Land of oranges and speculators - Real estate cycle 1894 - 1934

"There is no possibility of a panic in the foreseeable future."
Joseph Stagg Lawrence, economist, writing from Princeton University, 1929.

"Stock prices have reached what looks like a permanently high plateau."
Irving Fischer, September 1929, another famous economist of the time.

"I do not think there can be any question about the safety of call loans at this time, and of their liquidity."
Roy Young, Federal Reserve Chairman, 1927 to 1930.

Mid 1890's, to 1934, doesn't look like an eighteen-year cycle does it ? Let's see what happened.

If unemployment statistics are a fair guide to the depth of a depression, the downturn of 1893 must have been serious. It was described as the worst depression up to that time, though as we have seen, the same was said about each previous depression, at the time. One editor, H.P. Robinson, of The Railroad Age, wrote later: "It is probably safe to say that in no civilized country in this century, not actually in the throes of war or open insurrection, has society been so disorganized as it was in the United states during the first half of 1894; never was human life held so cheap; never did the constituted authorities appear so incompetent to enforce the respect for law." Wages collapsed, as did the prices of wheat and cotton. "Hungry, jobless men roamed the land, begging food and sometimes stealing…Ragged, shivering men in Chicago insulted policemen or smashed store windows in order to be put in jail where it was warm and where they would be given food." (Latham, The Panic of 1893.)

Unemployment was persistently above ten percent for the five years 1894 through 1898. Such statistics are sparse the further back one looks, but it does genuinely appear that this was the first time that had happened. It is significant from the point of view that the option to those without work, of simply taking up a plot and living even just at subsistence level was no longer available. There was little unclaimed land left, at least of farmable quality. Which does not mean that it was all under cultivation either.

In Chicago, there were no more excursions to take prospective lot buyers out to the subdivisions. By the mid 1890's, "the demand for vacant property," said Hoyt, "(was) at the lowest ebb in the history of the city…By this time a majority of the buyers of lots on easy payments had lost their holdings and had nothing to show for their investment. Other real estate dealers said that in some localities two thirds and perhaps three-fourths of the lots sold in good times had been sold on foreclosure and that nine-tenths of the cheap lots sold on easy payments had been sold for taxes and special assessments." (Hoyt page 180.) The taxes of which Hoyt speaks, were being levied to pay for the city improvements taking place; sidewalks, lighting etc. But a lot of these improvements had been built in the least required places, often just where a developer could secure city council consent such as the boulevard lamps that were put up in the swamps of the Calumet region. By 1896: "real estate was in such a dull and disorganized condition that land values were difficult, if not impossible to determine." The worst point in the depression, for Chicago at least, came in 1897; real estate was said to be "a liability instead of an asset," (Hoyt page 181) though not all areas of Chicago were affected the same way. The 'wild speculative boom of 1889 and 1890' (Hoyt's words) was definitely over however.

The 19th century in America had produced some awesome booms and busts. The regularity of them could not have been lost by now upon those whose business it was to study such things. And the 1893 downturn affected a great many of the citizens, even more so than previous downturns. I say this because of the extent to which vested interests went to try and ensure there was no repeat event. Said Galbraith in his history of the period: "The banking and monetary arrangements of the (19th) century…were admirably designed to respond to euphoria, finance it, enhance it and then add force to the ensuing collapse. Banks and money could be created, without effective constraint, to finance the expansion and speculation. Failure, or fear of failure, the contraction of loans and deposits then made the day of contrition worse…The decisive thing was to have possession of property, and this the banks provided. So, while the banking system was manifestly designed to accommodate expansion and speculation, there was also a powerful incentive sending people to the banks." (Galbraith, Money: Whence it Came, Where it Went, page 114.) A desire was developing, certainly amongst the wealthier bankers and financiers, for a central bank to moderate the nastier side effects of those downturns, especially when depositors came to the banks en masse for their money, only to find it wasn't there. But it took another brief panic to allow the bankers to spread that message to a non-banking audience.


Once again, albeit slowly, the cycle was turning. The Sherman silver act was repealed (November 1893) and with a few well-timed gold purchases by the government, market confidence was eventually restored. The silver question came up again at the 1896 election, but never quite gained the earlier momentum; the miners were not as prosperous, and farmers were becoming a declining percentage of the voting population, as city laborers grew in number. The antics of the whole silver episode are believed to have inspired the book The Wonderful Wizard of Oz, though author Frank Baum never explicitly said so. (The tin woodsman - the laborer - in the Populist idea of the alienated worker; the scarecrow - the western farmer - no brain, trying to comprehend the money theories of the day; the lion - William Jennings Bryan - gifted public speaker but ultimately on the losing political side three times; the Emerald City - Washington DC; follow the yellow brick road for the gold standard; Dorothy's silver shoes, kicking her heels three times, etc.)

In his memoirs, one of the great speculators of the period to follow, Bernard Baruch, described the panic of 1893, the first one he experienced directly, as one that closed many mills and mines and put into receivership a large part of the railroads of the country. But by 1895 he noted, "one could detect the first promises of better financial weather." (Baruch, My Own Story.) That may have been easier to write in hindsight of course, but from the charts, we can see that stocks as measured by the rails index bottomed in August of 1896. The silver question was finally put to rest when, as the parties were again lining up for battle, huge gold strikes took place in the Klondike, Australia and parts of South Africa; the very time when a new and more efficient extraction process to get at the gold with the use of cyanide was developed. It soon became clear that gold would be in good supply, reconciling with one stroke the former seemingly intractable money problem. Now, the sound money men could be kept happy; the gold could be used to maintain the gold standard, whilst those wanting more coinage - and hence inflation to make debt repayment easier - were pleased since the gold would flow to the banks and expand the reserve base. Recovery was at hand, helped on in the latter part of 1896 when it became clear the European and Indian wheat crops would be poor, giving US farmers a better year. Government borrowing to pay for the war against Spain (a manufactured war if ever there was one) in 1898 increased the amount of money in circulation in this year and the next.

As the cycle turned further, the US recovery picked up steam, and rapid expansion was again the story of the day. The new century was looking quite prosperous. By 1900 the US had become the world's pre-eminent industrial power; the UK was now second. JP Morgan's re-organization of Andrew Carnegie's steel works into United States Steel, making Carnegie the richest man in the world, confirmed it. The deal was enormous. To put this into some sort of context, the newly floated US steel hit the markets at a capitalization of $1.4 billion, when the worth of the whole US manufacturing industry added together was $9 billion. Carnegie himself made $480 million, retired, and philanthropically gave it all away, as he believed a man should do, by the time he died in 1919. US Steel was producing more steel after 1900 than the whole of the UK industry combined.

1901, May 6th to 9th, (8 years from May 1893) saw the emotional peak of yet another rail corner on Wall Street, it was to prove the last; this time organized by E H Harriman as he sought to gain control of the Northern Pacific railroad (NP) from J. J. Hill and his banker J P Morgan. The market went into panic mode when those who had been shorting NP stock discovered that they really were caught short. Harriman and Morgan between them, to protect their own positions, had bought up all the NP floating supply, meaning that the shorts had no further stock available on market with which to buy back their positions and so began liquidating other stocks to buy back NP at ever-higher prices. An unusual corner of a stock in that neither Harriman nor Morgan would give up their stock since it could mean loss of control to the other. A truce was eventually sought, in the interests of market stability, but not before thousands of bankruptcies had taken place, and a number of suicides. One of those ruined, Samuel Bolts, Jr., killed himself by jumping into a vat of hot beer.

Chicago and its real estate.

In Chicago, foreclosures had been mounting for several years. Rents, subdivisions and sales were low and there was an oversupply of office buildings in the CBD. Landlords were even being forced to accede to the demands of tenants for extensive repairs and improvements. (Hoyt, page 208.) Could things possibly get any worse ?

Hoyt had also noted, somewhat more importantly, that: "Interest rates of mortgages in the central business district had declined to 4 and even 3 and a half percent, with the result that long-term leaseholds were capitalized on a 4 instead of a 5 per cent basis. This alone would tend to raise downtown land values 25 percent, and although its effect did not immediately show itself in such a blanket increase, the lowering of the capitalization rate was now operating to increase valuations." 1899 saw a further improvement in the general outlook and business conditions for Chicago. Real estate foreclosure sales began to attract some buying interest. And around this time, 1900, the city's elevated train loop, simply called the loop, was finished, attracting a lot more people into the central area, increasing business and rents. In this year, Chicagoans were legally consuming 153.478 million gallons of intoxicating liquors. (Hoyt, page 205, quoting the Chicago Tribune, September 8, 1900.) Very soon however, the Anti-Saloon League, founded in 1893 and dedicated to the total eradication of every saloon in the nation, would have some big political wins in Ohio, go on to distribute some 40 tons of anti-alcohol literature monthly, and succeed in having the US voted dry on January 17 1920. Drinking anything alcoholic after this date was then illegal. But we are ahead of ourselves somewhat.

Chicago's attractiveness and all round business potential just kept on improving. Steel industries developed at the tip of the lake around East Chicago and Gary. Oil refineries were built to refine the oil now being piped in from the fields in Kansas and Oklahoma. Electric power supplanted steam, as it was doing in many cities, with Chicago becoming the focal point of the power generation from which the power was then transmitted along high-tension wires to the surrounds. The city developed as a center of telephone equipment manufacture once the phone ceased being regarded as a luxury toy, and Sears Roebuck located here with its mail-order distribution business. (Not to mention the effect of the new automobile, more of which shortly, radio and the even newer airplane technology still under development.) From 1890 to 1930 the population of the city tripled.

By 1902, because only a few new buildings had been built since the 1893 depression, the previously large supply of vacant office space was fast disappearing as business improved. The building of CBD office space now looked more profitable; height restrictions were being eased as well. Hoyt reports, page 205, that between 1896 and 1915, the value of Chicago manufacturing tripled, so did the number of passengers on trains, automobile ownership went from 5,000 to 86,000, telephones installed from 12,000 to half a million and electricity generation increased 34 times. Despite this however, land prices were showing only moderate and steady increases, but no boom. On average, land values doubled, but the growth was gradual: "the painful remembrance of the aftermath of the boom of 1890" checked any tendency toward reckless speculation. An important observation this one.

