Fifty years in Wall Street
monetary conditions there, with much disturbance, under heavy
liquidations, in London and Berlin. Even British Consols declined from
week to week, till they touched 81, the lowest price recorded since
1848, the year of the Smith O’Brien rebellion in Ireland, when they sold
down to 80.
Then came an angry and threatening contest, and stormy litigation,
between the States of North Carolina and Alabama and the Southern
Railway Company, involving also other Southern States and railways. The
main conflict was between the States named and the United States Courts
on the 2¼ and 2½ cents a mile rate law. This went so far as to cause a
revocation of the license of the Southern Railway to operate its lines
in Alabama. The situation for a time was extremely critical, but a truce
was at length arrived at, the Southern Railway agreeing to obey the
State law, and leave the ultimate decision to the United States Supreme
Court.
While this disturbing controversy was at a white heat, the $29,240,000
fine inflicted by Judge Landis, of the United States District Court, at
Chicago, on the Standard Oil Company of Indiana, fell like a thunderbolt
upon not only Wall Street, but investors all over the country. This was
on Saturday, the 3d of August, and it looked so like confiscation, and
so alarmed the large speculative capitalists, who had been supporting
the stock market, that they at once withdrew their supporting orders
and, for self-protection, became heavy sellers themselves of the stocks
they held. They foresaw the effect of this disturbing decision, and the
course of the Southern States towards the railways, upon investors, in
causing liquidation. Simultaneously, a threatening report from the
Bureau of Corporations added fuel to the fire of distrust.
Day after day, for twelve business days, following the opening of the
stock market on Monday, the 5th, there was an almost uninterrupted and
very heavy decline in prices for both railway and industrial stocks, the
best and highest priced being the heaviest sufferers, and falling from
ten to twenty-five per cent. The scare among holders of stocks increased
as prices declined, and demoralization in the market carried these
generally below the lowest in the panic of March. It was very largely
another rich man’s panic, due to fears as to what might come next to
disturb confidence in the value and future dividends of both railway and
industrial stocks. The worst of it was, the innocent were, as usual,
made to suffer with the guilty. But after a storm there cometh a calm,
and so it was in this case, and perhaps all’s well that ends well. But
the ordeal was a very severe one, particularly for the large holders of
stocks, and made the year 1907 still more memorable than before.
Rumors of impending Wall Street and industrial corporation failures, as
usual in times of disturbance, filled the air, but only one important
industrial failure and one unimportant Wall Street suspension occurred
in August, and the gradual return of confidence caused a gradual
improvement on the Stock Exchange, although the semi-annual dividend on
Southern Railway preferred stock was reduced from 2½ to 1½ per cent.,
and the dividends on Erie’s first and second preferred stocks were
declared payable in four per cent. scrip warrants instead of cash.
Toward the end of the month the Secretary of the Treasury announced that
weekly deposits would be made in the national banks till October 15th,
and this at once began to ease the money market and further strengthen
confidence.
Early in September, however, there came a relapse in the stock market,
and another Stock Exchange failure. This recurrence of disturbance and
depression was partly due to stagnation, followed by demoralization in
the copper trade, both here and in Europe, which caused a reduction in
the price of copper by the selling agency of the Amalgamated Co. from 25
cents a pound to 18 cents, and not long afterwards to 15 cents.
Meanwhile the Calumet and Hecla, the Quincy, and other copper companies
had reduced their dividends, owing to the small demand for copper, and
Amalgamated copper stock declined rapidly to 57½, against 121 in
January. In Boston, also, the copper stocks broke in the same
demoralized way under heavy liquidation.
Railway shares sympathized with this extreme weakness of copper and the
copper stocks, but not as much as American Smelting, the U. S. Steels,
and other industrial stocks, and gradually the copper crisis ceased to
dominate them. At the same time the general market for both railroad
stocks and bonds was strengthened by the great success of the
$40,000,000 issue of 4½ per cent. bonds by the City of New York, the
loan being five times over-subscribed. This showed there was a large
amount of money in the country awaiting investment in good securities.
Yet, later, new low records were made for sundry railway and industrial
stocks, including Southern Railway common and preferred, and the stock
market, in its nervous and irregular fluctuations, told of the timidity
of the bulls and the boldness of the bears, consequent on shrinkage in
the iron trade, and uncertainty as to the business future.
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CHAPTER LXXI.
THE GREAT CRISIS OF 1907.
The worst forebodings of September were far more than realized in
October, when the monetary disturbance, and distrust of credits, spread
from the Stock Exchange and Wall Street to the banking interests, and
involved the whole country in a panic that will always make the year
1907 memorable in our history.
