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Last Updated: Wednesday, 27 October, 2004, 16:55 GMT 17:55 UK
Wall Street Crash: The perils of punditry
BY James Arnold
BBC News Online business reporter

Wall Street Journal, 30 October, 1929

In October 1929, Professor Irving Fisher of Yale University, a great guru of the markets, earned immortality with the pronouncement: "stock prices have reached what looks like a permanently high plateau."

Times of crisis and uncertainty are boom times for pundits, but they produce a dozen pratfalls for every prophet.

During the Wall Street Crash, these gaffes came thick and fast.

Two days before the panic broke out, Charles Mitchell, chairman of the National City Bank of New York and one of Wall Street's greatest magnates, brushed aside the doubters.

"I know of nothing fundamentally wrong with the stock market or with the underlying business and credit structure," he told journalists.

"I have just been in communication with New York," boasted Illinois Bank and Trust president Arthur Reynolds on 29 October, after the worst two days' trading in history.

"And the banks there are determined to support the market at this point... This should be the basis for expecting a sharp recovery."

Feet in mouths

The press, as ever, is the richest source of over-confident misinformation.

"The market appears to have stabilised itself quickly and to a remarkable degree," wrote the New York Times on 28 October, before the markets turned really nasty.

"The calmness of the trading on Friday and again on Saturday indicated that normal conditions had once again been restored and that the hysteria of last Thursday had passed as quickly as it developed."

It is easy to laugh at this sort of thing, but not especially worthwhile; if journalists could predict the future trend of share prices, after all, they would scarcely be journalists.

'An ill wind'

Rather more reprehensible was the general failure to appreciate the likely consequences of the crash.

For many pundits, a "correction" on the stock markets would help clear the air, and free up capital which could be used to invest in the real economy.

"The world should now be able to look forward to a gradual return to normal finance," wrote the London Times in October 1929.

"Foreign money is returning from America... and the reserve system will probably do everything possible to make money easy in order to facilitate foreign purchases of American foodstuffs and cotton, and to stimulate domestic trade."

Even the normally sagacious Economist insisted breezily that "it is an ill wind that blows nobody any good.

"The dramatic and precipitous slump of the last three weeks on Wall Street has definitely relieved the pressure on the world's money markets."

Chorus of optimism

Indeed, what is most notable about the commentary of the time is its unanimity.

To be sure, the press was far less heterogeneous in the 1920s; a few confident voices tended to lead the chorus of opinion in a way hard to imagine now.

But it seems odd that almost no one went so far as to predict a bust after the boom.

Only the occasional voice was raised in query. Six months before the crash, financier Paul Cabot saw mismanaged trusts as a threat.

"When I find the shares of a very large trust selling in the market for nearly three times their liquidating value, particularly when that liquidating value is figured from a grossly portfolio value... and when, on top of it all, the management has demonstrated inability and possibly dishonesty, I am inclined to think the shares somewhat high," he wrote in the Atlantic Monthly.

That was to prove a huge understatement - but at least it was a statement.


SEE ALSO:
Wall Street Crash: 75 years on
27 Oct 04 |  Business
Wall Street Crash 1929: Timeline
27 Oct 04 |  Business


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