Other cities though, did see land booms (for various localized reasons) as the new century dawned, notably in St Louis, New York, and Seattle. Gold was found at Klondike in the Canadian Northwest, as mentioned, touching off the great Klondike gold rush, which kicked off the boom in Seattle and into Canada, after 1896. Perhaps such timing is not coincidental; one could probably reasonably expect there to have been a few more gold diggers after 1893. After all, who goes prospecting for gold in the midst of a land boom ?

Behind the scenes, extraordinary changes were taking place in the way that US business was organizing itself. There is plenty written on the subject, but briefly, the 1890's saw the arrival of genuinely big business. At the time of the Civil War, only railroads could be said to be big business. Slowly, business was growing in size; from iron to then steel works, munitions factories, and the manufacture of nails from wire instead of the old metal plates for example. But it was between 1895 to 1905 that an explosion of business mergers took place and established a good many industrial structures and names still familiar today; General Electric, Westinghouse and more. Whole new industries were built too; in meat packing, electricity generation, tobacco (cigarette making machines instead of hand rolling), photography (Eastman Kodak). And huge new industrial concerns took over, International Harvester, Singer, United Fruit and more, coming to totally dominate their field. The industries that succeeded best were where the barriers to entry were high, or could be artificially created and maintained, such as through advertising.

But it didn't happen without substantial opposition to the ruthless exploitation some big corporations were practicing; the opposition coming from many quarters including the labor movement, various land reformers and the general populist revolt against the huge fortunes amassed by the relatively few who formed the great trusts, holding companies and industrial concerns. At often great personal risk to themselves, Upton Sinclair exposed the dastardly processes of the meat packers; Mary Elizabeth Lease incited farmers to raise more hell instead of more corn, Ida Tarbell exposed the methods of Standard Oil, Marie Van Vorst told all about the plight of the working woman, John Spargo revealed the awful abuses of child labor, Louis D Brandeis revealed all about how 'they' - the bankers - used other people's money, and Henry George exposed where real political power and control was to be found.

This was also the time of the Anarchists, of whom the two major original writers were Pierre Proudhon of France, and Michael Bakunin, a Russian exile. Said Proudhon defiantly: "Whoever lays his hand on me to govern me is a usurper and a tyrant; I declare him to be my enemy." The highest perfection for which society ought to aim, he believed, was no government, to which he gave the name 'An-archy'. "To be governed," proclaimed Proudhon in a classic of French invective, is to be "watched, inspected, spied on, regulated, indoctrinated, preached at, controlled, ruled, censored, by persons who have neither wisdom nor virtue. It is in every action and transaction to be registered, stamped, taxed, patented, licensed, assessed, measured, reprimanded, corrected, frustrated. Under pretext of the public good it is to be exploited, monopolized, embezzled, robbed and then, at the least protest of word or complaint, to be fined, harassed, vilified, beaten up, bludgeoned, disarmed, judged, condemned, imprisoned, shot, garroted, deported, sold, betrayed, swindled, deceived, outraged, dishonored. That's government, that's its justice, that's its morality." And from the army of the downtrodden and poor he found a lot of followers. "So enchanting was the vision of a stateless society, without government, without law, without ownership of property, in which, corrupt institutions having been swept away, man would be free to be as good as God intended him," (Tuchman, The Proud Tower, page 72.) that six heads of State were assassinated in the twenty years leading up to 1914. (President Carnot of France, 1894, Premier Carnovas of Spain, 1897, Empress Elizabeth of Austria, 1989, King Humbert of Italy, 1900, President McKinley of the US, 1901, and another Premier of Spain, Canalejas, 1912.) The anarchist proved a difficult and unusual foe; being stateless, as by definition something to which each was highly committed, they were an enemy for which the State's standing armies proved unprepared. Over these years European cafes were places where one's time drinking coffee could easily be ruined by a strategically placed bomb or two.

But back to business: the 1890's also saw the rise of the industrial securities market on Wall Street. Prior to 1890, railroad stocks and bonds accounted for most of the investment options available to market participants. What industrial stocks there were, were new and considered risky. In the 1890's, all this changed. Industrial shares gained wider acceptance, making it easier therefore to raise finance, merge companies in the various industries if the Wall Street bankers so desired, or float new ones to an increasing number of the investing public; the era (so called) of 'frenzied finance' as the new twentieth century began. It led to another (brief) panic.

The 1907 panic.

From October 16 through November 6, 1907, the US, though this time concentrated chiefly in New York, witnessed yet another banking panic. The cause: well, you could say it was just that too many people came to the banks, all at once, asking for their deposits - in cash - because of their doubts about the solvency of the banks holding their money. Of course why so many people might do this all at once, is the real story. And the fact that Jesse Livermore made his first millions, three of them, trading the short side of the market shows that at least one person foresaw the possibility of panic. Livermore gained the title 'boy plunger' as a result. His shorts of 1929 would eventually dwarf his 1907 profits; we will get to that later.

The panic was triggered by the failure of both the Knickerbocker Trust Company and the Trust Company of America. Behind the Knickerbocker was F Augustus Heinze. And attached to Heinz is quite a story about copper; a metal then in increasingly heavy demand from the new technology of electricity. Heinze had made his money out-foxing the copper trust of Amalgamated Copper, in the copper mining areas of Montana. Heinze did this using an obscure mining law of Montana State that permitted miners to follow a seam of copper ore from their property title, even if it ran under the property holdings of someone else, which such seams were wont to do. (The Montana legislature thought such a law would increase production, but underground warfare was the result.) Heinze struck a seam of copper so rich it was practically pure, a seam that ran right into the property of Amalgamated Copper next door. And sitting on the board of Amalgamated was a veritable who's who of American business, including H. H. Rogers, William Rockefeller, brother of JD, and J P Morgan himself. To reduce the bloodshed, Amalgamated Copper eventually settled with Heinze for the princely sum of $10 million, rather than litigate. With his newfound money and confidence, Heinze went to Wall Street to play the market.

And the markets were in a decidedly bullish mood. The country was coming into its 15th year, mostly of expansion, since the devastating 1893 collapse. Said the President in his message to Congress of December 3, 1906: "We still continue to enjoy a literally unprecedented prosperity." Investors and Wall Street in general had no doubt about the president's perceived wisdom: "It had for many years been a cardinal doctrine, in American banking circles, that a panic like those of 1873 and 1893 would never again be witnessed in this country. The ground for this belief lay in the phenomenal increase of our economic strength, the coordination of American industry since 1899, the establishment of the gold standard of currency, and, more particularly, the great and concentrated resources of our banks." (Noyes, Forty years of American Finance.) But there was one other reason too for such acceptance of the president's views; the then ruling belief in the now obvious twenty-year cycle between panics. There had been unprecedented growth since 1897, which had continued but for two brief and minor interruptions; one in 1901, eight years from 1893, and the second in 1903, ten years from 1893. A further few years of growth was not in doubt. (So this puts we forecasters on guard. Markets never do what the majority believes it will do; often just the opposite in fact. To time this extreme of opinion well is to take the opposing view of the majority at these extremes.)

The creation of credit too had been playing its part, conducting its life in exemplary fashion. After 1896, the volume of money in circulation rose from $1.5 billion to $2.7 billion by the time of the president's December 1906 message, with deposits at the banks rising from $1.6 billion to $4.3 billion. And the assets of all of the American financial institutions combined had about tripled. (Sobel, Panic on Wall Street, page 301.) Which means of course that the banks in general were having no trouble making loans. Until 1906. "…gold sales enabled prices to rise, industry to expand, and prosperity to return after the long depression of the early 1890's," explained Sobel. "But then industrial output began to outpace gold…This slowing of the growth rate of gold (production), as demands for investment funds increased, rapidly caused a capital shortage." Bank reserves were now lower than they had been, causing bankers to adjust loan rates upwards in an effort to reduce lending and recover reserves. But the demand for funds continued, even at these higher rates. The UK interest rate was lifted 1%, to 5%, on October 11 1906, then just a week later a further one percent to 6 percent. There was even talk of the rate going to 7 percent; a level never experienced in more than one hundred years. Into this scenario came Heinze.

Heinze set up his own brokerage firm, bought a seat on the exchange, listed his new company called United Copper, then hatched a plan to corner the stock of his own company by purchasing shares and call options, "running up the price and inducing other speculators into going short". (The Great Game, page 189.) Once he had a corner of course, Heinze could then exercise his call options and trap the opposing shorts in a classic bear squeeze.

Along the way, Heinze garnered a partner, Charles W Morse, and together they began acquiring a number of banks as a further useful source of funds to aid the plan. "Chain banking," said Noyes of what was a growing play; a process watched by conservative financiers with increasing unease. Eventually, it was the Bank of North America that was bought, Heinze then using that bank's money to gain control of Mercantile National Bank, whose assets, in turn, allowed the pair to gain control of the Knickerbocker Trust Company, one of the largest banks in the city. The trust banks were themselves exploiting a loophole in New York laws allowing them to operate without material reserves. (Anything to increase profits. They were later outlawed.) The United Copper play was started in February of 1907.

As it happened, the Dow had a peak that year at 86.53, March 12th ( degrees Pisces), followed by a sharp sell off. We will assume one could not reasonably have known it was a high exactly on the day, but the Dow was off 12 percent over the next few days, dropping 8.3 percent March 14. (, Wall Street History, Heinze and Morse story). There was apparently no startling event that precipitated the fall, but it took place whilst the listed corporations were reporting record earnings. (Sobel, page 303.) As abruptly as it began, the sell-off ended. The low for the month was on March 25. With a study of Gann, his timing techniques and of his price action and reaction, one could suggest this was what sounds like an overbalance, so that one might realize, by say April, that the peak of March and subsequent sell off puts one on alert for a possible lower high 90 degrees later, then a low 120 degrees after that. (e.g. SPI 2002 peak, March 7, lowed Oct 10) So in 1907 W. D. Gann would have been watching around June 12 to 15, and October 14 to 17 for further news to bring a bit of emotion into the markets.

