Saturday, October 29, 2011

Hoover on the Great Crash

October 28 and 29, 1929, which are known to history as Black Monday and Black Tuesday, respectively, were merely "last week" when President Herbert Hoover held a news conference at noon November 5 in the White House. The stock market crash would later be considered the beginning of the Great Depression, but that was still in the future for Hoover and the gathered reporters.

The president told he reporters that what he said said was "simply for your own information. I see no particular reasons for making any public statements about it, either directly or indirectly."

The term "crash" was already current, if not "great crash." Hoover touched on it, characterizing it as a business correction, though he didn't use the term. "We have had a period of overspeculation that has been extremely widespread, one of those waves of speculation that are more or less uncontrollable, as evidenced by the efforts of the Federal Reserve Board, and that ultimately results in a crash due to its own weight," the president said.

He further spoke of the movement of capital "out of New York into the interior of the United States," and discussed interest rates and other matters, and then referenced an event many of the reporters would have remembered -- the Panic of 1907.

"Perhaps the situation might be clearer on account of its parallel with the last very great crisis, 1907 to 1908," Hoover said. "In that crash the same drain of money immediately took place into the interior. In that case there was no Federal Reserve System. There was no way to acquaint of capital movement over the country, and the interest rates ran up to 300 percent. The result was to bring about a monetary panic in the entire country.

"Here with the Federal Reserve System and the activity of the [Federal Reserve] Board, and the ability with which the situation has been handled, there has been a complete isolation of the stock market phenomenon from the rest of the business phenomena in the country... In other words, the financial world is functioning entirely normal and rather more easily today than it was two weeks ago, because interest rates are less and there is more capital available."

Hoover called the effect on production "purely psychological," and discussed the mortgage and bond markets. "The sum of it is, therefore, that we have gone through a crisis in the stock market, but for the first time in history the crisis has been isolated to the stock market itself. It has not extended into either the production activities of the country or the financial fabric of the country, and for that I think we may give the major credit to the constitution of the Federal Reserve System."

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