Until the collapse in the “Curb” market of the stock of the United
Copper Co., followed, on the 17th of October, by the failure of the two
Stock Exchange firms that had been manipulating this Heinze specialty
for Heinze interests, the panicky conditions of the year had been
practically confined to the stock market and the interests directly
affected by it. But that collapse, involving those Heinze failures, fell
like a bombshell not only on the stock market, but on the banks of which
F. A. Heinze, the president of the United Copper Co., had, not long
before, purchased control. The fact that two of his brothers were
members of one of the failed firms—Otto Heinze & Co.—caused heavy
withdrawals of deposits from these banks, and particularly the
Mercantile National Bank, of which he had become the president.
The New York Clearing House Committee took alarm the same day and
examined the Mercantile. The result was that it demanded the resignation
of all its officers and directors that night, as a condition preparatory
to giving it any assistance. They complied, President Heinze among them,
and the bank was assisted to pay its clearing-house balances for several
days. But these were so large that further assistance was then refused.
Thereupon one of its old directors succeeded in bringing in new capital
and new directors on the day following, Sunday, so that the bank was
enabled to continue business without a break.
But meanwhile the contagion of distrust was spreading, and there was a
run on the deposits of not only the Heinze but the Thomas and the Morse
banks, the Thomases and the Heinzes having been equally prominent with
Morse in buying control of banks for speculative purposes. The Clearing
House Committee took them all in hand, and demanded the resignations of
their officers and directors. In this way they stamped these bank
promoters out of the banks they had managed to get control of. Then the
banks were assisted.
Suspicion soon fell upon certain trust companies with speculative
affiliations, more or less connected with the same promoters. Suddenly a
heavy and spectacular run upon the Knickerbocker Trust Company, the
second largest in New York, with more than sixty millions of deposits,
caused it to close its doors on the first day of the run. This was on
Tuesday, the 22d of October. The immediate cause of the run was the
resignation, on the previous day, of Charles T. Barney, its president,
coupled with the notification to the banks of the National Bank of
Commerce, on the same day, that it would not clear for the Knickerbocker
Trust Co. after the following day. So, this being published in the
newspapers, the depositors rushed to withdraw their deposits.
The Clearing House and Mr. J. P. Morgan, when appealed to, refused to
assist the Knickerbocker on the ground that they found it was not
solvent. The collapse of the Knickerbocker was immediately followed by
extensive runs on small banks and trust companies in New York and
Brooklyn, as well as on the savings banks, and about a dozen of the
former, including seven in Brooklyn, closed their doors. But the savings
banks took advantage of the sixty and ninety days’ time allowed them by
law for the payment of deposits after notice.
Following these minor banking suspensions there were long-continued runs
on the Trust Company of America and its Colonial Branch, and the Lincoln
Trust Company, with all-night lines of waiting depositors. But, finally,
after a hard struggle, these were examined by Morgan committee experts
and found solvent, whereupon, in the banking conferences held for a
number of days and nights at the residence of Mr. J. P. Morgan, it was
agreed to provide them with all the money necessary to meet the run. To
Mr. Morgan great credit is due for the arduous work he undertook to
better the banking situation in this critical period of storm and
stress.
New low records for stocks were made meanwhile under very heavy
liquidation, Union Pacific touching 100, and Amalgamated Copper 41¾, on
the 24th of October, and all others sinking to lower depths in about the
same proportion, while the abnormal scarcity and high rates for money
caused trading on margins to be generally suspended by brokers.
Transactions were, of course, largely curtailed by being placed on a
cash basis, but the buying of odd lots for investment was very heavy all
through the crisis. The decline in Amalgamated was accelerated by copper
selling down to 12 cents a pound. But much of the liquidation in the
stock market was caused by the banks and trust companies calling in
their loans on stock collaterals, and thus forcing the borrowers to
sell.
The hoarding of money, and the withdrawal of deposits from the banks and
trust companies, became so extensive that these institutions had little
or none to lend, and for several days call loans were made on the New
York Stock Exchange at rates ranging from 50 to 100 per cent per annum,
and in exceptional instances as high as 125.
The United States Treasury came to the relief of the money market by
making—under the personal direction of Secretary Cortelyou—unusually
heavy deposits in the National banks of the City of New York, as well as
in other cities which were drawing heavily on their New York balances.
But still the banks and trust companies continued to lose their ordinary
deposits rapidly, and the money thus withdrawn by the timid and
distrustful was taken out of circulation by being placed in safe-deposit
boxes, tin boxes, wallets, and other receptacles. This hoarding was
foolish, as well as harmful and un-American.
New York had to deal with a banking crisis. So, on Saturday, the 26th of
October, the members of the New York Clearing House met, and resolved to
issue, on and after that date, Clearing House certificates—bearing six
per cent interest—to be used by the banks of the Association in paying
their daily balances at the Clearing House, instead of currency. These
the Clearing House at once began to issue, when called for by any bank,
to the amount of 75 per cent of the value of any acceptable assets it