Throughout the year, stocks had been under pressure, declining steadily since March. In October, the history books speak of a marked downturn, led by copper stocks. On Monday October 14, whilst all other copper stocks declined, United shot up from 37 to 60. “Heinze was sure that triumph was at hand and sent word to his various brokers to exercise his call options." But for some reason the brokers were not acting as quickly as Heinze would have liked. "Stories began appearing in the papers about United Copper, questioning its finances…Non Heinze and Morse banks began to call in loans the pair had taken, forcing them to sell stock at the worst possible time. On Tuesday morning (15th) United sank under the weight of these problems and sank further as large blocks of stock from an unknown source - but rumored throughout Wall Street to be H H Rogers - were thrown onto the floor. By the end of Tuesday (15th), United had lost all the gains of the previous day, closing at 36. On Wednesday it sank to 10." (The Great Game, page 191.) The corner was finished. Almost simultaneously, a run developed on the Mercantile Bank. Normally, the New York clearing house might lend some assistance to a bank under such a run, but this time would not do so (influenced by Rockefeller and Standard Oil it is said) until it was agreed that Heinze and Morse resign as directors, which they did October 18.

Such an event however, cannot reduce markets to a panic unless the conditions are ready for it and the event exposes the lack of reserves of the banks. Such was the case at this time. "The once solid banking institutions were like fully blown balloons, solid to the sight but easily destroyed with a single pinprick." (Sobel, page 305.)

The following Monday (21st) the bank runs continued, including on that of the Knickerbocker. Depositors fought to get to a Knickerbocker teller all day in scenes of utter chaos and bedlam. On Tuesday, October 22nd, the Knickerbocker's President chose to open the doors at the regular hour, hoping the gesture would give confidence to the depositors that the bank was sound. It didn't. "Within a few hours they had withdrawn $8 million. By the afternoon the Knickerbocker Trust Company announced its insolvency and closed its doors." (The Great Game, page 191.) Now Heinze and Morse were finished. Some weeks later the bank's president, Charles Barney, shot himself. So too, apparently, did a few of the banks unpaid depositors. (, Wall Street History section, J P Morgan story.) The next day (23rd) queues of depositors were forming outside other New York banks. A telephone call could spread the word pretty quick these days. The situation was deteriorating.

Recognizing the gravity of the situation, the government, through the Secretary of the Treasury, arranged to deposit $35 million of its surplus with the banks (and understood to be then on lent to the trusts, since the government could not legally deposit its funds in these trusts) to meet the continuing demand by depositors to have their money in cash rather than on deposit. But it was not enough and the runs on the trusts continued. (For a further fourteen days straight as it turned out, with account holders keeping their place in the queue by night so as to allow them better access the next morning.) On the 24th, panic swept the exchange; credit restrictions being so severe it was feared the exchange itself might collapse into insolvency.

At this point the panic was successfully stemmed, in the main by a group of bankers headed by J.P. Morgan, who combined to extend liquidity (for a fee) to those trusts and other banks sustaining the largest runs. Exactly the sort of thing a central bank is designed to do, to increase the supply of available money. Morgan also encouraged his associates to release optimistic statements to the press, and then he summoned all the city's religious leaders to his office to demand that they deliver upbeat sermons to their flocks on the Sunday.

The Dow bottomed for the year at 53 on November 15, degrees Scorpio, down 39 percent. (The equivalent drop today would be one from roughly 11,000 to 6,800.) W.D. Gann was learning his trade over the course of this decade, the first few years of the 1900's, culminating in that noteworthy Ticker Tape Review article of 1909. The dates would not have been lost on him. The 24th October proved the most difficult day for the exchange, still under pressure from margin selling, sending the President of the exchange, Ransom Thomas, (known for some reason as 'pay me') to plead with J P Morgan for help in keeping the exchange open. Typical culmination on a Gann date, as nearly always.

"When the support package was announced, pandemonium broke out on the exchange. Morgan heard a thunder of noise at his office across the street. It was the members of the NYSE giving him an ovation." (

The events of 1907 took place in a situation where interest rates had been rising steadily the year before. (The Great Game, page 107.) After the collapse of the Dow that year, in the following year, 1908, the Dow went on to record an impressive 46 percent return, a year in which credit conditions eased markedly. (Martin S Fridson, It Was a Very Good Year.) Fridson goes on to list some important events for the year 1908, but the only dates he mentions as having a material market effect were as follows, to which have been added a couple of observations:

  • August 22nd when very heavy and unusual volume – probably 'matched orders' - raised fears of stock manipulation,
  • Sept 22, Dow low, being a 9 percent decline from the August highs,
  • October 4 to 10, a slight sell off on a European war scare,
  • Nov 13, Dow's 1908 high, this being 52 days from Sept 22 low, and one year (360 degrees) from the 1907 low.

Noted Fridson, page 27: "The restoration of credit at the beginning of 1908 was widely regarded as the catalyst for the ensuing bull market," and "although credit conditions began to improve early in the year, the stock market ran well ahead of the economic recovery." Such is the stock market in action, discounting future economic conditions 6 to 12 months in advance.

In 1908, William Jennings Bryan stood once again for president, again on the Democrat ticket, and called for, amongst other things, "mandatory disclosure of campaign contributions above $100, as well as prohibition of contributions in excess of $10,000." (Fridson page 16.) Such calls are still being made, though the figures to be prohibited have increased somewhat, and continue to fall on deaf ears: how else could government be bought ?

Significantly, Chicago land price was not seen to suffer greatly over 1907 / 08; plateauing, but not declining based upon the data from Hoyt. (Fig. 98, per Capita Land Values, page 410.) "In this period sub-dividers could only sell vacant lots by building houses or apartments on them and selling land and buildings together. Although seventeen years had passed since the peak of 1890, there was no general boom in 1907, as there (had) been at seventeen-year intervals prior to 1890." (Hoyt page 219.) Land value will not substantially increase until there is a manufacturing and/or population boom. This is why real estate is last on the investment clock. Government granted licenses like real estate take all the productivity gains ultimately, but the gains have to present themselves first. Continued Hoyt (page 219): "Either the excesses of the boom of 1890 had produced an unusually long aftermath or else land values had not kept pace with the growth of the city."

Demand for the public domain continued right through this period also. Indeed, sales of public land were higher in 1908 than 1907, but did peak in 1908, 20 years from the previous peak of 1888. Rail stocks, as might be expected, peaked well before the crisis, in September 1906, ten years (121 months actually) from their low of August 1896, and were well off the highs of September by the time of the actual panic in 1907. The panic was in fact the low point for stocks, which bottomed in the November.

Interest rates, in particular call loan rates, spiked during the panic as banks called in these loans first and money could not be had at almost any price; an 'elasticity' problem the soon to be created Federal Reserve Bank went on to fix with some success, as can be seen in the chart of interest rates when compared to later periods.

For some further quotes of note on the Panic of 1907, click here.

The Federal Reserve.

The 1907 panic again highlighted the weaknesses of the national banking system. In particular, as previously noted, Country Banks were keeping their reserves in Reserve City banks, and Reserve City banks were keeping their reserves in Central Reserve banks, (most often in New York); a deliberately designed pyramiding of reserves. It seems though that the New York banks, at the base of the pyramid, were not then holding their reserves as currency or cash, but instead putting them to other uses, such as in call loans, used often for stock market investment (or more likely as speculation). A need for currency by banks at the top of the pyramid could mean stock selling at the base, as loans were called, the very time when stocks would be worth least.

Also, if a run on one bank was underway, other banks would hardly offer assistance as they could very well have been next. Better to hang onto the reserves yourself. At the height of the 1907 panic, "Everywhere the banks suddenly found themselves confronted with demands for money by frightened depositors; everywhere, also, the banks manifested a lack of confidence in each other." (Sprague, page 259.) After the panic, even the most ardent opposition to the need for a US central bank was quietened, and over the next six years details were hammered out to create one.

The bill creating the new US institution, commonly called 'The Fed', was signed into law by the President on December 23rd, 1913. Hundreds of thousands of man-hours, and loads of political maneuvering went into its creation. The country settled on the creation of twelve banks, one in New York and the others in designated cities around the country, reflecting probably a genuine desire on the part of the populace for decentralized banking and no doubt fear on the other hand of New York and Wall Street bankers' control. The Fed is a private concern; it is not owned by the government, (as is the case say with Australia's Reserve Bank), though top officials are government appointed. The Fed is run for the profit of its owners, the member banks.

Without going into too much detail, we might note that all US National banks were required to belong to the new system; state banks were all invited to join, though for them it was not made mandatory. Member banks were required to contribute 3 percent of capital stock to the Federal Reserve Bank in its district. A further 3 percent was to be on call. The member banks 'investment' thus became the capital base of each Federal Bank. Member banks then also had to keep a specified minimum of reserves against their deposits, of which one third of the reserve had to be kept on deposit at the Federal Bank. These reserves thus became the deposits of the 12 Federal Banks. And against these deposits, the Federal Banks had to keep 35 percent in cash or gold. This replaced the system of national bank bonds, by which their note issues had been secured, and national banks were invited to surrender such bonds progressively.

Membership was to have its rewards, namely the ability to borrow money from The Fed in times of need, perhaps when all your depositors came all at once to get their money for example, though for some banks there were still things the Fed could not cover. The continuing lawlessness in some parts of the wild west prompted one Wyoming bank in the early 1900's to lampoon itself with this proclamation, issued after a series of shooting incidents: "Patrons thinking an error has been made are requested not to shoot the cashier before making investigation. Strangers must enter the bank holding their hands above their heads or they will be fired upon by staff. Deposits of persons killed on the premises remains the property of the bank. The bank will not be responsible for lost guns or bowie knives. Persons desirous of transacting business quickly will please remember that shooting out the lights tends to delay rather than to expedite the work of the staff. This bank will not be responsible for the funeral charges of persons killed on the premises of the bank." (Edwin Green, Banking, An Illustrated History, page 80.)

