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APPENDIX
(VIIe) In the panic of 1929, constant rumors of “bear raids”
prompted an investigation by the Exchange. Concerning this episode
President Richard Whitney (in his address “The Work of the New
York Stock Exchange in the Panic of 1929” in Boston, June 10, 1930)
stated :
“For a number of days prior to November 12th, there had been
constant rumors of tremendous bear raids in the stock market. Such
rumors, as a matter of fact, almost always accompany periods of
security liquidation. The Stock Exchange authorities nevertheless
wished to verify the accuracy of these rumors, and early in the morn-
ing of November 13th called upon its members to report to our Busi-
ness Conduct Committee as of the close of business on the 12th, their
position in regard to borrowed and loaned stocks, and other particulars
which would speedily indicate the existence of a large short position.
These questionnaires to Stock Exchange houses were rapidly analyzed,
and it was found that the aggregate amount of borrowed stock was
so small as to be almost inconsequential, being, in fact, only about
one-eighth of one per cent. of the value of all stocks listed on the
Exchange. It is interesting in this connection to realize that Novem-
ber 12th, as of which this study was made, marked practically the
lowest point to which the daily stock price indices fell during this
whole period. . . . In general the extraordinary absence of bids
for the purchase of stock throughout the panic would indicate an
absence of a sufficient short. interest to give the market its ordinary
stability. If early in the fall a large short interest had accumulated,
presumably stock prices would never have reached the great heights
they did before the panic, and also added buying power during the
panic would have been afforded by short covering.”
(VIIf) Many practices in finance as well as commerce which are
legitimate and economically useful in times of peace, may prove ille-
gitimate and harmful in wartime. Unlike conditions a century ago,
modern warfare demands not merely the mobilization of special fight-
ing forces, but the exclusive organization of all industrial and financial
effort as well. So it has been with the short sale. During a war,
stock market declines may be interpreted as national fears of military
defeat, and the short-seller may injure his country by actions in which,
purely from an economic basis, he should ordinarily be encouraged.
At the outbreak of the European war, the leading stock exchanges
of London, Paris, Berlin, and New York all closed completely by
July 31, 1914. Subsequently, New York reopened in December, 1914,
London on January 4, 1915, Paris on September 27, 1915, and Berlin
on December 3, 1917, for shares and September 1, 1919, for bonds.
