by Jeff Thomas, International Man:
[A] crash is coming, and it may be terrific. …. The vicious circle will get in full swing and the result will be a serious business depression. There may be a stampede for selling which will exceed anything that the Stock Exchange has ever witnessed. Wise are those investors who now get out of debt.
The above words could easily have been stated by me or another of the (very) few others who currently predict the coming of crashes in the markets.
But they were not. The statements above were made by investor Roger Babson at a speech at the Annual Business Conference in Massachusetts on 5th September, 1929.
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Mr. Babson’s prediction was not a sudden one. In fact, he had been making the same prediction for the previous two years, although he, in September of 1929, felt the crash was much closer.
News of his speech reached Wall Street by mid-afternoon, causing the market to retreat about 3%. The sudden decline was named the “Babson Break.”
The reaction from business insiders was immediate. Rather than respond by saying, “Thanks for the warning—we’ll proceed cautiously,” Wall Street vilified him. The Chicago Tribune published numerous rebuffs from a host of economists and Wall Street leaders. Even Mr. Babson’s patriotism was taken into question for making so rash a projection. Noted economist Professor Irving Fisher stated emphatically, “There may be a recession in stock prices, but not anything in the nature of a crash.” He and many others repeatedly soothed investors, advising them that a resumption in the boom was imminent. Financier Bernard Baruch famously cabled Winston Churchill, “Financial storm definitely passed.” Even President Herbert Hoover assured Americans that the market was sound.
But, 55 days after Mr. Babson’s speech, on 29th October, 1929, the market suddenly went into a free-fall, dropping 12% in its first day.
Today, most people have the general impression that on Black Friday, the market crashed and almost immediately, there were breadlines. Not so. In the Great Depression, as in any depression, the market collapsed in stages. The market did not reach its bottom of 89% losses until July of 1932.
Along the way, thousands of banks and lending institutions went belly-up. Thirteen million jobs disappeared.
And of course, the political leaders of the day did their bit. They implemented knee-jerk “solutions” that actually worsened the situation. Restrictive tariffs, gold confiscation, and a more dominant government were employed, just as they will be this time around.
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