by Bruce Cherney
Today is the anniversary of the greatest financial disaster of the 20th century. It was a day when the New York stock market crashed with repercussions that reverberated across the world.
Did anyone see it coming?
There were some people warning that the market was perilously poised to make a dramatic correction, but most were simply too wrapped up in the euphoria of making a quick buck.
Even when the crash struck the New York and then the Montreal and Toronto stock exchanges, many believed it was a temporary setback and happy days would soon return.
As the market plunged that day, Canadian Prime Minister Mackenzie King said: “While a number of people have suffered owing to the (stocks’) sharp decline, the soundness of Canadian securities is not affected. Business was never better.”
All the promises of prosperity just around the corner turned out to be unfounded — the crash would start the Great Depression that raged on throughout the 1930s.
But before the collapse, no one was apparently overly concerned.
“By the summer of 1929,” wrote John Kenneth Galbraith in his book on the crash, “the market not only dominated the news. It also dominated the culture.
“Speculation on a large scale requires a pervasive sense of confidence and optimism and conviction that ordinary people were meant to be rich ... An immediate desire to get rich quickly with a minimum of physical effort.”
And, there were plenty of people willing to speculate. While the market was dominated by large pools of wealthy investors, teachers, retail clerks and others were more than willing to invest their life savings in the market in the hopes of making a quick return. They turned to the financial pages and saw stock such as the Radio Corporation of American, or RCA — the mass appeal of radio made it the dot-com stock of its day — jump from $10 a share to $573. These big market moves were reported daily on the front pages of newspapers for all to see.
To keep the good news on the front pages, wealthy pools of investors bribed reporters to promote certain stocks and when the stocks were driven up by the purchases of the gullible, the investors cashed in for a quick profit.
But, like dot-com stocks, radio stocks were based upon a false hope. RCA never paid a dividend throughout its building years of the Roaring 20s when it was said that “anything goes.” Radio stock lacked real value and only benefitted from the greed of the many to drive its stock value upward.
What the market was witnessing was the taking on of tremendous debt by all segments of society. This was not without consequences. Prior to the collapse on October 29, 1929, small banks in the United States were failing to the tune of two a day because of the weakness of banking regulations.
Some investors became a little cautious, but even this was thrown to the wind when Charles Mitchell of National City Bank in March 1929 made available $25 million in loans to money markets and the bears returned.
Thomas Lamont, a partner with American millionaire banker J.P. Morgan, said, “the future appears brilliant,” as the price of stocks spiralled upward to dizzying heights.
Stock was being bought on margins — that is, an investor could purchase a stock by merely putting down a certain percentage and then guaranteeing to the seller that the full amount would be paid. This type of stock buying required that stock continually rise so that when the margin was called, the seller would be satisfied and a profit could also be made by the purchaser.
But, what was happening was that stocks bought on margin were being used as collateral to buy other stocks — some stocks were being bought for as little as two cents on the dollar — and the seeds of a massive calamity were sown.
On October 16, Mitchell declared that “market values have a sound basis in the general prosperity of our country,” but only a week away was “Black Thursday.”
On Thursday, October 24, Winston Churchill was sitting on the balcony of the New York Stock Exchange when the market began losing momentum. The frenzied trading resulted in the ticker tape being a half day behind in transactions. Hours after the market closed, it was announced that over 12-million shares had been traded. Churchill called the activity he witnessed as taking place in an atmosphere of “calm and orderliness.” It wasn’t, but there were some willing to put more money into the market to prevent its further collapse.
In the midst of the crisis, New York-based bankers met at Morgan’s headquarters and came up with a scheme of injecting around $130 million to revitalize the market. With the backing of the bankers, Richard Witney, president of the NYSE, put in the first buy order, purchasing US Steel at several points above its market price of $200 a share.
This action appeared to stabilize the market. American President Herbert Hoover announced that the business of the nation was on a sound footing.
But on Monday, October 28, the market returned to its slide with over nine-million shares traded. So-called Blue Chip stocks such as US Steel and RCA were the most actively traded. By the end of the day, RCA had lost a third of its value. The New York Times estimated that nearly $14 had been wiped out in the market’s value.
Some benefitted. Albert Wiggin of the Chase Bank sold short and realized a $4 million profit. He used his Canadian shell companies to hide his profits and thus avoided paying capital gains taxes to the U.S. Treasury.
It was Tuesday, October 29, when the real crash began.
Wall St. Lays an Egg, was the headline in Variety.
The real tragedy was that margins were being called as the price of stock dropped precipitously. Thousands found they couldn’t put up enough cash to pay their margins and their assets were liquidated. They were thus wiped out financially.
This time around, the bankers couldn’t bail out the market. It was beyond redemption.
William Durant, the founder of General Motors, was said to have accumulated a fortune of $100 million by manipulating stocks, but the crash left him penniless. He was reduced to gaining a living by washing dishes in a restaurant.
In Toronto and Montreal, 525,000 shares were liquidated. Margin traders joined their New York counterparts in suffering the effects of the crash.
By November 15, the frenzied selling had calmed, but its was too late to rescue those who were driven to financial ruin, including the teachers or retail clerks who had invested in the stock market rather than a pension.
In Canada, bankers met to come up with a plan to help the nation’s stricken stock markets. They reduced their call rates to brokers to 15 per cent on stocks selling at about 30, and to $10 a share on stocks under that figure.
“It means the banks are satisfied the country’s prospects are sound,” said Norman Urquahart, the head of the Standard Stock and Mining Exchange.
