The Governing Committee of the Exchange were called to meet at nine o'clock (the earliest hour at which they could all be reached, for it was summer and many were out of town) and at that hour they assembled in the Secretary's office ready to consider what action should be taken. In addition to the Committee many members of prominent firms appeared in the room to report that orders to sell stocks at ruinous prices were pouring in upon them from all over the world and that security holders throughout the country were in a state of panic. It would be hopeless to try to describe the nervous tension and excitement of the group of perhaps fifty men who consulted together under the oppressive consciousness that within forty-five minutes (it was then a quarter past nine) an unheard of disaster might overtake them. It was determined that the Governing Committee should go into session at once as there was so little time to spare. Just as they started for their official meeting room a telephone message was received from a prominent banking house stating that the bankers and bank presidents were holding a consultation and suggesting that the Exchange authorities await the conclusion of their deliberations.
There is an employee of the Exchange whose duty it is to ring a gong upon the floor of the big board room at ten o'clock in the morning. Until that gong has rung the market is not open and contracts are not recognized. This employee was instructed not to ring the gong until he had received personal orders to do so from the President; a permanent telephone connection was established with the office in which the bankers were conferring, and amid a horrible suspense the outcome of their conference was awaited. For twenty minutes this strain continued. It was a quarter before ten and only fifteen minutes remained in which to act. Meanwhile the brokers were fast assembling upon the board room floor, orders were piling in upon them to sell at panic prices, ten o'clock was approaching, and although all felt that the opening should not be permitted no one had a word from the Governing Committee as to what was going to be done.
At a quarter of ten, no word having come from the bankers, the receiver of the telephone which had been connected with their meeting place was hung up, and the Governing Committee were called in session to take action. As they took their seats two messages reached them. One was brought by a prominent member of their body who had gone to the office of the President of the bank Clearing House and had been told by him, after consulting with some of his fellow officers, "We concur; under no circumstances is it our suggestion, but if the Exchange desires to close, we concur." The other was sent, through a member of the Exchange, from one of the leading bank Presidents who stated that closing would be a grave mistake and that he was opposed to it.
The roll was called and thirty-six out of the forty-two members answered to their names. The Chair having announced the purpose of the meeting, Mr. Ernest Groesbeck moved that the Exchange be closed until further notice. This motion was carried, not unanimously but by a large majority. Mr. Groesbeck then moved that the delivery of securities be suspended until further notice, and, this being carried unanimously, made a third motion that a special Committee consisting of four members of the Governing Committee and the President be appointed to consider all questions relating to the suspension of deliveries and report to the Governing Committee at the earliest possible moment. The third motion, like the second was carried unanimously and the Committee adjourned. It was then four minutes of ten. On the instant that the first motion closing the Exchange was passed, word was sent to the ticker operators to publish the news on the tape. In this way the seething crowd of anxious brokers on the floor got word of the decision before ten o'clock struck. Immediately upon the adjournment of the Committee Mr. George W. Ely the Secretary of the Exchange ascended the Chairman's desk in the board room and made the formal announcement, which was greeted with cheers of approbation. The President promptly appointed Messrs. H. K. Pomroy, Ernest Groesbeck, Donald G. Geddes, and Samuel F. Streit to constitute, with himself, the Committee of Five, and the long suspense and anxiety of four months and a half began.
These events, which were crowded into a few feverish hours, and which seemed to those who participated in them more like a nightmare than like a reality, present some aspects that are especially worthy of detailed description. It is noticeable that the vote to close the Exchange was not unanimous. This shows the immense complexity of a situation, which, even at the last moment, left some two or three conscientious men undecided. It is a fact of profound importance, and one that never should be forgotten by stock brokers or by the public, that the Exchange closed itself on its own responsibility and without either assistance or compulsion from any outside influence. Many false assertions by professional enemies of the institution have been made to the effect that the banks forced the closing, or that its members were unwillingly coerced by outside pressure. The facts are that the influential part of the membership, the heads of the big commission houses, made up their minds on the evening of July 30th that closing was imperative, and that on the morning of July 31st their representatives in the Governing Committee took the responsibility into their own hands, the bankers having been unable as yet to reach a conclusion.
Immediately after the closing the President of the Exchange visited the prominent bank president who had served notice at the last moment of his disapproval of this procedure. He was found in his office in consultation with a member of one of the great private banking houses. Both the bank president and the private banker agreed that, in their opinion, the closing had been a most unfortunate mistake. It was an opportunity thrown away to make New York the financial center of the world. The damage was done and would have to be made the best of, but had the market been allowed to open the banks would have come to the rescue and all would have gone well. These gentlemen admitted that the Exchange was to some extent excusable owing to the negligence of the bankers in not notifying them that they were ready to protect the money market.
It may safely be stated that within twenty-four hours after this interview neither the two bankers in question nor any one else in Wall Street entertained these opinions. The rise of exchange on London to $7—a rate never before witnessed; the marking of the Bank of England's official discount rate to 10%, accompanied by a run on that institution which resulted in a loss of gold in one week of $52,500,000; the decline of the Bank's ratio of reserve from the low figure of 40% to the paralyzing figure of 14-5/8%; together with the fact that the surplus reserves of our New York Clearing House banks fell $50,000,000 below their legal requirements, were reasons enough in themselves to convince the most skeptical of the necessity of what had been done.
The frightful gravity of the situation which had arisen became clearer and more defined in people's minds a few days after the first of August than it was on the morning of July 31st. European selling had been proceeding for some time before the outbreak of War and in the last few days before closing had been temporarily arrested by the prohibitive level of exchange and the risk of shipment at sea. The American public itself, however, was seized with panic on the evening of July 30th, and on the morning of July 31st brokers' offices were flooded with orders to sell securities for what they would bring and without reference to values. Had the market been permitted to open on that Friday morning the familiar Wall Street tradition of "Black Friday" would have had a meaning more sinister than ever had been dreamed of before.
In all previous American panics the foreign world markets were counted upon to come to the rescue and break the fall. Imports of gold, foreign loans, and foreign buying were safeguards which in past crises had been counted upon to prevent utter disaster. On this occasion our market stood by itself unaided; an unthinkable convulsion had seized the world; panic had spread; even the bargain hunter was chilled by the unprecedented conditions; there were practically no buyers. A half hour's session of the Exchange that morning would have brought on a complete collapse in prices; a general insolvency of brokerage houses would have forced the suspension of all business; the banks, holding millions of unsaleable collateral, would have become involved; many big institutions would have failed and a run on savings banks would have begun. It is idle to speculate upon what the final outcome might have been. Suffice it to say that these grave consequences were prevented in the nick of time by the prompt and determined action of the Stock Exchange, and by that alone.