changing in this new America. It was the dawn of the consumer revolution. New inventions, mass marketing, factories turning out amazing products like radios, rayon, air conditioners, underarm deodorant...One of the most wondrous inventions of the age was consumer credit. Before 1920, the average worker couldn't borrow money. By 1929, "buy now, pay later" had become a way of life."

"Wall Street got the credit for this prosperity and Wall Street was dominated by just a small group of wealthy men. Rarely in the history of this nation had so much raw power been concentrated in the hands of a few businessmen..."

"One of the most common tactics was to manipulate the price of a particular stock, a stock like Radio Corporation of America...Wealthy investors would pool their money in a secret agreement to buy a stock, inflate its price and then sell it to an unsuspecting public. Most stocks in the 1920s were regularly manipulated by insiders "

"I would say that practically all the financial journals were on the take. This includes reporters for The Wall Street Journal, The New York Times, The Herald-Tribune, you name it. So if you were a pool operator, you'd call your friend at The Times and say, "Look, Charlie, there's an envelope waiting for you here and we think that perhaps you should write something nice about RCA." And Charlie would write something nice about RCA. A publicity man called A. Newton Plummer had canceled checks from practically every major journalist in New York City... Then, they would begin to -- what was called "painting the tape" and they would make the stock look exciting. They would trade among themselves and you'd see these big prints on RCA and people will say, "Oh, it looks as though that stock is being accumulated. Now, if they are behind it, you want to join them, so you go out and you buy stock also. Now, what's happening is the stock goes from 10 to 15 to 20 and now, it's at 20 and you start buying, other people start buying at 30, 40. The original group, the pool, they've stopped buying. They're selling you the stock. It's now 50 and they're out of it. And what happens, of course, is the stock collapses."

"The pools were a little like musical chairs. When the music stopped, somebody owned the stocks and those were the sufferers. If small investors suffered, they would soon be back for more. They knew the game was rigged, but maybe next time, they could beat the system. Wall Street had its critics, among them economist Roger Babson. He questioned the boom and was accused of lack of patriotism, of selling America short."

"Roger Babson warned of the speculation and said, "There's going to be a crash and the aftermath is going to be quite terrible." And people jumped on Babson from all around for saying such a thing, so that people who were cautious about their personal reputation, who did not want to call down on themselves a lot of calumny, kept quiet."

"Politicians came and went, but in the 20s, the businessman was king."

"With everyone trying to borrow money to cover the falling value of their stocks, there was a credit crunch. Interest rates soared. At 20 percent, few people could afford to borrow more money. The boom was about to collapse like a house of cards."

"...the National City Bank would provide $25 million of credit...immediately, the credit crisis was alleviated. In fact, within the next 24 hours, call money went from 20 percent to eight percent and that stopped the panic, then, in March [1929]"

"Everything was not fine that spring with the American economy. It was showing ominous signs of trouble. Steel production was declining. The construction industry was sluggish. Car sales dropped. Customers were getting harder to find. And because of easy credit, many people were deeply in debt. Large sections of the population were poor and getting poorer."

"Just as Wall Street had reflected a steady growth in the economy throughout most of the 20s, it would seem that now the market should reflect the economic slowdown. Instead, it soared to record heights. Stock prices no longer had anything to do with company profits, the economy or anything else. The speculative boom had acquired a momentum of its own."

"It was this nature of mass illusion. Prices were going up, people bought. That forced prices up further, that brought in more people. And eventually, the process becomes self-perpetuating. Every increase brings in more people convinced of their God-given right to get rich."

"The 20s was a decade of all sorts of fast money schemes. Three years earlier, everyone was buying Florida real estate. As prices of land skyrocketed, more people jumped in, hoping to make a killing. Then, overnight, the boom turned to bust and investors lost everything."

"On September 5th, economist Roger Babson gave a speech to a group of businessmen. 'Sooner or later, a crash is coming and it may be terrific.' He'd been saying the same thing for two years, but now, for some reason, investors were listening. The market took a severe dip. They called it the "Babson Break." The next day, prices stabilized, but several days later, they began to drift lower. Though investors had no way of knowing it, the collapse had already begun."

"...the market fluctuated wildly up and down. On September 12th, prices dropped ten percent. They dipped sharply again on the 20th. Stock markets around the world were falling, too. Then, on September 25th, the market suddenly rallied."

"Reuben L. Cain, Stock Salesman, 1929: I remember well that I thought, "Why is this doing this?" And then I thought, "Well, I'm new here and these people" -- like every day in the paper, Charlie Mitchell would have something to say, the J.P. Morgan people would have something to say about how good things were -- and I thought, "Well, they know a lot more about this market than I do. I'm fairly new here and I really can't see why it's going up." But then, when they say it can't go down or if it does go down today, it'll go back tomorrow, you think, "Well, they really are like God. They know it all and it must be the way it's going because they say so."

