Tuesday, May 14, 2013
May 14 (1929) "Fresh danger of excessive speculation in the stock market..." W.R. Burgess anticipates trouble in NY
On this day, May 14, 1929 the Pittsburg Press cited a new survey of money and credit published in the journal Recent Economic Changes, and co-written by the future president of the American Bankers Association, W. Randolph Burgess.
According to the Press, Mr. Burgess' report expressed concern that the demand for loans seems almost without limit and is not checked by advances in interest rates. "This cannot fail to affect unfavorably the development and functioning of the New York money market as a great and reasonably stable and national world financial center."
Despite the growing concern by bankers and businessmen alike of excessive "absorption of credit in the stock market" (at that time, many investment were made "on margin" ie. with borrowed money), the report observed that the relatively new Federal Reserve had not "been tested" to effectually restrain "intense speculative activity through sharp and even drastic action."
Speaking to the Detroit Stock Exchange in January 1929, the head of the New York Stock Exchange E.H.H. Simmons defended speculation. "Speculation is an inseparable, integral and indispensable feature of all business and trade, and to attempt to abolish it would be utopian and impossible" reported the New York Times in January 1929.
Later that year, the stock market would be in free fall.
Mr. Burgess made this concession is his report. "Unfortunately, overexpansion of credit is very difficult to diagnose, not only at the time of its occurrence, but even after the event."