Lampoons aside however, there does seem to have been a genuine desire on the part of most market players to do something about the terrible depressions and banking panics that had developed into a regular feature of US economic life. The downturns were naturally not liked and affected everybody. This then was what the Fed was set up to do; stem the banking panics, to regulate the money supply and to control the economic levers better. In sum, to put some sort of control on bank lending in good times, and act as lender of last resort in times of panic. Indeed, it was fervently believed, even by many of the best economic minds in the country, that a new system had been found to rid the country of the terrible panics.

War again.

Though it was little noted at the time, Serbian terrorists assassinated the Archduke of Austria, Franz Ferdinand, on June 28, 1914. The threat of war was in the air, especially after the decision in 1912 by Bulgaria, Serbia and Montenegro to declare war on Turkey. The Balkan war saw British consols (bonds) fall in price as English and European banks lifted interest rates. The English rate went from 4 to 5 percent. European nations prepared for the possibility of hostilities. 30 days after the shooting, on July 28, Austria declared war on Serbia, effectively drawing in friends and belligerents on all sides; the world was at war. Again, war is not our story, but it is partly relevant to the flow of the real estate cycle, especially in this instance.

Of particular interest, is Hoyt's Chicago real estate and subdivision statistics for this time. These statistics (not included herein) show increased levels of building activity right up until 1917, a peak of property transfers in 1916, and a peak in subdivision activity in 1914, just prior to the US's entry into World War I. "Though compared with 1890," noted Hoyt (page 219), "these were only minor peaks." The effects of the war: "turned world demand away from housing to the production of munitions and foodstuffs to supply the armies in the field… and had cut short (the) land booms in the cities of the Canadian northwest and in New York city." (Hoyt, page 233.) So, after the substantial rises in real estate activity in 1913 and 1914, peaking some 20 years after the last depression, the outbreak of world war focussed economic activity elsewhere; the elsewhere meaning that it became more profitable for US business to supply the world its instruments of war, rather than to develop real estate. So that is to where the economic activity now flowed.

Notably, in speaking of Chicago's land value growth from 1900 to 1916, Hoyt noted that although values had doubled in these sixteen years, there was "no wild excitement and no widespread public participation in the real estate market." (Page 206.) Though there is no evidence around to prove it, perhaps the 1893 downturn was of such magnitude that the memory of it lasted a lifetime for those who went through it. Never again would such persons squander their hard-earned cash dabbling in real estate. It would take another 18 year cycle for the memory to pass and another generation take over.

All US economists in 1914 were unanimous in forecasting disaster; that European nations would promptly sell their $5 billion in US securities to pay for the war; the result, a catastrophe for US interests. Partly in response, all US exchanges were closed July 31, the day after hostilities began, and trading suspended until further notice. Chief among the forecasters, economist Irving Fisher wrote in August: "This general depreciation of investment securities will doubtless lead to many bankruptcies, if not to a general crisis." (Sobel Panic on Wall Street, page 338) True, there was active conversion of stock into gold, however the dire forecasts of economists proved spectacularly wrong. European and British powers ended up selling gold to pay for armaments, and the US was flooded with the yellow metal. The exchange reopened - for the trading of bonds first - on November 28, 120 days after the closure, with trading hitting its lowest volume in many a year, on December 30, 1914, at a mere fifty thousand shares; i.e. few sellers. Henry Ford must have been bullish too, for it was in this year that Ford increased the daily wage he paid to his auto workers from $2.34 to the unheard of daily rate of $5, plus he reduced working hours by one hour per day to 8 hours. The Wall Street Journal labeled the new wage rate an economic crime. Ford's news actually created more interest than did the news of the outbreak of war. (Age of the Moguls, page 207.) Within 48 hours 10,000 men had gathered at the Ford plant gates then in Highland Park to sign up. Said Ford: "Industry must manage to keep wages high and prices low." His workers made a quarter of a million Model T's that year - and sold every one of them.

1915 was, for the market, a most profitable year; one of the top ten most profitable years ever, according to Fridson. Restoration of credit was again the catalyst that launched the 1915 bull market. (It Was a Very Good Year, page 32.) War contracts also assisted US profitability. Bethlehem Steel was supplying guns, shells and submarines to the UK whilst Du Pont ended up supplying 40% of the Allies munitions, increasing business from pre-war levels 276 times. The Morgan bank purchased over $3 billion worth of supplies for Britain, and at a 1 percent commission booked profits of $30 million. (The Great Game page 203.) The Bethlehem Steel stock price went from 47 to 460 (dollars), with a high at 600 during the year. The American military-industrial complex was born. It is still with us.

Stocks in general had a short-term peak Jan 23rd (1915), then, between March 15 and April 15 the Dow Industrials lifted 19 percent. "Fueling the furious speculation was a reduction in bank reserve requirements under the legislation creating the Federal Reserve System." (Fridson page 37.) There was a brief reaction in stocks May 6 to 10, in response to the German sinking of the Lusitania, but the following months saw the Dow continue its relentless upwards move, jumping a hefty 13 percent between September 15 and October 15. (180 degrees from that of March.) Reported Fridson further (page 48): "Easy credit was further facilitated by European monetary expansion as a means of financing the war. Through a variety of forces, including prosperity arising from war orders, deposits at New York clearing institutions increased by approximately 65 percent. That unprecedented rise helped banks to increase their outstanding loans by roughly 46 percent." By the end of 1915, six-month money was available in New York at the highly attractive rate of just 2 3/4 percent. Easy money ! The market was pricing in what was becoming evident; Europeans slowly selling their gold and stock holdings to pay for the armaments being manufactured by US industries, meaning higher earnings and therefor higher stock prices in New York.

There was talk of a new era unfolding as the Dow climbed some 80 percent in 1915. And now that The Fed was in control, a belief grew that banking panics and economic depression would be consigned to history. Had not even the first governor of the Federal Reserve hinted at this himself ? "If in the future business expands unduly under the spirit of speculation, the day of reckoning will come in the future as in the past. Undue expansion will correct itself just as the air bubble will ultimately bust. I believe, however, that the Federal Reserve system will materially check undue expansion by making banks conservative as to their loans, because of the knowledge that any departure from strictly commercial transactions will take away their ability to liquidate such investments by rediscounting in the Federal Reserve Banks…" (Charles Hamilton, delivering his initial address as Governor, December 1914. Markets went on of course to experience the largest expansion ever seen up to that time, fuelled by easy money.) Hamilton concluded by saying that banking panics generated by distrust of the US banking system would be relegated to "the museum of antiquities."

DOW 1915 Chart

The US was eventually dragged into the war (on the side of Britain and France) in 1917, but not before making it plain to its allies that gaining access to new supplies of raw materials, especially oil, was on the agenda for negotiation. And as W. D. Gann has made plain, past tops and bottoms will determine one's future highs and lows, so it has not been coincidental that in February 1919, Sir Arthur Hirtzel, a top British colonial officer and head of the British government's India Office Political Department, pointed out to his superiors that: "It should be borne in mind that the Standard Oil Co. is very anxious to take over Iraq." (Though this was not what was said publicly.) By wars end, Iraq's oil was duly split amongst the victors Britain, France, Holland and the US, as the spoils of war. (Adding 90 years takes us to 2009. See the commodities section of the site, under oil, for more on how to use such dates for the forecasting of future events.)

The high prices for farm products during the war produced an inflation of farmland prices, keeping the farmers happy. US farmers had never had it so good in fact. Chandler (page 513) quoted the winning formula of the 1910's for farmers as: "Buy more land, to raise more corn, to fatten more hogs, to get more money in Chicago to buy more land." But 1920 saw a downturn. "A boom, based on a scramble to replace inventories exhausted by war, collapsed simultaneously everywhere," said Kindleberger (page 123). This year also saw a huge bomb detonated outside the Morgan Bank office on Wall Street. The blast injured hundreds with forty dead. The bomb was detonated September 16 two minutes before midday, most likely to upset the movement of nine tenths of a billion dollars in gold from one section of the US Treasury across the road to another. But alas the workers shifting the gold bars broke for lunch a few minutes early that day and had, just seconds before, closed the heavily guarded doors to the building, thwarting perhaps what might have been the biggest bank heist in US history. The authorities tried valiantly to lay the blame on anarchists or the newly developing communist parties, but alas no person or group was ever charged.

The downturn at wars end should not be lightly dismissed. It ushered in some profound changes that set the base for the whole 1920's experience in America. Returning US soldiers, some five million of them, plus further immigration into the country, caused a housing shortage, particularly since for the past five years or so all production efforts had been for war supplies. Hoyt notes that housing rents doubled from 1919 to 1924. This brings in some good rent theory here; returns to owners of existing buildings increased, the capitalized rate of return went up, which attracted others who started building to take advantage of the higher rents on offer, pushing up urban land values as demand for building lots increased. Hoyt notes that by 1926, US urban land values had doubled from levels at the end of the war. Chicago land values were up 150 percent by 1926, from 1918 values.

On the other hand, agricultural America went into decline after the boom of wartime demand. Australian and Argentinean wheat was again available for European consumption and the few souls who survived the trenches and gas of Verdun could go back to farming in Europe themselves. It was discovered also, that a large surplus of commodities had been stockpiled by the US during the war, causing a sharp decline in prices once this was realized. Farmland values dropped of course. Hoyt says they halved. As the 1920's wore on, more and more country banks were suspending operations and closing. This fact never seemed to make it to Wall Street however, or was ignored in the rush to get rich. This then is the background to the 1920's.

The Great War did one more thing relevant to our story of boom and bust. It awakened a US public to the virtues of investing through the buying and selling of liberty bonds put out during the war era. A whole new class of investors was thus created: "people who had never before owned a bond or a share of stock in anything." (Holbrook, The Age of the Moguls, page 235.) And come the 1920's there arose plenty of men willing to sell the public whatever they wanted.

DOW 1919-23 Chart

The Roaring Twenties.

1921 to 1929, and the eventual great depression which followed, is an era of US history that has been intensively studied and scrutinized. It is a history (or at least a result) well known to most, so one need not repeat the whole story again here. There are a few misconceptions, however, that require clearing up and a few points that ought to be further highlighted.

