Panics

Previous to the sharp panic of 1907, the consensus of opinion among our great millionaires who accumulated their vast wealth as a result of the unusual period of prosperity which set in with the election of William McKinley as President, was that the country had not yet exhausted the good times. Shrewd men like Henry H. Rogers and William A. Rockefeller were confirmed bulls on the country and backed their faith in much higher prices for the leading securities listed on the New York Stock Exchange by accumulating vast blocks of shares.

According to the signs of the charts, their position was correct. The flood tide in the prices of stocks had not been reached, although there were many signs pointing to a break in prices in the near future. But a fatality occurred which rent asunder all their well-laid plans and involved them in huge losses. The panic of 1907 came heralded by few of those advance signs which in the ordinary course of events cast their shadows before the eyes of shrewd students of conditions.

The fatality which precipitated in the United Stales the great world crisis of 1906-1907 was the San Francisco earthquake. It came like a bolt from a clear sky. The destruction of over $200,000,000 of actual wealth proved like a vacuum bursting, in which money required elsewhere had to rush in, to mitigate human suffering and prevent the total ruin of fortunes invested in the stricken city. It found the credit structure of the moneyed centers in the country in a vulnerable position. No money in large volume could readily be spared within so short notice without withdrawal from other channels, and as the necessity was most urgent, sacrifice had to be made by letting go the more quickly salable assets, which were securities. The earthquake caused the panic; that was unexpected.

Few people would have believed in the early part of 1914, that a great European war would break out before the end of summer, a war that would paralyze the world's commerce, bring trade to a standstill, compel the banks to resort to clearing-house certificates, and for their own protection force many of the nations to declare moratoriums, to save themselves from bankruptcy.

Another indication that there is no accuracy to speculation is the explosion of the theory regarding the recurrence of panics. For some years we have held to the belief that between panics an interval of about twenty years elapses. But of late, money panics have occurred with greater frequency. From 1900 to 1910 there were two panics, varying in degree of intensity.

If it were at all possible to gauge accurately beforehand the years in which we are to see great prosperity and then adversity, there would be hardly any necessity for the exercise of the keener perception upon which successful speculation must depend for a profitable fruition. Nothing would be needed but to watch for the unfailing signs and then trim sails accordingly.

Another fallacy we often fall into, is the belief that a panic in Wall Street is a localized affair and cannot disturb the prosperity of the country. We have seen an impression akin to this during 1907. Other parts of the country were confident they would not feel the effect and the press was particularly concerned in pointing editorially to reasons explaining and emphasizing this view. But it was not six months before the entire country was in the grip of the depression the panic superinduced. In a few months the banks in the large interior cities were forced, because of the scarcity of money, to resort to clearing-house certificates as a measure to relieve the stringency. The federal reserve system under wise administration and intelligent co-operation on the part of bankers makes an old-time financial panic less likely -one might say, almost impossible. The wise investor, however, will not rely too implicitly on a system; he will consider fundamentals.

Money has its capital centers in each country. As money is the basis of credit and is also the life fluid of business, it cannot be otherwise than that the prosperity of a country will be disturbed and checked when there occurs a panic in the principal money centers. Then a condition of atrophy is brought about. Business receives a swift check, almost always unexpectedly, and when it is least prepared for it.

Sometimes a panic is brought about by the most unusual occurrences. At times it comes by the most unexpected happenings, and the direct cause will always be found in the over-extension of speculation.

One instance I have in mind is the sudden death of Governor Roswell P. Flower, who was a great market factor and who, because of his unusual success as a speculator, had behind him a great following in the securities in which it was known he was most largely interested. His death, overnight, paralyzed his following. They were thrown into a panic of fear by the sudden loss of their leader. What were imposing fortunes the day before were swept away as if by a tidal wave, and in place of the wealth there was ruin, on the day following, to thousands of speculators, caused by the sheer and heart sickening decline in prices of securities.