In five hours of hysterical trading on October 24 nearly thirteen million shares were sold on the New York Stock Exchange--four million more than had ever been handled in a single day--and over six million on the New York Curb; an amazing total of over nineteen million shares with an estimated loss of several billions of dollars. It was a record day in the history of the Stock Exchange and, coming as a climax to more than three weeks of declining prices, it was most disastrous in hammering down security values. Nor did it stop with one day's trading. We have not yet seen the end of the decline. How narrowly the market escaped catastrophe one can only conjecture, for at a crucial moment in the day's trading the combined support of J. P. Morgan & Company, the National City Bank, the Chase National Bank, and the Guaranty Trust Company came to its aid. But even this quartet wasn't enough four days later. Every great New York bank then pledged its help.

It was a combination of fear and mob psychology that carried the debacle to the absurd lengths it reached; but obviously the market must have been extremely vulnerable to offer so little resistance. For why should this sudden hysteria, this utter lack of confidence, spread like wild-fire into every important financial center at a time when the country as a whole is enjoying at least a normal prosperity? The explanation lies, of course, in the speculative mania that has so long dominated the thinking of the financial community and in that time has jockeyed the prices of certain securities up to extravagant levels. This speculative spirit has long assumed that nothing could ever interrupt the greatest bull market on record.

Careful observers repeatedly pointed out that many stocks were selling at prices ridiculously high and wholly unwarranted by present or prospective earnings. It is no exaggeration to say that a number of the issues selling at from 30 to 50 times annual earnings thoroughly discounted prospects and income for a decade ahead. Of course these high selling ratios and high hopes were inspired for some time by rumors of mergers, stock dividends, split-ups, and similar stunts, but after a while when the hoped-for profits did not materialize the illusion began to pale. We have already commented on the action of the Massachusetts Department of Public Utilities in "issuing a sweeping decision disapproving the plan of the Edison Electric Illuminating Company of Boston to split its stock and change its par value. As a result the stock dropped about a hundred points and upset the whole utility list. The undeniable justice of the Massachusetts Commission's decision and its probable application to a great many other grossly inflated stocks were factors influencing the market just before the break.

It needs no profound analysis to reveal what part was played by the deluge of new securities which has flooded the market this year. During the first nine months of 1929 nearly ten billions of dollars in new securities were floated, while in September alone these totaled $1,615,000,000--125 percent more than any previous September on record. And of this enormous total over one billion was made up of issues of investment trusts--making a total of more than $2,200,000,000 of this nature issued in 1929. No wonder then that brokers' loans advanced about $600,000,000 in September, during a decline in stock prices that should have brought them down about $600,000,000! Thus the Gargantuan fare since January 1 has created a large lump of undigested--possibly indigestible--securities. The "new-era" speculator, of course, had a much more bullish theory about this huge financing of investment companies. His contention was that these investment trusts would constitute a great force for stabilization in the markets. How disappointed he must have been at the apparent disposition of the investment trusts in the present instance to stand aloof and let the market shift for itself.

Together with these more or less definite and fundamental weaknesses in the market's position was the unsettling situation which Colonel Leonard P. Ayres termed "the creeping bear market." As he pointed out, more stocks on the New York Exchange have declined since the first of the year than have advanced, and although the fact was somewhat concealed in the averages, the situation was none the less apparent in the repeated periods of uncertainty and irregularity in trading.

Undoubtedly this so-called "healthy reaction" will do much toward sobering Wall Street's speculative enthusiasm and establishing more realistic standards of stock values. It is a costly process, however, for the thousands, wise or unwise, who have had their accounts wiped out.

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