The 1920 downturn promptly reversed itself the following year. That all-important lending rate had much to do with it. "In the fall of 1921 the national economic picture reversed itself in sixty days," said John Brooks. (Once in Golconda, page 41.) "The postwar depression promptly ended, and a new and more durable boom replaced it…The recovery was officially smiled upon and encouraged by the Federal Reserve System, which, beginning in 1921, progressively reduced its discount rate from the postwar peak of 7 percent all the way to 3 percent by 1924." The discount rate set by the Fed was flashing easy credit conditions once again.

Pretty much simultaneously, the new Treasury secretary, Andrew Mellon (possibly at this time America's wealthiest citizen and banker and who resigned as director of more than fifty corporations to accept his new government position) embarked upon one of the most systematic and vigorous tax reduction programs yet seen. As president Coolidge famously expressed it, 'the business of America is business'. The wealthy Philadelphia banker Andrew Mellon, agreed. "...government existed mainly to facilitate business, indeed it was no more than a business itself. Mellon set about improving the conditions for business by reducing the top rate of income tax from 65 to 32 percent, cutting corporate taxes to 2 and a half percent, and slashing capital gains taxes. As a result of these tax cuts the rich had more money to invest in stocks, companies reported higher after tax earnings, and more of the profits of speculation could be retained by the players." (Chancellor, Devil Take the Hindmost, page 197.)

What no historian ever picks up about such tax cuts of course is the effect on land value. The dramatic savings in income taxes were quickly capitalized into higher land values. (For an excellent proof as to why this is so, Chapter 3, Rent and the Dysfunctional Economy, in George Miller's On Fairness and Efficiency: The Privatization of the Public Income over the past Millennium, is suggested reading.) "The Revenue Act (1924) gave taxpayers a 25 percent reduction retroactive to 1923 income, increased personal and surtax exemptions, and brought the top rate (which had stood at 73 percent in 1921) down to 46 percent in 1924. This coincided perfectly with the land boom in 1924/25." (Harrison, The Power in the Land, page 134, note 17.) And the land boom was fed further of course by the easy credit policies of the banks. "A particularly ominous development was the expansion of the banking system itself for the specific purpose of financing real estate promotion and development. Real estate dominated the policies of many banks, and thousands of new banks were organized and chartered for the specific purpose of providing credit facilities for proposed real estate promotions. The greater portion of these were state banks and trust companies, many of them were located in the outlying sections of the larger cities or in suburban regions not fully occupied by older and more established banking institutions." (Herbert D Simpson, Real Estate Speculation and the Depression, page 164, and quoted also by Hoyt, page 385 note 10.) It is the rise of the stock market and its subsequent collapse that everyone remembers having heard about the 1920's. But there was also a big, if not bigger boom in real estate. Hoyt, page 234, indicates the price of urban land doubled between 1920 and 1926. Such an increase would never go unnoticed and would have left land and house owners feeling much wealthier than before.

The 1920's land boom.

The Sooners had settled Oklahoma, ostensibly the last of the US frontier, within 24 hours on that memorable 1889 April day. However there was found to be just a little frontier left, in Florida, though part of it spent time underwater. We have noted already how by 1926 urban land values had doubled from the levels of 1919. Quite an increase in a very short space of time. How this came about in Florida is a story worth telling. It began this way:

In the 1850's, the state of Florida bought from the federal government millions of acres of land classified within the state as swamp under the Federal Swamp and Submerged Lands Act. For a while, development was hindered by legal and debt problems, but eventually in 1881 the way was cleared for future land reclamation and agriculture. This in turn created a reason for the entry of the railroads, for the carrying of freight and farm goods.

It could be said that the story of Florida land speculation started with the railroads, of which there were originally three though Henry Flagler's East Coast line into Miami in April 1896 really got the ball rolling with a connection directly to New York. A short time later, the already existing but small Miami business community went nationwide with advertisements recommending Miami as the place "where summer spends winter" (Miami Herald, September 15, 2002) though to get to the beaches one still needed a boat until 1913 when the Collins bridge allowed the motor car all the way into the city. Wealthy northerners began building winter residences as Henry Ford's 'tin lizzies' (Model T's) started rolling all the way down south.

Early Southern farmers had held the belief that Florida land was a bit too sandy for profitable farming, but the railroad, with the carriage of more and more crops proved the belief wrong. Soon, "people across the farm belts of the United States were heard sprouting the railroad promotion slogans, 'below the frost line' and 'ten acres and independence'." In 1910, one thousand dollars could get you a piece of Florida acreage and a cottage, hence the railroad promotions. And such an investment could yield $3,400 in tomatoes in one year. "Despite the need of huge doses of fertilizer and heavy labor, Southern farmers (now) considered Florida an agricultural paradise." ( At the same time, the railroad owners built huge (massive) hotels at their railroad heads and other strategic sites along the way, kicking off the winter hotel resort industry. (If arriving by train, it was not uncommon to observe the train engineers stop the train to check their game traps along the rail bed.) The Spanish-American war of 1896, fought over Cuba, also focussed attention on Florida, particularly the city of Tampa. A construction boom followed, with plenty of the US soldiers returning to Florida for the cheap land to start farming.

By the early 1900's, the need for more land in Florida was becoming apparent (to developers at least). In 1906 began the serious work of dredging canals to remove some of the water from the everglade areas. (Though there were those that wanted such areas preserved rather than built on.) Even the feasibility of complete drainage was discussed in a report at federal government level. One report, the Wright Report of 1909, claimed that "approximately two million acres of Everglades land could be reclaimed by digging eight canals from Lake Okeechobee southeast through the Everglades, at a cost of about one dollar per acre." Land sales boomed. ( Real estate men lost no time in promoting the benefits of such land investment, auctioning off large swathes of un-drained swamp. Said one buyer in 1911: "I have bought land by the acre, I have bought land by the foot but by God I have never before bought land by the gallon." The Wright Report however, in 1912, was shown to be flawed (water from nearby lakes was flowing into unfinished canals) curtailing Florida's first (mini) land boom, with twenty thousand purchasers of land demanding their money back.

World War I also brought benefits to Florida since Europe was for the duration of the war no longer a vacation destination for wealthy Americans. In 1915, Florida State instituted a substantial road building program. Four years later, the Dixie highway was completed; one road linking Michigan State all the way south to Florida. Now, as highway construction increased in earnest, Florida was open to the middle class as well.

This road building program recognized early the likely economic impact of the new automobile and their drivers and holidaymakers, the 'tin can tourists' as they were called. "With the arrival of the twentieth century, Americans continued in the pioneering spirit of the forebears and looked upon the automobile as a new way to explore the unknown. Throwing a tent in the back of the car, thousands of Americans set out to enjoy the back roads of the United States. Carrying the extra gasoline in five-gallon cans, plenty of canned food, and extra tires strapped to the fenders, these intrepid souls began an exploration of the North American continent with a thoroughness that put Lewis and Clark to shame. These tourist became the symbol of another 'new generation' of Americans, restless, adventuresome and filled with boundless curiosity." (Nick Wynne, Tin Can Tourists in Florida.) These mostly northern tourists took their name from their b.y.o. tin-can cuisine carried in the car, and "with the postwar (WWI) drop-off in industrial production in the north, many laid off workers still had a cushion of money - and a Ford Model T. Instead of despairing, they decided 'Let's take a vacation'." ( tidbits.html) En mass they headed to Florida.

Sometimes several families all piled into the one auto. "What started with chilly Northerners seeking a slice of America's newly civilized frontier on which to vacation or to retire, soon turned into one of the greatest social and economic movements of population and capital in the history of the world." (Smithsonian magazine, January 2001, quoting a promoter of the time.) And the kings of this movement were the land developers. "If the railroad barons dominated the Gilded Era, the great land developers dominated the Florida of the land boom. These people didn't just design developments; (they) created entire cities. These architects and engineers did more than build houses; they created a way of life that became known throughout the world as the Florida lifestyle." ( floridians/1920's.html)

Developer Dave Davis dredged two mud islands in Tampa bay and built Davis islands, complete with yacht clubs, hotels, tennis courts and more. Barron Collier, who made his fortune from streetcar advertising, put together 1.3 million acres of the state after visiting Florida in 1911, then built the city of Naples and Marco Island into winter resorts that proved wildly popular. (It was Collier that actively pushed early efforts to drain the Everglades.) Carl Fisher built Miami Beach, putting his substantial fortune from the manufacture of automobile headlamps into the development. Locals literally gasped as Fisher proceeded to fill hundreds of acres of swamp with sand dredged from the bay, top it with thousands of tons of Everglade topsoil and then build hotels, golf courses, yacht clubs and polo grounds.

A born promoter, Fisher started his working life at age 12 selling newspapers on the railway. Sales soared after he started flashing a photo of a naked woman from underneath his jumper. This time, to draw attention to his Miami Beach development, Fisher "brought in a circus elephant, imported a polo team from England, dressed young women in risqué bathing suits, and started taking pictures." ( Mr Miami Beach.) The press loved it. Soon, every paper in the country was carrying pictures of suitably clad (or rather un-clad) women on the beach in Florida. All of a sudden, Florida was the place to be.

Fisher's promotions sparked a national hysteria for Florida real estate. Said one historian: "Fisher was the first man to discover that there was sand under the water…(sand) that could hold up a real estate sign. He made the dredge the national symbol of Florida." ( fisher.html) By 1925, Florida was known for wide avenues, golf courses, palm trees and sun drenched beaches. Southern Florida became the American Riviera: "a place to vacation, a place to be seen, a place to make money." Could Florida real estate be anything else but a sure thing ?

Sea-front lots were offered to investors, especially wealthy northern investors, with just 10 percent down. And of course it was implied that by the time your second installment was due, your real estate would have doubled in price, or thereabouts. Lots 40 miles from Miami were going for $20,000, a beachfront lot for $75,000. ( But most of the real estate activity took place in the 100 mile stretch from Palm Beach to Miami. By early 1925, those who had bought in '23 had seen gains of 600% or more. ( Florida land boom) Lots were being sold and re-sold many times over. Real estate men lined the railroad stations waiting for their buyers, or had students (binder boys) stand at the lot sites (thus avoiding the blazing mid-day sun) taking bids. 1925 saw $1 billion flow into Florida construction. Wall-Streeters bought up, small town America converted its savings into Florida lots, even wealthy Europeans came to Florida to see the action for themselves.