"As the market floundered, financial leaders were as optimistic as ever, more so. Just five days before the crash, Thomas Lamont, acting head of the highly conservative Morgan Bank, wrote a letter to President Hoover. "The future appears brilliant. Our securities are the most desirable in the world."

"Practically every business leader in American and banker, right around the time of 1929, was saying how wonderful things were and the economy had only one way to go and that was up."

"There came a Wednesday, October 23rd, when the market was a little shaky, weak. And whether this caused some spread of pessimism, one doesn't know. It certainly led a lot of people to think they should get out. And so, Thursday, October the 24th -- the first Black Thursday -- the market, beginning in the morning, took a terrific tumble. The market opened in an absolutely free fall and some people couldn't even get any bids for their shares and it was wild panic. And an ugly crowd gathered outside the stock exchange and it was described as making weird and threatening noises. It was, indeed, one of the worst days that had ever been seen down there."

"There was a glimmer of hope on Black Thursday...About 12:30, there was an announcement that this group of bankers would make available a very substantial sum to ease the credit stringency and support the market. And right after that, Dick Whitney made his famous walk across the floor of the New York Stock Exchange.... At 1:30 in the afternoon, at the height of the panic, he strolled across the floor and in a loud, clear voice, ordered 10,000 shares of U.S. Steel at a price considerably higher than the last bid. He then went from post to post, shouting buy orders for key stocks."

"And sure enough, this seemed to be evidence that the bankers had moved in to end the panic. And they did end it for that day. The market then stabilized and even went up."

"But Monday was not good. Apparently, people had thought about things over the weekend, over Sunday, and decided maybe they might be safer to get out. And then came the real crash, which was on Tuesday, when the market went down and down and down, without seeming limit...Morgan's bankers could no longer stem the tide. It was like trying to stop Niagara Falls. Everyone wanted to sell."

"In brokers' offices across the country, the small investors -- the tailors, the grocers, the secretaries -- stared at the moving ticker in numb silence. Hope of an easy retirement, the new home, their children's education, everything was gone."

"At the end of 1929, as they celebrated New Year's Eve, all that lay in the future. Nobody knew that the Great Depression was coming -- unemployment, bread lines, bank failures -- this was unimaginable. But the bubble had burst. Gone was that innocent optimism, the confidence, the illusion of wealth without work. One era had ended. They toasted the coming of the 30s, but somewhere, deep down, they knew the party was over."


xtremers9 (not verified) Sun, 07/02/2017 - 21:57 Permalink

Congrats genius. You know that the market will crash someday. That's true. But it's a matter of timing. I can predict that the world will explode one day, but if my timing is off by 1000 years, my prediction is useless

Stock market volatility is extremely low right now. Before a crash begins, volatility has to pick up first. When volatility is this low, the big rally/bull market continues for at least a year…

Future Jim Blue Balls (not verified) Sun, 07/02/2017 - 22:17 Permalink

The big government policies of Hoover and then Roosevelt -- to fix the crash of 29 -- turned that crash into The Great Depression.The crash of 29 was almost identical to the crash of 21, and yet we bounced back from the crash of 21 -- like every other crash where the government didn't try to fix it.Of course, we did have not bounced back from the crash of 2008, and the reason is because the government is still trying to fix it.BTW, they're not reeeally trying to fix it. That's just a pretense for their scam.

In reply to by Blue Balls (not verified)

DownWithYogaPants GunnerySgtHartman Mon, 07/03/2017 - 08:25 Permalink

Of course what you say is true.  The winners write history and that means the book you used in history class was by F. Ederal Reserve.  The bankers row the economy from boom to bust in a process that is much analogous to letting the sheep grow then fleecing them.   It's the golden fleecing. I'd like to see a world that was not lowest common denominator.  Best I can do is keep breathing because holding breath is not helpful.

In reply to by GunnerySgtHartman

Amendment X Future Jim Mon, 07/03/2017 - 09:34 Permalink

FDR was a horrible President period. His key landmark legislation was the National Industrial Recovery Act which stipulated everything that a business could/could not do including allowable profits...central planning on steroids!  Sound a little like Obama's "We have to pass this to know what  is in it"  ACA?  The Supreme Court late rnullified the NIRA with a 9-0 decision. That was before FDR started "stacking the court" and siding with mass murderer Joseph Stalin. (Keep reminding yourself that Hitler had to be defeated at all costs)

In reply to by Future Jim

Quantum Bunk xtremers9 (not verified) Sun, 07/02/2017 - 22:12 Permalink

Its a bitch isn't it. Bubbles really do suck everyone in. What nobility is there in sitting them out ? I'd just say that this has been a killing field disguised by index trickery. Retail, oil and finanicals have all made post 08 lows. But it sure doesn't feel like it does it ?  Unlike other bubbles, Nobody has made easy money in this market. Nobody.

