of the key events leading up to the 1929 Crash was
the collapse of Clarence Hatry's empire in Britain.
As you read this brief tale, you'll invariably think
of today's market, and the problems with Enron, Tyco
et al, because contained herein are definite parallels.
of the only real descriptions I have of Hatry's personality
is that he was "flamboyant," so we'll run with that.
According to Charles Geisst, Hatry made his name by
transporting Eastern European immigrants to the United
States and Canada, gouging them, I'm sure. Soon he
had built a business empire, with investments in photographic
supplies, cameras, vending machines, and loan offices
(which catered to the little guy needing a few pounds
by 1928, Hatry sought to make a really big splash
by attempting to wrest control of United Steel, an
operation that accounted for about 10% of all production
in the U.K. There was only one problem. He couldn't
put a debt package together (pre-Michael Milken, you
understand), which he needed since he didn't have
a lot of cash on hand.
tried everything, including his connections at the
venerable institutions, Bank of England and City of
London, but, again, he failed. It turns out Hatry
was faking his empire's books, passing his operation
off as having a far more favorable balance sheet than
it actually did. But then he was finally caught forging
stock certificates, which had given the impression
that his little empire was rocking and rolling, even
though the truth was he was up to his gills in debt,
the level of which some of the better bankers had
begun to question.
the fraud exposed, Hatry declared bankruptcy on September
20, 1929, and the move echoed across the Atlantic,
causing markets to shudder. The Dow Jones, which had
hit its all-time high of 381 on September 3, was down
to 362 at the close on the 20th. [It lost over 2%
that day.a big percentage move for those times.]
of the problem was that the Bank of England, in response
to the collapse of a key speculator, Hatry, as well
as dealing with a steady drain of gold reserves at
the time, forced the discount rate up from 5 ½ to
6 ½ percent. Within moments, British investors began
repatriating assets away from the U.S. and back home.
Of course this had a snowball effect on Wall Street,
and both fed on each other. So in most history books
you'll come across, the demise of Clarence Hatry is
often cited as a contributing factor to the crash
a bit of an overstatement, but he did impact things
for a spell, that's for sure. What is clear is that
Clarence Hatry was forging stocks and issuing unauthorized
shares in a successful attempt to acquire various
companies at will. In a sense, it was a Ponzi scheme,
and thus destined to fail like all the others.
a few weeks after the Hatry collapse, Alfred Sloan,
head of General Motors, observed that car sales were
beginning to decline, so he proclaimed the "end of
expansion" was at hand. Rather prescient, and something
to keep in mind when you think about today's auto
and housing markets.
market historian Robert Sobel has a passage in his
book "The Great Bull Market" that I'd like to share
with you. Sobel was commenting on the bloodbath of
October 3, 1929, when the Dow Jones fell from 344
to 329 (4.4%) in the worst selloff of the year up
to that point.
calls went out, and financial analysts wrote that
the bull market might be coming to an end. Some brokerages
began publishing lists of conservative issues for
investment, suggesting that their customers consider
yield and price/earnings ratios more carefully in
the future. But others repeated the now familiar statements
that price/earnings ratios of twenty to one were not
unreasonable in the 1929 market; that the investment
trusts and 'big boys' were waiting for the proper
moment to purchase stocks - a time when 'suckers'
sold in panic; that bull pools were forming throughout
the district; and that there was no reason to consider
60 per cent margin accounts as speculative."
course by July 1932 the Dow Jones was at 41.
Street: A History" Charles R.Geisst
"Monopolies in America" Charles R. Geisst
"Manias, Panics, and Crashes" Charles P. Kindleberger
"Devil Take the Hindmost" Edward Chancellor
"Rainbow's End" Maury Klein
"The Great Bull Market" Robert Sobel