So many citizens were now pushing Florida real estate that the municpal authorities were having trouble finding staff to carry on essential services; most of the policeman, firemen and other employees had quit to do the same thing, buy and sell land. The Miami authorities resorted to grabbing the sharecroppers from the hills of Georgia and putting them in uniform, despite the fact many, if not all, had never before worn shoes let alone some sort of authoritarian outfit. The desired improvement in law and order was not achieved. Towns north of Florida reported a severe slump in the movie business because so many theatre-goers were leaving town to travel South. Warehouse managers even as far away as New York were reporting no space left because of all the furniture they were having to store on account of those who had sold up and travelled south to trade real estate. Said the Indianapolis Times: "Literally thousands of people are leaving our state in search of something for nothing in the land of oranges and speculators." (Thomas, page 198.) The Massachusetts Savings Bank Association complained that more than one hundred thousand depositors had taken their money out of the state's banks and headed to Florida to buy land.

Readers of history might have seen such a story before. Something dependent solely on ever rising prices will not last indefinitely. Some minor difficulties arose late in 1925. In this year, the newly designed federal income tax laws (from 1913) pushed income tax officials to start studying real estate records for understated, or indeed not stated assessable profits. Anti Florida propaganda mounted up north. That October, a nation wide rail strike halted deliveries of building material into the state. Then, in early 1926, the Prins Valdemer, filled with lumber, overturned in Miami harbor, delaying shipments of further building supplies for additional weeks and blocking the harbor for some time. Further bad news followed in late March when the US stock market took a dive throughout the whole month. (The Dow fell from 162 to 135, bottoming on the 29th and 30th March, though going on to recover strongly by June.)

Perhaps this gave some a little time to think, for money and credit seemed to be thinning out a little too. The flow of speculators along the Dixie Highway began to reverse a little, as a few prospective buyers headed back north. Those who did so avoided the hurricane that hit Miami on September 18, 1926, killing almost 400 and injuring thousands. There had been nothing like this hurricane since 1910, but back then of course there was little of man made consequence to destroy. As the 125 m.p.h. winds swept in from the Atlantic and moved counter clockwise over Lake Okeechobee, the south end of the lake dried up. Then, as the storm passed, it brought a wall of water to the towns of Belle Glade and Moore Haven, drowning 300. The news of people drowning in a wave, thirty miles from the Atlantic Ocean, stunned people right round the world. ('s.htm)

Reconstruction began immediately of course, but nature struck again with another hurricane in 1928, this time closing the Florida land mania for decades to come. The boom was bust. Said historian and a former St. Petersburg Florida realtor, Walter Fuller: "The 1925 Florida land boom just ran out of fuel in the late fall of 1925 and quit - we just ran out of suckers, that's all." The Marx Brothers parodied the whole Florida episode in their 1929 production of The Cocoanuts; opening a hotel, auctioning off plenty of land, naturally, thwarting a jewel heist and generally carrying on as only the Marx brothers could do. All the major real estate players went bust and lost every cent.

Meanwhile, in Chicago, the cycle played out pretty much the same way as the build up to previous Chicago booms, only this time the public was marketed to by telephone, with land promoters regularly calling absolutely everyone listed in the newly available telephone directories to gain an appointment with real estate sales representatives. "Free train rides and free lunches lured the prospect to the property where promises of a safe investment coupled with a great speculative profit led many people of small means to invest their life savings." (Hoyt page 257.) Like lambs to the slaughter; Baaaaa…

The increasing speed of transportation and communication was massively changing the urban landscape too, not just in Chicago, but in all cities. A surge of population outwards from city centres had begun (continued in earnest after 1945) where new homes could be built with some impressive modern amenities like plumbing and bathroom fittings and fixtures. This was all related to the speed of the new automobile and it added up to a lot of demand for the new way of suburban living, with much of it, because of land price, to be built on credit. And as Rothbard so ably noted: "Credit expansion always concentrates its booms in titles to capital, in particular stocks and real estate, and in the late 1920's, bank credit propelled a massive real estate boom in New York City, in Florida, and throughout the country. These included excessive mortgage loans and construction from farms to Manhattan office buildings." (Rothbard, A History of Money and Banking in the United States, page 418.) As a self-confessed libertarian however, Rothbard proved unable to see the connection of the capitalization of government granted licenses and privileges into tradable commodities as the true cause of the real estate cycle, though libertarians in general are good when it comes to an analysis credit and the role played by banks.

The new era.

No doubt the mid 1920's income tax cuts, courtesy of treasury Secretary Mellon, influenced the stock market too. And the continuing credit expansion brought forth plenty of imaginative ways in which to spend such cuts. To gain leverage was the key. Call loans were already a common feature of the market by this stage, as we have seen. So buying stocks on margin was not new to this era. But the activity was practiced far more widely. And no longer just for stocks. The concept was applied to many other consumer items as well. Now, a Model T Ford could be had with say $100 down and the balance of the price, perhaps another $300, financed through the dealer with a contract to pay it off steadily each month.

The car itself became the collateral for the loan. Listed corporations saw the benefits too that could be had with leverage - borrowing - to increase earnings and hence stock prices. Investment trusts used this process extensively. A new trust company might float on the exchange, raise some money, then invest the proceeds immediately back into the market with the purchase of listed stocks, also on margin. Certainly by 1927, it was conceivable that a margined individual buyer of a share in a listed investment trust, was buying a trust that owned stocks that were margined, and that possibly even owned shares in other investment trusts. Leveraged trusts buying other leveraged trusts. A small movement of the price could indeed increase one's wealth substantially, provided of course that prices went up…

And prices did go up, all decade. Yet another new era was truly believed to be underway. President Coolidge in his 1925 inaugural address said: "We appear to be entering an era of prosperity which is gradually reaching into every part of the nation." The public had no reason to doubt him. The Fed had solved the business cycle once and for all: management was learning to operate at lower levels of inventory; leaders of industry were now better educated than ever; mergers were promising greater economies of scale; and investment trusts could be seen ameliorating the speculative fluctuations (according to Irving Fischer at least). One professor, Paul Nystrom of Columbia even concluded that the nation, now 'dry', could increase the efficiency of its workers by switching demand from alcohol to "home furnishings, automobiles, musical instruments, radio, travel, amusements, insurance, education, books and magazines." Said John Moody, founder of the Rating's Agency that bears his name: "No one can examine the panorama of business and finance in America during the past half dozen years without realizing we are living in a new era."

Banks were of course very much involved in what was happening, and the 1920's saw a number of developments in their systems of handling payments and in their record keeping; huge increases in efficiency. "Telephones and typewriters, calculating machines and addressing machines had of course made their banking debut well before the First World War but this equipment was rarely found outside headquarters. Record keeping in small banks had been dominated by hand written ledgers and registers of securities; the only mechanical aides were coin weighing scales and the cumbersome hand presses used for wet-copying manuscript documents. In the interwar period by contrast, banks introduced ledger posting machines, dictaphones, loose-leaf binders and card indexes not only at their head offices but branches as well." (Edwin Green, Banking: An Illustrated History, page 108.) And it was women who were mainly recruited, in quite large numbers in fact, to take charge of operating the new machinery, giving many a new found independence and spending money.

As for the new era, this was not the first time one had been seen on the horizon. As far back as 1825, Disreali had asserted that the boom of 1825 (in England) would not turn to bust because the era was so different to times past because of the superior commercial knowledge then available. (Devil Take the Hindmost, page 191.) In 1928, the outgoing president, President Coolidge took the unprecedented step of publicly stating that he didn't believe brokerage loans were out of hand. According to his official statement: "The rise in outstandings simply paralleled increases in bank deposits and the amount of securities on the market." Privately though, he told a journalist: "If I were to give my personal opinion about it, I should say that any loan made for gambling in stocks was an excessive loan." (Fridson, page 69.) The incoming president, Herbert Hoover, even declared at his 1928 presidential nomination acceptance speech that the end of poverty was in sight.

Politicians and their speeches, why do we ever vote them in ? Politicians making any public announcement, no matter what, will always have some sort of agenda attached to what they say. This may or may not be obvious at the time of the statement, and is rarely what you, the investor, need to hear.

DOW 1920's Boom Chart

Perhaps though, this time, things really were a little bit different. For the first time ever, at least in the US anyway, woman was exercising her innate speculative talents. And for the newly independent, freedom loving gal, there was no better symbol of it than to while away the day watching the ticker in special rooms set aside for them in the hotels along Upper Broadway. "...gum-chewing blondes (and) shrinking spinsters who looked as if they belonged in a missionary-society meeting," (Chancellor, page 204, quoting the North American Review of 1929) could be found watching the market all day: a development no longer to be sneezed at either. Some figures were suggesting women now owned 40 percent or more of the nation's wealth and 35 percent of market turnover was believed attributable to them. They held about one-third of the stock of US Steel and General Motors, and perhaps half of the stock of Pennsylvania Railroad, dubbed the 'petticoat line' as a result."

At the end of the days trading, the girls could take their hard-earned rest and relaxation out on the road, in a newly bought - and paid for out of profit - Ford, Buick or Studebaker. Though not everyone approved. Preachers were heard lamenting the auto as nothing more than a 'house of prostitution on wheels'. The Lady Bulls: they spent the household money, why shouldn't they know better than hubby, which shares to buy it was reasoned. And they were said to be quite sporting losers too. One lady speculator, upon losing a million, said: "I had a perfectly stunning time while it lasted." (Chancellor, page 205, quoting journalist Edwin Lefevre.)

The (speculative) orgy hit a minor bump in the road in October of 1929. Writing in Forbes magazine as early as 1928, Richard Schabacker perceived a possible tightening of credit as the main threat to a continuation of the bull market. "There can be little doubt", he declared, regarding the steep rise in stock prices since 1921, "that the underlying cause for such advances has been easy money." (Fridson, page 68.) A healthy business climate and benign government policies had contributed, according to Schabacker, but only as background factors.