In reply to by xtremers9 (not verified)

Dode415 xtremers9 (not verified) Mon, 07/03/2017 - 05:54 Permalink

Volatility as measured by the VIX is historically low but last week it went from under 10 to over 15 and back down to 11 in the space of a few hours - massive moves in percentage terms although the actual stock markets didn't move much at all. not saying it is with the markets as they are but those big VIX moves could be a warning sign so worth tightening stops just in case

In reply to by xtremers9 (not verified)

fattail xtremers9 (not verified) Mon, 07/03/2017 - 09:02 Permalink

Why?  Because that was the way it was last time?  What if I told you very few humans are making these buy and sell decisions any more and a computer algorithms is going to decide to sell?  What if the VIX sellers keep selling it lower and lower, and any increase will magnify the imbalance of their position?  What if selling the VIX is a way to paint the tape?   What if the passive investors have all been lemming into the buy side and will lemming to sell those broad indexes at the top?  What if I told you pension funds were sitting on the precipice and there has already been runs on the insolvent ones?  Don't expect a Bear Stearns event to give you a 6 month advance warning the next time the SHTF.  Things have sped up.  Expect your lead time to shrink.  Significantly.

In reply to by xtremers9 (not verified)

jmack Sun, 07/02/2017 - 21:56 Permalink

   Generally speaking, when your rationale for something not ending,  is that if that something ended, the calamity of it ending would be "too great", and thus it must continue, is just about when that something is going to end.

MrSteve Sun, 07/02/2017 - 21:57 Permalink

a long, long time ago, my in-laws rode it all out in IBM and made out OK. What is your lifeboat in 2017? Think very hard on this issue, there will be no second chances. None.

Blue Balls (not verified) Sun, 07/02/2017 - 22:02 Permalink

What a GD laugh.  Benkers been doing this shit for hundreds or years and 1929 was special? Fuck no it was the GD plan.

Posa sportofkings Mon, 07/03/2017 - 00:29 Permalink

Yeah. All we'll see is controlled disintegration... states going bankrupt... fertility rates collapsing... infrastructure rotting and useless... even as "markets" stay bouyant, until there's a panic that can't be papered over... and the a real Green Fascist government starts the big-time killing.

In reply to by sportofkings

deimos178 Sun, 07/02/2017 - 22:18 Permalink

My prediction for the crash? 6 months after I retire. I am going Dec 28 2018 so I will have a few months of fun and then get screwed big time.

insanelysane Sun, 07/02/2017 - 22:22 Permalink

Reading the autobiography of Harpo Marx and he lost everything in the Crash.  He was warned a few days before along with his brothers but they just blew it off.  Margin buying to the hilt.  Just sad but lesson learned.

Hongcha insanelysane Sun, 07/02/2017 - 22:46 Permalink

Add Winston Churchill to the list.  John D. Rockefeller Jr. also lost a pile but luckily had a few hundred million to fall back on.  Jesse Livermore made tens of millions short and blew it all a few years later buying dips.  Hemingway saw it coming and was in cash (read his non-fiction for that; he called WW2 years prior as well).  Joseph Kennedy got the stock tips from the shoeshine boy and that made him want to get out.  He was appointed the first chairman of the SEC a few years later.

In reply to by insanelysane

uhland62 insanelysane Sun, 07/02/2017 - 23:02 Permalink

Charlie Chaplin was saved by the tax office, unintentionally. He had to pay an enormous sum in back taxes and sold all his shares to cover them. Old Joe Kennedy sniffed it and sold his holdings. It is widely attributed to a conversation with a shoe shine boy, but he probably had insider information, too.It's not rocket science: 14 times dividend is the guideline. Pay more for good sticks, a little less for not so good ones. And stay away from companies who have debts of 70% of their value or buy them only when you get them for a song. 

In reply to by insanelysane

uhland62 CHoward Sun, 07/02/2017 - 22:56 Permalink

With the issue being that the crisis lingered for more than 10 years and it was WWII that distracted and saved the US.War booty like "Golden Lily" stabilized economic and political hegemony. The biggest risk now is that some poeple will see WWIII as a necessary distraction and rescue. The way they talk about Russia is conditioning the people for WWIII. We need to be very alert if we don't want to let them use us. 

In reply to by CHoward

Cordeezy (not verified) Sun, 07/02/2017 - 22:36 Permalink

The herd is always right until it isnt.  No one thinks they are part of a herd when times are good.  Only when things fail will the herd look around and ask "how were we so blind?"  then in a few years another thing comes along for the herd to follow.  

Dragon HAwk Sun, 07/02/2017 - 22:56 Permalink

If all the Big Players, own most of the stocks, and refuse to sell how can the price go down.Something other than a crash, has to destroy wealth, and create a need for real Money to pay for real things, Bill Food and Such.although servicing debt, comes in a close second.

Lebronn Jakens (not verified) Sun, 07/02/2017 - 23:22 Permalink

Same ol same ol for whtat six years now.  While I lvoe zerohedge and think there is nothing better the sensation and doomsday articles have been wrong for a very long time. Basically the people on here who have buying into the doomsday articles are in fact doomed already and probably broke.  Now those of us on here who use the signals from Shepwave are making money.   So bring on the hype