The $15,000,000 of indemnity awarded by the Geneva Court of Arbitration, and paid by England for having admitted privateers into her ports, was put into 5-2O's. Apart from this strength in the public securities, the railway obligations, especially those upon new roads, were very much depressed; they could no longer be placed, ninety new companies having stopped paying their coupons, whilst those of the old lines held their quotations.
Great speculators, Vanderbilt at the head, formed syndicates, embracing several companies, and made prices as suited their plans. The death of Mr. Clarke in June dealt the first blow to this combination, and the failure of George Bird Grinnell brought about its dissolution.
The liquidation of this tremendous concern kept down prices for a long time.
The price of gold, still quoted at 112-1/2 per cent. in January, 1873, rose to 119-1/2 per cent. in April, superinduced by speculation, for at the height of the panic it declined to 106 on the 6th of November. It is true that at that time all doubtful accounts were liquidated, and demands for gold had disappeared; if we were to rely upon the export figures only, we would find them less than in the preceding years.
Exchange rates were much more depressed; from 109.45, representing par, they fell to 107.25 for the best 60-day paper. This paper was much sought after by speculators, who, when discounting it, procured bonds authorizing them to transfer the titles unless payment was made promptly at maturity. Prices fell so low that it was often impossible to negotiate paper at any price. The activity reigning at the beginning of the year showed itself in the Exchange movement; the excess of imports over exports rose in the first months to $100,000,000, whilst in the preceding year it did not exceed $62,000,000; prices ruling in the American market attracted goods from all quarters.
PANIC OF 1884.—The panic which burst upon the United States in 1884 was the last thunder-clap of the commercial tempest which had reigned since the month of January, 1882. Public opinion already recalled the decennial period which separated the existing panic from that of 1873. The acute period was of short duration; the crash occurred on May 14th, and the decline of values had touched bottom by the end of June. From the 9th of June the people began to steady up, they felt the ground firmer under their feet. The situation gave evidence of great strength; and, notwithstanding the dearness of money, and an enormous fall in prices, there were only a few failures, and at the close of the year equilibrium was re-established, although the liability of the losses had risen to $240,000,000. These losses, it is true, were almost entirely borne by financiers and speculators, rather than by manufacturers and traders.
The month of May, 1884, concludes the prosperous period which followed the crisis of 1873. During this period the most gigantic speculations in railroads occurred; the zenith of the movement was in 1880, and as early as 1881 a retrograde movement began, only to end in the disasters in question. The decline in prices had been steady for three years; they had sunk little by little under the influence of a ruinous competition, caused by the number of new lines and the lowering of rates, but above all through the manipulations by the managers on a scale unexampled until now. In connection with the disasters of May, 1884, the names of certain speculators who misused other people's money, such as Ward, of Grant & Ward; Fish, President of the Marine Bank; and John C. Eno, of the Second National Bank, will long be remembered. General Grant, who was a silent partner in Ward's concern, was an innocent sufferer, both in fortune and reputation.
The Marine Bank suspended on the 5th of May, and in the following week the Metropolitan drew down in its train a large number of bankers and houses of the second order. The confusion was then at its height. Owing to the very delicate mechanism of the credit circulation, the banks and the clearing house were the first attacked and the most shaken, but they immediately formed themselves into a syndicate to resist the storm which was upsetting all about them. As cheques were no longer paid, settlements no longer took place, and the credit circulation was suspended; this stoppage was liable to induce the greatest consequences, hence it was necessary to be very circumspect. Here it was not possible to suspend the law, as in England the Act of 1844 was suspended, permitting an excess of the official limit for the note issue, but the banks could have been empowered to demand authority to change the proportion enacted by the law creating National Banks. They had no recourse to any of these violations of the Statutes, which prove only too often under such circumstances that regulation by law is impossible; they satisfied themselves, without having the public powers intervene, with issuing clearing-house certificates, that is to say, promises, which they were bound to accept as cheques in settling up the operations of each day. It was through this help that the Metropolitan Bank was enabled to resume payments on the 15th of May, the evening of the day following its suspension. The Second National Bank was a loser through the acts of its President, Mr. John C. Eno, but his father and the Directors hastened to make good the deficit. At this moment the excitement was intense, deposits were withdrawn, and 1 per cent. a day was paid, and even more, to obtain ready money or credit; under the influence of numerous sales of securities, exchange fell rapidly, metallic money was secured in London even, to be hurried to New York. Never could purchases be made under better auspices. Above all is this true when we observe that the condition of companies was much better known than in 1873. The year 1883 had been disturbed by numerous failures. There had been no crash, but prices, far from advancing, had held their own with difficulty. On the eve of the breaking out of the panic there was complaint about the accumulation of goods in the warehouses, and of the difficulty of making exports. No scheme worked out, despite a very high protective tariff, and people were asking themselves what was its effect under the influence of unfavorable exchanges. Gold flowed away from the country, and cash on hand decreased each day.
On the 1st of January, 1884, the New York & New England Railroad was placed in the hands of a receiver by order of the court. The same thing happened on the 12th of January to the North River Company. In February, March, and April many houses exhibited their balance sheets. The fall in prices grew accentuated not only on the Stock Exchange, but in all markets. The discomfort increased until the 6th of May, the day on which occurred the failure of the National Marine Bank, whose President was associated with the house of Grant and Ward, which went down shortly afterwards with a liability of $17,000,000. This financial disaster made a great stir. Anxiety spread everywhere, when on the 13th of May the President of the Second National Bank of New York was also forced to suspend payment with a liability of $3,000,000; this was the final blow to credit. Every operation was suspended, all exchange became impossible; not securities but money was lacking. At one time the panic was such that the rate of discount and loans rose to 4 per cent. a day!
Although the panic was general, it was rather a panic of securities in the chief places of the United States, especially in New York.