The Peak

"At first it seemed as though the market rise was a once-in-lifetime chance to make money with little or no risk. But as stock market prices continued to rise, many began to believe that the rise would be permanent, that the growth curve would be unending. In prospect, this conclusion was reasonable, for the nation was engaged in a great expansion, profits were rising, and conditions seemed sound."

So said Robert Sobel, in The Great Bull Market: Wall Street in the 1920's. Conditions always do seem at their best right at the top. This is of course the time when everyone is at his or her most bullish moment. And the Twenties were not called roaring for nothing. Another writer, Frederick Lewis Allen, who lived through the Twenties and wrote his account of it in Only Yesterday, described the times thus: "The rich man's chauffeur drove with his ears laid back to catch the news of an impending move in Bethlehem Steel; he held fifty shares himself on a twenty point margin. The window cleaner at the broker's office paused to watch the ticker for he was thinking of converting his laboriously accumulated savings into a few shares of Simmons." Allen continued with the story of a brokers valet who made nearly a quarter of a million dollars in the market, of a trained nurse who cleaned up thirty thousand following the tips given her by grateful patients. Said a new book released August 1929 titled, New Levels in the Stockmarket, "We have seen our country as it has grown at a tremendous rate in population; in wealth; and in the desire for finer things. Each generation has been thrilled by the rapidity of the progress which it has experienced in its lifetime. An optimistic psychology is in the air."

The decade had indeed been one for optimism and for crowds: "An era celebrated for excesses and exhibitionism in every facet of human behavior," said J. P. Chaplin. (Rumor, Fear and the Madness of Crowds.) Men hung suspended from planes whilst in the air, walked upon a tightrope between the highest buildings they could find, or tried getting out of strait-jackets suspended way above city streets. Women sought to emulate the swim of Trudy Ederle across the English Channel. Mid decade, August 24th, 1926 had seen one of the worst crowd riots in New York's history when around seventy thousand people took to Broadway, near 66th Street. Hundreds were injured or trampled underfoot as the crowd, mostly women, sought the best positions to view their recently departed heart-throb Rudolph Valentino, the movie hero of the Twenties, who lay in state in a nearby funeral parlor. "The idol of the hour…his movie love-making gave his female fans high voltage emotional jolts…men too came under his spell, and many copied his oiled back hair-do, gaucho style side-burns and broad bottomed trousers."

But as it was with Rudolph, so it is with the economy; there comes a time in every boom's life when the spigots must eventually be turned off. "Faced with the growth of speculation, the Fed changed tack and from February 1928 successively raised the discount rate until it reached 6 percent in August 1929." (Devil Take the Hindmost, page 198.) Rising interest rates can almost be guaranteed to bring on the circumstances of a contraction in credit, as banks and / or the monetary authorities attempt to do something about the speculation they have now judged to be excessive and to be stopped. (From a timing perspective W.D. Gann's chart 6, page 109, Wall Street Stock Selector, is instructive here: 2/28 to 9/29 is 19 months; 9/98 to 3/00 was 18 months. See the Indicators section, Gann timing, for more.)

There were a few Cassandra's along the way of course, warning that the expansionary conditions underway would not go on forever and that what went up had an ugly tendency to come down. Roger Babson was one. A market forecaster and economist of the time, he once again repeated his assertion in early September that a crash was imminent - though he had been saying that for several years. This time however, the market responded somewhat and the slight sell-off after September 3 was termed the Babson break.

It was in the middle of September (1929) when word was received from London that the business empire of Clarence Hatry had collapsed, amidst revelations of fraud. (It would eventually be found that Hatry had been creating and issuing false securities with which to finance his business dealings, eventually drowning in $65 million worth of debt to the banks.) "The bank of England reacted by raising interest rates, causing British investors to start selling their American investments and repatriating their capital." (Devil Take the Hindmost, page 214) Exactly why this collapse should have led directly to an interest rate rise is not all that clear. Nevertheless, the collapse may have been enough to have investors re-think their belief in future prosperity. The celebrated economic historian Charles Kindleberger said this of the Hatry revelations (page 71): "In September 1929 the Hatry empire collapsed in London. It consisted of a series of investment trusts and operating companies in photographic supplies, cameras, slot machines, and small loans, all of which Clarence Hatry was trying to parlay into a larger operation in steel. He was caught using fraudulent collateral in an attempt to borrow £8 million to buy United Steel, and his failure led to tightening of the British money market, withdrawal of call loans from the New York market, a topping out of the stock market, and the October crash." Again, that (un-looked for) event at the peak or just after that reveals the economic show for what it truly is; a show built on sand.

DOW 1929 Chart

On the 4th of October (30 degrees from Sept 3) Alfred Sloan, the head of General Motors, observed a sudden dip in car sales and announced that the end of the expansion was at hand. Markets seemed to have anticipated the news though, as the announcement marked a short-term low from which the Dow, as usual, retraced back by half, highlighting an overbalance of both time and price. After that, on my reading of things, market players began accentuating the bad news, ignoring the good - exactly the reverse of what had been going on before. This is the emotional aspect to markets, and can never be ignored. Gann believed this sort of market psychology unfolded according to time frames, which repeat, something I have come to accept, having seen it so often now it is undeniable. (180 degree time frames, days, weeks or months, can be especially important.) A more scientific assessment might call this process 'cognitive dissonance'; a process of selectively filtering information received, to put it in accord with one's own beliefs. Anything found to be in disagreement is ignored, indeed is actively avoided, until that is, the pain of avoidance becomes greater than the pain of recognizing the truth. This is why markets trend. Spot the trend early enough and one is well on the way to solid profits, just like Livermore points out.

In 1928, the Dow's new record high was made on November 28th, after which a marked sell off occurred down to the low on Dec 7th. The absolute top for the Dow came in on Sept 3rd, 1929, 270 degrees later. The subsequent crash was Oct 29th 1929, (56 days after the top) on volume of 16.4 million shares, a record that was not exceeded for 40 years. On that day, the ticker stopped, overwhelmed, and took hours afterwards to complete the day's records. Telephone lines overloaded with inquiries; the telegraph system could not process the number of margin calls made and the transatlantic cable broke. Sept 3 plus 52 days indicated Oct 24 the day to watch in advance, which came to be called Black Thursday on the day due to the unprecedented selling. On October 24 the Dow dropped 9 percent on volume of 12.8 million shares, only to eclipsed four days later on the 29th when the Dow dropped 17.3 percent.

On the night of the crash Groucho Marx, in an un-scripted moment in the Broadway version of the Marx Brothers comedy Animal Crackers, paused on stage to lament the plunge in stock prices; a line the New York crowd of October of 1929 would have instantly recognized. "Living with your folks, the beginning of the end," said Groucho, commenting on the possibility of marrying his usual foil, actress Margaret Dumont. "Drab dead yesterdays shutting out beautiful tomorrows. Hideous, stumbling footsteps creaking along the misty corridors of time. And in those corridors I see figures, strange figures, weird figures, Steel 186, Anaconda 74, American Can 138..." (Insana, Trendwatching, page 2.) Groucho had good reason to know the figures since it was believed he too had been speculating heavily.

That day, the 24th, the president of the stock exchange, Richard Whitney, had been attempting some theatrics of his own. Amidst what was desperate to be seen as not a panic meeting of wealthy bankers, once the hastily arranged meeting had broken up shortly after lunch, Whitney - J.P. Morgan's own broker - strode to the post where trading in US Steel took place and placed an order, showman like, for ten thousand shares of the company at 205, even though the most recent sale price and current offer was below 200. Thus was "the most celebrated single order in Stock Exchange history" (Brooks, page 125) transacted and a clear demonstration made of organized support for the market. The bankers committed some $240 million to buying, according to some later reports, but the market continued down anyway. Indeed, such was the further ferocious selling, that some of those bankers present at the meeting were later that very same day forced to deny that the group had not actually reversed their position and started selling.

And it was sell at any price. The story went that White Sewing Machine Company stock, having fallen from 50 to 10, could not find any buyers after lunch on the day of the crash, at which point someone, said to be one of the exchange runners, put in an order to buy a heap of shares at just one dollar. In the absence of any other bids he got all the stock he wanted. Claud Cockburn, a visiting English journalist, who just happened to have been invited to lunch at the home of a prominent Wall Street banker on the day of the crash, Sir Edgar Speyer, told of a sudden disturbance in the kitchen as the butler and footman served the main course of lamb. Four or five maidservants, of various ages had been standing behind the door rather agitated and angry. The butler begged Sir Edgar to come into the kitchen a moment and sort things out. The staff, it was explained to the visiting Cockburn, had their own ticker-tape in the kitchen and were all heavily engaged in the market…(Brooks, Once in Golconda, page 118.)

The glamour stock of the era was Radio Corporation of America, RCA. From $1.50 a share in 1921, the stock went to $574 in 1929; such was the speculative frenzy for the potential inherent in the new radio technology. Neither profits nor dividends had supported the fabulous rise. Those who tuned in late and bought in 1929 would not break even on such an investment until the mid 1960's.

In the end, the number of suicides told the story of woe. Legend says of course that the popular exit chosen was to jump from the window of the nearest tall building, however most, like the speculator J. J. Riordon, simply took a gun and shot themselves, Riordon having to go first to his bank (November 8) to get his pistol. The comedian Eddie Cantor gave strength to the suicide legends as part of his repertoire of jokes; had he not seen two speculators jumping off the Brooklyn Bridge holding hands because they shared a joint account ? Had he not overheard a hotel receptionist questioning guests checking in whether they came to sleep or to jump ?

The scams.

