Fifty years in Wall Street

by Henry Clews

A large part of Wall Street was in such a nervous state during the crisis that it jumped at shadows, and trembled at a touch. It shuddered when Attorney General Bonaparte facetiously said that there was a fine covey of game among the large capitalists in control of corporations, and that he would be a poor marksman who would not bring some of the birds down.

It found fresh cause for alarm in the fight between the Southern Railway and the Southern States, and when the railway had its license canceled by Alabama it had a fresh attack of “nerves,” and, later, saw an ominous event in the surrender of the railway to the State, to recover its license. It feared the anti-corporation storm would wreck and devastate the business of the country. But after a storm there cometh a calm, and the nation, as a whole, is unscathed.

In considering the situation we must never fail to bear in mind that although investors, and holders of stocks and bonds, and many of the weaklings of the business world, have been made to suffer severely by the stern and uncompromising course of the Federal Government and some of the States—and that confidence was so undermined as to cause a temporary halt in enterprise—good results will follow. This ordeal has been at least a purifying one, and while the East has exaggerated its disturbing influence, the West and South have been comparatively indifferent to it. Those sections were never more prosperous and progressive than they are now. This arises from the fact that the East, being richer than the West, and having much more invested capital, especially in stocks and bonds, is correspondingly more interested in the market for these than the West, and more disturbed by great depression in Wall Street, and the causes producing it. The East is, therefore, much more likely to borrow trouble than the West or the South, especially when it cannot borrow money.

This borrowing of trouble took the usual form of fearing from day to day that worse consequences of the crisis awaited us than we had yet experienced, and it was increased among business men and corporations when they found their banks would no longer accept as collaterals for loans and discounts many of the securities they held for investment, and upon which they had been previously able to borrow in proportion to their market price. They found, too, they were generally unable even to borrow, on time, what they wanted, on the best of collaterals.

They were therefore cramped for money, and this restricted or embarrassed them in their business, and in a few instances caused their failure. Here we recognize the close connection that exists between trade and finance. The severe depression on the Stock Exchange so far impaired the market value of stocks and bonds as to make the banks and other money lenders everywhere distrustful of credits, the result being this inability to borrow, or at least to borrow all that was necessary. So it was not surprising that those with insufficient working capital were badly cramped, and had to curtail their business and make sacrifices, or go to the wall.

The curtailment from this cause among mercantile and manufacturing firms has been very extensive. It was better than going to the wall, however, and the after-effect upon the business situation has been salutary and wholesome. It has acted like a safety valve in checking over-trading, over-capitalizing, over-borrowing, over-stocking, and overdoing generally. It has slackened the pace at which too many scantily equipped concerns were going on the road to ruin. So it has made the business situation stronger and safer for the sound and solvent; and the elimination of a mushroom growth of irresponsible credit-seekers should be welcomed by the banks.

Wall Street is the great monetary clearing house of the country whose ramifications are co-extensive with the nation itself. It does not create values, but it reflects everything affecting securities and commodities, and represents all material interests. It is an unfailing barometer of values and the times. So those who say a heavy fall, or a panic, in stocks only affects Wall Street speculators shoot very wide of the mark. Wall Street radiates its influence over the whole country, and to a large and growing extent over the whole world, and it, or I should say New York, is destined, within no very long time, to become the financial center of the world. The recent severe financial disturbance in Wall Street, resulting in a reduction in the value of securities aggregating over $3,000,000, has proven one important thing, and that is that Wall Street and the industrial interests of the country have finally largely separated, and that a panic in Wall Street, while depressing, need not necessarily cause one at the same time in mercantile circles.

No doubt some of the Trusts and railway companies, accustomed to driving with a too free hand, and without much regard for the law, considered they were being handled very harshly by the law officers of the Government when they were brought up with a round turn and heavily fined for rebating. But, as they had violated the law wilfully, they had only themselves to blame, and they well knew that the way of the transgressor is hard—when convicted. There was some reason, however, in the complaint of some of the railways that in many of the States they had been made the targets of an aggressive popular policy towards corporations, that is, the policy of enforcing rigorously laws which might in some cases, such as the passenger and commodity rate laws by the States, finally be declared unconstitutional by the Supreme Court of the United States.

Our large railway and industrial corporations were primarily responsible for the disturbance and loss of confidence in the monetary situation through their recklessly extravagant issues of bonds, stocks, and short-term notes. For a long time they seemed to be doing their best to kill, in this way, the goose that laid the golden egg, and they finally succeeded in exhausting both their own borrowing power and the ability of the banks to lend, or of investors, at home or abroad, to purchase their issues. This tremendous output of new securities had to be checked, for it not only glutted the market, and overloaded underwriting syndicates, but depreciated values and created distrust among investors. It was piling Pelion on Ossa with a vengeance.

The collapse of last March in the stock market, and the more prolonged one of August, were obviously outbreaks of the same malady, the latter intensified by that twenty-nine-million fine. The distrust that caused these explosions had been brewing for years, and had its origin in the wholesale issues that over-taxed the money market and the lending capacity of the country and also squeezed Europe like an orange for all the money it had to lend.