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How LaSalle Street bore the shock
October 29, 2004
BY DAVID ROEDER Business Reporter

In late October 1929, high winds and storms raked Chicago and the upper Midwest, sending steamers to the bottom of the Great Lakes, forcing the closure of a battered Outer Drive, and causing an early-season blizzard of enough consequence that families dragged sleds out of storage.

And that was the easy side of the turbulence at hand. The rest of it invaded Chicago via ticker machines, which clacked out the tragedy originating in the New York stock market. LaSalle Street read the tape, and wept.

Chicago's financial heart also raged, brooded and marveled. The stock market collapse of 75 years ago, which culminated in Black Tuesday on Oct. 29, shattered illusions about unending wealth and the ease of speculation. News accounts of the time stressed hope -- the bankers agreed to extend credit, the Rockefellers and Raskobs talked of buying opportunities -- and some traders just reveled in the excitement of it all.

"What a day it was!' trader Tommy Keenan said in discussing the crowds with the Chicago Evening Post. "Dames fainting, and big coal heavers threatening to push me in the face!'

LaSalle Street during the crash was the place to be. People mobbed the brokerage firms, some out of curiosity but others out of necessity. Phone lines were jammed, and if you needed to follow your stocks, the brokerage was your only alternative. And there, the ticker ran hours behind the action in New York.

The Chicago Stock Exchange could have been the best show in town. But the exchange, then in year-old quarters at 120 S. LaSalle, closed its visitors gallery for the duration of the crash.

It was a smart move. John Binder, associate finance professor at the University of Illinois at Chicago and an authority on market volatility, said non-New York exchanges had a greater role in 1929 than they do now. He said the Chicago exchange back then was the primary listing venue for local companies, so when shares of Sears and Armour collapsed, the Chicago trading specialists would have been the first to feel their weight. The view of the trading floor would not have been pretty.

With the exchange off-limits, investors gravitated to the brokerages and the Chicago Board of Trade, home for trading in agricultural commodities. There, if they asked around, they would have learned that crop prices had wilted months earlier, a forerunner of the stock crash.

The crowds generally were tranquil, although the major brokerages each drew a contingent of police to enforce order. People gathered in clumps, which a reporter classified as either "wiseacres' or "soreheads.'

One day, a bizarre rumor was passed along the sidewalks: mobster Al Capone, furious over his losses, was sending an army of 750 downtown to rub out people he held responsible. Police dispersed the crowd when it grew angry that the army didn't show. Capone later would win popular support by funding soup kitchens, as did many legitimate organizations and charities.

Once the markets got past Halloween, traders looked back on a week of stunning wreckage. In six sessions, the Dow Jones industrial average lost 30 percent of its value, and overall, about $50 billion in market value disappeared. Because of margin trading, some investors found they still owed their brokers even after their stocks were sold. Those debts helped snuff out nascent rallies, and the Dow would not regain its pre-crash levels until 1954.

The market crash of Oct. 19, 1987 technically is the worst day ever for stocks. The Dow fell 22 percent, but that was the extent of a brief but ruinous bear market.

The aggregate declines of that black week in October 1929 were worse. Stocks managed a false rally in 1930, then tumbled with regularity until 1932, adding anguish for investors who got through the crash intact. Some people still played the markets, but at the Board of Trade, a seat could be bought for nothing more than a $25 transaction fee. Today, that seat trades for more than $1 million.

After the crash, conditions in Chicago took a sharp slide. Writing in the early 1930s, Homer Hoyt reported in his "One Hundred Years of Land Values in Chicago' that prices fell immediately upon the panic. In 1929, residential land fetched $70 per front foot on the North Side and $45 on the South Side, he said. But just a few years later, those averages were down to $50 and $35, respectively, he said.

By 1932, the city had lost three-quarters of its pre-crash manufacturing jobs. A calamity ensued when property owners got bills calculated on the unrealistically high land values from before the Depression. Property owners couldn't pay, and nervous officials declared a one-year moratorium on the tax payments, turning municipal finances into a mess. Teachers went unpaid for months but, with few alternatives being palatable, most stayed on the job.

"Hard times' doesn't begin to describe what was in store for the nation and Chicago. It would take the wretched medicine of World War II to pull the labor markets into full use and get the idled industrial plants working. By then, the cares of that week in 1929 would seem distant and minor.

It was, after all, just about money. But on Black Tuesday, Oct. 29, 1929, a hard rain fell on LaSalle Street, the weather having warmed enough to avoid snow. Reporters said the brokerage congregations behaved like they were at a funeral. People couldn't know it at the time, but the mourning would not stop there.

BAD NEWS BEARS
The bear markets since the 1920s, as measured by monthly data on the total return of the Standard & Poor's 500 index:

Market peak - Market trough -- Recovery date -- Pct. drop - Months in decline - Months in recovery
August 1929 -- June 1932 ------ January 1945 -- 83.41 ----------- 34 ------------ 151
May 1946 --- November 1946 -- October 1949 -- 21.76 ------------ 6 ------------- 35
December 1961 -- June 1962 ------- April 1963 -- 22.28 ------------ 6 ------------- 10
November 1968 -- June 1970 ----- March 1971-- 29.25 ----------- 19 -------------- 9
December 1972 - September 1974 - June 1976 - 42.63 ---------- 21 ------------- 21
August 1987 --- November 1987 ---- May 1989 -- 29.53 ------------ 3 ------------- 18
August 2000 --- September 2002 ------------ NA -- 44.73 ----------- 25 ------------ NA

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No cause and effect between crash and Depression
BY DAVID ROEDER Business Reporter

Most experts say there was no cause-effect relationship between the market crash of 1929 and the Great Depression of the 1930s. Economic statistics were less abundant and up-to-date in those days and by October 1929, the nation already was in deep trouble.

But the crash made the situation obvious to most people. How it developed is still subject to debate, with economists listing several prime suspects: speculative glee, unequal distribution of income and technological trends that expanded production without expanding payrolls.

Just as in recent years, the 1920s saw mad dashes after technology stocks. RCA was the Microsoft of its day. Its shares rose from $85 to $420 each in 1928, when two mens' suits went for $50 at Baskin and Jello sold for around 7 cents.

An expanding investment class had discovered the wonders of credit, but not its perils. It used credit to finance investments in stocks, bonds, real estate and private ventures. Everybody was filled with confidence that a growing nation had boundless appetites for radios, cars and telephones.

When expectations met reality, forced selling took hold. "It was a cascading effect,' said L.H. Bayley, chairman of David A. Noyes & Co. "A lot of the forced selling that took place was money that was borrowed.'

Bayley recalled stories that old-time partners of the firm told him after he was hired in 1958.

Orders were so heavy during the crash that it took days for firms to realize which customers were ruined. In many cases, the firm itself went under. Noyes, which specialized in less speculative accounts of the carriage trade, survived and kept on its employees through the Depression, even when orders slowed so much that there was nothing to do but play cards.

Today, Noyes, founded in 1908, is the oldest member firm of the New York Stock Exchange still headquartered in Chicago.

Is such financial terror possible again? Yes, although the odds have grown longer. Changing times have brought tighter regulations, trading "collars' that prevent panics and better ideas about controlling credit. But the market can still be an untamed creature.

"Emotion still sets big waves in the market and seems to have a lot more momentum than any trading based on fact,' Bayley said.

http://www.suntimes.com/output/business/cst-fin-crash29.html