After the downturn had well and truly begun, the usual scams came to light, only this time on a hitherto unimaginable scale. What goes up…

The Vans; brothers Oris and Mantis Van Sweringen.
The Van brothers were born two years apart, but did everything together; one was never seen without the other. They lived in a huge Cleveland mansion but employed no servants, lived in just a few rooms, and slept in twin beds. (, wall street history section.) The brothers had successfully developed several properties, resulting in good profits. In one of these property developments, they connected Shaker Heights to downtown Cleveland by rail. To do this, the Vans had made use of a holding company, a new development for the era, named the Nickel Plate Securities Coy, which sold stock to the public to raise the finance. The Vans must have liked it, for they embarked upon the process full time of buying and selling rail companies, floating stock and selling bonds to help it all along. A very complicated web of companies resulted, which the crash exposed in reality as one huge pyramid scheme, the holding company (the Allegheny Corporation) being used to manipulate earnings. (Not too dissimilar to subsequent events at Enron.) The whole put together was sponsored by the bank of JP Morgan. Again not too dissimilar to Enron – sponsorship by the banks.

Albert Wiggin.
"I think it is highly desirable that the officers of the bank should be interested in the stock of the bank."
Albert Wiggin was chairman of Chase National Bank. At the Pecora Commission of 1933, set up to look at the circumstances of the 1929 crash, it was revealed that chairman Wiggin had set up his own private corporation to bet on the shares of the bank of which he was chairman. Though not illegal in his day, beginning Sept 23, 1929, Wiggin went heavily short Chase Bank stock, (financed by a bank loan - which bank - his bank), which he bought back Dec 11 for a profit of some $4 million. Canadian registered companies were used to hide the gains. When the details subsequently became public, at one of the many inquiries held to explain the depression, Wiggin was forced eventually to settle with a group of disgruntled Chase shareholders for $2 million.

Sunshine Charlie - Charles Mitchell,
"Securities are manufactured, like so many pounds of coffee."
In 1921, Mitchell was CEO of National City Bank, a step up from his previous position, president of National City Coy, the securities arm of the bank. Banks did not have a charter to deal in shares, but got around this by owning subsidiaries to do it for them. Mitchell built a sales force to market shares and bonds to the rising middle class of the 1920's, eventually coming to underwrite over 150 bond issues, raising $10 billion. By 1928, Mitchell was the newly elected director of the Federal Reserve Bank of New York, a position of some influence and prestige, whilst still flogging his bonds, many now of dubious quality. One raising, for the Brazilian state of Minas Gervais went ahead successfully despite the bank's internal report denigrating the ability of the state to pay any interest, let alone the principal. Ever the bull, Mitchell borrowed several million from his bank the day of the crash in an attempt to support the share price, which did not work. He was forced to resign his position in 1933, fronted court on tax evasion charges, later acquitted, despite admitting he hadn't paid taxes in years. The bank's stock price eventually hit bottom at just 4 percent of its 1929 peak.

The Swedish 'match-king', Ivar Krueger:
The Kreuger Group, (Kreuger and Toll) grew during the 1920's through a whole string of acquisitions by its owner Ivar Kreugar. By 1929 the Group controlled three-quarters of the worlds match production, built largely on debt to finance the buy out of competitors. Kreuger and Toll attracted a large following of small United States investors with the payment of regular and quite large dividend payments. As was discovered later however, much of the money to pay the dividends had been borrowed from various banks. The story goes that Kreuger himself would prepare the accounting statements, then have his accountants prepare the books to agree with what he had calculated the profit ought to be. Not surprisingly, the structure eventually collapsed in early March 1932 under the weight of debts and Krueger's own fraudulent activities. The collapse shook Wall Street to its foundations, and the ensuing scandal led to the passage of laws mandating the audit of the books of all companies listed on the exchange. Kreuger and Toll was one of the most widely held stocks and the largest bankruptcy of the time, until that is, the Insull Empire fell. Upon discovery of the fraud, the match king committed suicide in a Paris hotel March 12th, though there were rumors that it was murder.

DOW 1926 180's Chart

Samuel Insull:
"Bankers will lend you umbrellas only when it doesn't look like rain."
The empire Insull built fell, owing some $700 million - the largest corporate failure to that time. Insull worked originally under Thomas Edison, helping to build and run the first electric power plant in New York in 1881. Moving west, to Chicago, he built Middle West Utilities into a company that came to supply 12 percent of US power by 1912. It was one of Insull's companies that had helped make the 1893 World's Fair so brilliantly lit at night with the new wonder of electricity. Soon, Insull was acquiring or merging the interests of his and other electric concerns into the one listed vehicle, proving adept at handling the ongoing issuance of stocks and bonds with which to pay for it all. It was Insull that introduced the turbine to electricity generation, thereby vastly expanding the transmission powers of this new power source. The turbines drove ships, why not electricity, questioned Insull, by now christened the Aladdin of power. And it was he too, that suggested power plants should operate around the clock so as to offset the high costs of operation; that US homes should go all-electric; that US firms gear up for 'massing production', later shortened to mass-production. (Menschell, Markets Mobs and Mayhem, page 7.) It was worth a million dollars, or so it was said, to any man seen chatting with Sam Insull in front of his bank. (Holbrook, The Age of the Moguls, page 236.)

By the 1920's, US power supply was in the hands of just three entities, of which Insull owned one. The buying of legislatures to get favorable laws, and generous political contributions to those in power, was common. Constant expansion required ever increasing amounts of debt. Elaborate networks of cross-company share holdings were in place to fend off the constant threat of takeover. In 1928, investment bankers advised the formation of a new company, an investment trust, to own large blocks of shares in all the companies Insull operated. The IPO of the new company, Insull Utility Investments, offered at $12, hit the board at $30. Soon it was at $150. The investment trust became the owner of numerous cross share-holdings in all the Insull utilities, each highly leveraged so that any small rise in earnings had a disproportionately larger effect on holding company profits. Insull was not averse to see subsidiaries sell assets to each other at 'manufactured' prices either.

Insull's mighty corporation at first weathered the depression in reasonable shape, Insull had even managed well enough to have his company loan the city of Chicago fifty million dollars so that it might meet its payroll for teachers and police. (Menschell, Markets Mobs and Mayhem, page 7.) However continued low cash flow as the depression wore on brought down the interconnected network in 1934; the debt could no longer be serviced. Insull, charged with mail fraud and embezzlement, fled to Greece (not Canada), a country with which the US had no extradition treaty. He did however return to face the charges and was exonerated on all counts – the courts ruling that a holding company could not be held accountable for the acts of subsidiaries. But the fleeing had not won him public acceptance and destroyed his reputation. Insull died of a heart attack, penniless, in a Paris metro station (underneath the room of Krueger perhaps ?) though it was reported that he had beforehand reimbursed some of the investment losses of his employees, of which there were plenty, out of his own pocket. His investors though would get nothing and were mighty unhappy at the prospect if one is to judge by the 36 personal body guards that were employed to protect the Insull family day and night from the threats of shareholders no longer getting any returns from their Insull shares.

Richard Whitney:
Acting president of the NYSE in 1929, after then president E.H.H.Simmons decided upon an extended honeymoon in Hawaii, Whitney was officially elected president in 1930. It was discovered later however, that Whitney was living a lifestyle he could not afford, borrowing heavily, and then stealing, to cover up heavy 1929 stock losses. His thieving climaxed in 1937 with the embezzlement of $1 million from the NYSE itself, which was not much appreciated since the theft was from the Exchange Gratuity fund, set up to pay the estate of exchange members $20,000 upon death, of which Whitney was a trustee. Whitney went to jail for his crime, the only character of this era to do so.

There were plenty of other scams; including the wild money raising schemes of Charles Ponzi, the massive Florida land boom (close to Cuba, where a drop or three of legal whisky could be had cheaply in an otherwise purportedly dry America) a boom that was brought to a thumping halt by a Sept 18th 1926 hurricane, (already described) and the continuing saga of Oscar Hartzell and his 'Drake fortune swindle', but we have covered enough ground here for the moment.

Further reading:

Baruch, Bernard M. My Own Story, Henry Holt and Company, 1957.

Brooks, John. Once in Golconda, Harper & Row, 1969., Wall Street History section (plenty of very good reading)

Chancellor, Edward. Devil Take the Hindmost, Papermac edition, 2000. (Chapter 7 in particular.)

Fridson, Martin S. It Was a Very Good Year, John Wiley and Sons Inc., 1998.

Gordon, John Steele. The Great Game, chapters 10, 11 and 12 in particular.

Green, Edwin. Banking; An Illustrated History, Rizzoli International Publications Inc.

Harrison, Fred. The Power in the Land, Universe Books, 1983.

Hoyt, Homer. According to Hoyt, 53 years of Homer Hoyt, 1916 to 1969, (collected works, no publisher listed)

Latham, Frank B. The Panic of 1893; A time of Strikes, Riots, Hobo Camps, Coxey's Army, Starvation, Withering Droughts and Fears of Revolution, Franklin Watts, Inc., 1971

Menschell, Robert. Markets Mobs and Mayhem. A Modern Look at the Madness of Crowds, John Wiley and Sons Inc., 2002.

Noyes A.D., Forty Years of American Finance, G. P. Putnam and Sons, 1909.

Porter, Glenn. The Rise of Big Business (American History series), Harlan Davidson Inc, 1973.

Simpson, Herbert D. Real Estate Speculation and the Depression, American Economic Review, XXIII no 1, March 1933

Sobel, Robert. The Great Bull Market: Wall Street in the 1920's, W W Norton & Co Inc, 1968.

Sobel, Robert. Panic on Wall Street: A History of America's Financial Disasters, Collier Books Edition 1972, (chapter 9 in particular).

Sprague, O. M. W. History of Crises Under the National Banking System, Washington, Government Printing Office, 1910.

Tuchman, Barbara. The Proud Tower, A Portrait of the World before the War: 1890 - 1914, Bantam Matrix edition, 1972.

Wicker, Elmus. Banking Panics of the Gilded Age, Cambridge University Press, 2000.

Reader's caution.
This cycle, (if we accept Hoyt's Chicago work as a guide), land price peaked before the stock market. This ought to give us caution as forecasters. Hoyt noted, page 265:
"notwithstanding these efforts to prop up real estate values from 1927 to 1929, the speculative public was forsaking real estate for the stock market. Land purchases no longer yielded quick cash profits, and real estate ceased to lure the crowds of new buyers who were being attracted by the fortunes that were being made in securities."


Copyright Phil Anderson 2004

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