Like in America, the damage was already done, but a semblance of stability did return to the market.
On the Prairies, the market collapse was compounded by a failure to sell wheat on a glutted world market. Much of the 1928 bumper crop could not be sold.
In Manitoba, wheat was still king and the linchpin of the local economy. Farmers could get credit during the boom times of the Roaring 20s, but when wheat prices fell in 1929, the rule of thumb was foreclosures and evictions when they couldn’t meet their loan repayments.
And in 1930, the rains stopped. A drought raged across the Prairies from Alberta to Manitoba. Choking clouds of soil blew across the land. Any crops that could be grown were then devoured by ravenous grasshoppers.
“Western agriculture bore the whole brunt of both fluctuating export income and the rigid costs of the Canadian economy,” said economist A.E. Safarian.
Manitoba farmers lost up to 50 per cent of their income as the Great Depression rolled along.
It was no better in the cities and towns of Western Canada.
“It is now forty months since I had the pleasure of a paycheque,” wrote Winnipegger Charles Greirson, an electrician, to Prime Minister R.B. Bennett in 1933. “My family are all undernourished, ill-clothed and ill-sheltered and are in need of medical assistance.
“How long do you think we can continue on under these circumstances.
“Possibly you have never felt the pangs of a wolf. Well, become a father, have children, then have them come asking you for a slice of bread between meals and have to tell them to wait. Wait until five of humanity’s humans sleep all in one room, no larger than nine square feet with a window in it.
“I do not believe I am crazy but am reaching the breaking point.”
The jobless rate reached 25 per cent in Manitoba throughout the 1930s, but relief was rare.
The Manitoba government of Premier John Bracken didn’t believe in giving relief to single unemployed men.
“I feel that a man without dependents should be able to take care of himself,” announced the deputy minister of public works, Arthur MacNamara.
Married men with children had to work at a wood yard run by the city before they could qualify for relief. As more and more people joined the ranks of the unemployed, the city was forced to open up work at the yards to single men. By the summer of 1930, there were 3,000 single men on relief in Winnipeg. A federal government survey revealed that over 7,000 were unemployed in Manitoba.
Work programs became the order of the day for the unemployed. Men worked on the Grassmere drainage project, digging a ditch from Brooklands to the red River to provide Winnipeg protection against flooding. Two thousand men laboured at this task for no pay other than room and board. Huts were built to house the men and to keep them reasonably happy they were given tobacco.
The city of Winnipeg set up soup kitchens. The fare was described by one man as “awful ... a tin bowl containing a green fluid sometimes called soup, a tin plate in which had been dumped potatoes, two large banks of fat, some carrots and thick gravy.” The cost to the city for this extravagance was 10 cents a meal.
Families on relief were subject to surprise visits by officials to make sure they were abiding by regulations which stipulated that a family could not own a car, a telephone or keep liquor at home. Any money made, even that made by a child, had to be reported to the city. To ensure this was obeyed, city officials reserved the right to check an individual’s bank account.
Immigrants were even worse off since a city law said that anyone who was not a Canadian could be deported. A voluntary form was prepared for immigrants to sign. In the North End, where immigrants had settled en masse, their anger was building and 1,000 marched on the Winnipeg immigration office to protest their treatment. It is estimated that hundreds, if not thousands, were shipped back to Europe.
For 10 cents a day from the provincial government, men cleared bush, built roads and facilities, in the Whiteshell Forest Reserve. The plan was to create a cottage area for Manitobans.
A similar work camp was established in Riding Mountain National Park by the federal government where men earned 20 cents a day in exchange for the right to work under primitive conditions.
Bennett proclaimed that camps were necessary because, “This government will not put a premium on idleness, and will not put Canadians on the dole.”
The government’s belief was that idle people spread communism, though the real culprit for the spread of communism and a resurgence in mainstream labour movements, such as the CCF which later transformed into the NDP, was the camps themselves.
“Picture yourself a tarpaper shack 79 feet by 24 feet with no windows, along each side a row of double-deck bunks, these are spaced off with 8 by 1 board so there is room for two men in each bunk,” wrote a man to Winnipeg MP and CCF Leader J.S. Woodsworth in a letter. “The bunks are filled with straw and you crawl into them from the front end. Along the lower bunk a narrow board is in place upon which you could sit ... So narrow is the passage between the bunks that when the men are sitting on the bench there is scarcely room to pass between them.”
The man said the shack housed 88 men and it resembled “ a hog pen or a dog pound.”
The men began to refer to the camps as “slave camps.”
Another scheme that the Bracken government supported was a back-to-the-land movement. Families on relief would be moved to new farms in rural Manitoba. It may have sounded good to the provincial government and the Winnipeg Chamber of Commerce, but it didn’t go over well in rural areas.
“Sending hosts of people out of the city into remote farming districts evokes the risk of creating great rural slums,” the government was warned.
To make this scheme work, the government had to subsidize the new settlers which also didn’t sit well with farmers who were also suffering.
The worldwide Great Depression was the result of many factors: shaky foreign government finances; debt incurred by Allied governments during the First World War; unsustainable reparation payments imposed on Germany; protectionist tariffs adopted by countries supposedly to help their domestic economies, which hit Canada particularly hard because it relied on foreign trade, and low grain prices.
But the event that brought the world to its knees was the economic crash of 1929. It was the outbreak of war in 1939 that finally spelled the end of the disaster that started on October 29, 1929.