98 The Stock Market Crash—dAnd After
In the face of this record, the faults leading to the
panic cannot be found in the industrial situation, or
in the high activity of business and industry, or in the
rate of earnings, or in an unsatisfactory range of
ratios of stock prices to earnings.
There was undoubtedly overextension of loans.
There was a fever of speculation during the months
immediately preceding the panic, which bid up prices
to a peak that rose faster, for the time, than earnings
seemed to warrant,
But the precipitous fall in the market went too
far, in the light of the sound reasons justifying the
long bull market, namely, justifiable expectation of
great and increasing earnings, the fact that they were
so generously plowed-back, the warranted expectation
 of safety through diversification of investments,
and, finally, a consequent lowered basis of discounting
 the future as apparently reflected in price
earnings ratios.
Was, then, the high price level of stocks during
1929 completely justified? Or were there also elements
 of unsoundness which explain the final intemperate
 rise of the bull market?
As shown in Chapter II, Mr. Carl Snyder of the
Federal Reserve Bank of New York finds that stocks
had been seriously undervalued during the period of
1919 to 1924, as compared with the higher price
level of commodities. The long rise in the commodity
 price level had increased the dollar earnings
of common shares in terms of a 57-cent dollar.
Bonds and preferred securities were precluded from
absorbing their share of this increase, and the invest.