Lessons of the great crash still relevant

Lessons of the great crash still relevant

The stock market wasn’t a pleasant place to be around this time 90 years ago.

The trouble had begun on October 24, the first day of a share price rout that saw Wall Street suffer its worst decline in history. The Dow Jones Industrial Average dropped 90%, pushing an already fragile market over a cliff that would eventually cost €500bn in today’s money, and result in an estimated 1.5m job losses.

During a three-week period that saw seemingly indestructible American financial dynasties wiped out and a new lexicon of financial failure enter common parlance, the dust settled upon a ravaged landscape that would take a quarter century to recover.

As a trigger for the subsequent Great Depression, the market crash of 1929delivered an era-defining lesson on the perils of greed and irrational exuberance whose economic cost would be greater than the First World War.

With the benefit of hindsight, the root causes of the Wall Street Crash are usually attributed to a number of factors, including a nine-year bull market that saw the Dow Jones Industrial Average increase tenfold in value; an unreliable system where uninsured bankdeposits resulted in multitudes losing their life savings; the trade protectionism of America’s Smoot Hawley tariff; and the Mississippi Valley droughtthat saw a generation of farmers face bankruptcy in the ill-fated ‘Dust Bowl’, a period made famous in John Steinbeck’s novel, The Grapes of Wrath.

Less commonly acknowledged as a contributor to the greatest mass destruction of stock values in history is the name Clarence Charles Hatry, a London financier whose nefarious British dealings in 1929 resulted in what some economic historians saw as the proverbial straw that broke the camel’s back and which lit the fuse to a market conflagration that enveloped the world.

Like so many pivotal moments in history, Mr Hatry was a small player in the overall global context, yet who may well have served as the first broken link in a chain of catastrophes that would be forever known as Wall St’s darkest chapter.

In his seminal text, The Great Crash, economist John Kenneth Galbraithdescribed Mr Hatry as “one of those curiously un-English figures with whom the English periodically find themselves unable to cope.”

The son of a successful merchant, Mr Hatry proved himself an astute and ruthless businessman who specialised in turning ailing companies into profitable enterprises, but often at the expense of cost-cutting and job losses. His first major deal was the re-insurance firm, City Equitable Fire Insurance Company, eventually selling it on for four times his initial investment.

Throughout the 1920s, he built stakes in companies like Leyland Motors and Debenhams, and owned one of the first hugely popular photo-booth chains, Photomaton. His financial umbrella also included a stockbroking business specialising in bond issues for local towns, and which undercut the more reliable and established firms.

In an era when finance was generally an old boy’s club, Mr Hatry was an outsider upstart who revelled in upsetting the status quo. Flamboyant andostentatious, he installed a rooftop swimming pool at his Mayfair home.

An inveterate speculator who epitomised those who thrive on sailing close to the financial wind, he finally bit off more than he could chew in the late summer of 1929 in bidding the equivalent of €50m for United Steel, his venture into a sector he planned to consolidate. At the last minute, however, the deal’s bankers pulled the plug when irregularities were discovered, eventually resulting in Mr Hatry and his associates being jailed for fraud and forgery.

It had a calamitous effect on the London Stock Exchange, with one newspaper observing: “Nothing has been more remarkable in commercial and industrial finance since the War than the vast expansion of the investing public. The ‘small man’ has discovered the stock exchange. The shilling share is not beyond his purse.”

On October 3, the UK chancellor, Philip Snowden, warned that the Wall St boom was “nothing but a speculative orgy” — further undermining the appetite of American investment in markets overseas.

Investors who lost substantial amounts in the collapse of Mr Hatry’s companies were forced to sell their Wall Street stocks to cover their debts — thus weakening a perilously over-stretched US stock market already teetering on the brink of a massive bear market.

Worst of all, confidence disappeared as a wave of fear flooded the global exchanges and no band-aid solution would staunch the flow.

Amidst the many voices that witnessed the effects of 1929’s Great Crash, the observation of Spanish poet Federico Garcia Lorca was most acute: “I was lucky enough to see, with my own eyes, the recent stock-market crash, where a rabble of dead money went sliding off into the sea. Never as then, amid suicides, hysteria, and groups of fainting people, have I felt the sensation of death without hope, for the spectacle was terrifying but devoid of greatness.”

Inevitably, the question arises of when the next crash will happen.

On July 1 of this year, the US economy marked a 121-month expansion — officially the longest ever. The previous record was 120 months, which ran from March 1991 to March 2001.

That one ended with the dotcom bubble bursting. And what of Clarence Hatry? He was sentenced to 14 years in Brixton prison, two of them hard labour. He was subsequently given the position of prison librarian, and was released in 1939 after serving nine years.

Incarceration did little to lessen his speculative instincts, however, and he proceeded to buy the ailing Hatchards bookshop business, successfully returning it to profit, which in turn led to the acquisition of the T Werner Laurie publishing firm.

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