On August 4th, a problem which had loomed upon the horizon the day after the closing of the Exchange, was brought squarely before the Committee. A delegation of houses dealing in securities for European account appeared and stated that approximately $40,000,000 to $50,000,000 of securities were to arrive "this week, beginning to-morrow, Wednesday," and that they would be accompanied by sight drafts which would have to be financed. This alleged great volume of securities had been sold in this market for foreign account and borrowed in New York in order to make the immediate deliveries that our day to day system requires. The suspension of the fulfillment of contracts declared by the Exchange made it impossible to return this borrowed stock, and the houses doing this business were therefore obliged either to allow the drafts to go to protest or finance the incoming stock until the free enforcement of contracts was again permitted.
With money practically unobtainable, and general panic prevailing, it is needless to say that these statements of the delegation of houses doing foreign business were a severe shock to the Committee of Five. A remedy proposed by one or two of these banking houses was that the people from whom they were borrowing stock should be required to take it back. This simple expedient, while eminently satisfactory from the standpoint of the borrower of stock, was not very helpful to the Committee, as it would merely have shifted the problem of financing the stock from one set of brokers to another, and would have raised the dangerous question of a general enforcement of contracts in borrowed securities. It was an interesting illustration, among some others to be subsequently experienced, of the manner in which certain minds can become entirely absorbed in that aspect of a question which deals solely with personal interest. After careful discussion it was determined that the coöperation of the Clearing House banks should be sought in solving the difficulty. The Committee of Five thereupon sent a communication to the Bank Clearing House committee setting forth all the circumstances connected with the expected consignment of securities as stated by the delegation of banking houses and requested an appointment to meet them, or a sub-committee of their members, and discuss the matter. The appointment was obtained for the following morning, August 5th, and the Chairman and Mr. H. K. Pomroy were appointed a sub-committee to confer with the Bankers and directed to take Mr. Richard Sutro with them as a representative of the houses doing foreign business.
At the meeting with the Clearing House bankers it was very properly decided that a solution of the problem could only be reached when an exact knowledge of the amount of money required to pay for the incoming securities had been obtained, the figures stated by the banking houses which were seeking assistance being only estimates. The representatives of the Stock Exchange agreed to obtain this exact information at once, and having returned and stated the circumstances to the Committee of Five, it was directed that the following communication be sent to a list of members of the Exchange who, it was understood, were to have foreign drafts presented to them:—
"The Special Committee of Five requests that by three o'clock to-day they may have in their possession from you information as to the number and amount of drafts which you expect will be presented to you from Europe on any steamers arriving to-day or subsequently. They would particularly like to know how much you expect on each steamer. In case any of these have already been financed please so state in your communication.
"The Committee would also like to have you tabulate in your reply, so far as you can, the banks, trust companies or bankers from whom you expect drafts to be presented.
"This communication is confidential and it is requested that you do not discuss this matter with any one outside your own firm. Your answer is expected by bearer, in order that the financing of these drafts may be facilitated."
By three o'clock, the same afternoon, replies had been received from thirteen houses that they expected securities on the Olympic and Mauretania, and had also received advices of other securities forwarded but did not know on what steamers; the drafts to be presented they said would be approximately for four and one half millions. Replies from twelve other houses stated it as a possibility but not a certainty that securities might reach them on the steamers above mentioned to the amount of about four millions; and, finally, twelve firms sent replies stating that they either expected no securities or had made the necessary arrangements to finance what was coming. These facts—so far below the estimate at first presented to the Committee—came as a great relief, and were at once taken before the Bank Clearing House Committee. After a careful discussion with these gentlemen the Committee of Five again met and sent the following communication to the firms who had reported that securities and drafts were about to be tendered to them.
"Members of the Exchange to whom foreign drafts are presented for payment, are requested to confer with the Committee of Five at 9 a.m. to-morrow, Thursday, the 6th inst., in the Secretary's office, with details of such transactions in hand, when efforts will be made to facilitate the adjustment."
The next morning the few firms who had drafts to meet on that day were provided with the necessary loans by two banks and a trust company at 8 per cent. The amount of securities due from Europe was undoubtedly large, but the great bulk of it had not been shipped and the shipment of it was postponed for many weeks afterward. The extraordinary statement that $40,000,000 or $50,000,000 were about to be landed in New York is interesting as showing the hysterical state of mind to which many business men had been reduced at that time. The actual amount of stocks sold to arrive, against which borrowings had been effected in New York, was finally shown to amount to $20,000,000. That this amount was not increased at an embarrassing period in these important negotiations was due in large measure to the action of the Committee in calling together the various foreign arbitrage houses, and securing from them an agreement to cable to their correspondents in Europe not to make further shipments of securities, because borrowed stocks could not be returned and deliveries effected. This as it turned out was an important step in the right direction.