Know your history, it’ll help you recognise what’s going on when you’re doomed to repeat it.
In his daily note, Wall Street’s unofficial historian Art Cashin reminds us of what tipped the world into the Panic of 1873 on this day 140 years ago.
On September 18th 1873 Jay Cooke and Company — a powerful brokerage and the first to communicate to its clients via telegraph — fell when it was unable to sell enough railroad bonds to meet other obligations.
The NYSE closed two days later.
And the exchange had to close, Cashin writes. As the market emerged from the confusion of losing Cooke and Co., it began to understand its dire situation. The panic spread.
And as usual, traders could only dance to the music the market was playing. Here’s what the end looked like (from Cashin’s note):
For most of its first century of existence the NYSE was a “call market”. The chairman, or other senior officer, would call out the name of one of the listed issues. Brokers who had an interest in that “issue” would arise from their “seats” and begin to bargain with any other brokers arisen from their “seats”. When transactions ended in that issue (assuming they were not all buyers), brokers returned to their “seats” and the chairman called the next issue on the roll. When the last issue was called, the session officially ended. There were two sessions each day…
So, here they were. Rumours surfaced that, perhaps some other brokers were involved and the first call on the 18th turned soft. The second call turned soggy. Prices were down and with no on-going after market; all you could do (as the banks did) is await the next call.
The morning call on the 19th was messy and the afternoon call was just a disaster. Outside, in a heavy rain, crowds gathered on Wall Street to withdraw securities and money from brokers. By the morning of the 20th anyone who was in the phone book (if there had been one at the time) was rumoured to have been impacted by the problem.
So, naturally the morning call on Saturday the 20th was a disaster. So much so that the Exchange opted to close until the crisis calmed (skipping the P.M. call).
Close they did and for a lot more than one “call.” But, but perhaps because banks and investors naturally needed some means of evaluating holdings, they reopened about 10 days later. However, the rumours would not go away and liquidations and defaults continued. The history books call it the Panic of 1873. And, it put the American economy in a tailspin for years. (Nearly 10,000 businesses failed.)