It was November 1929—just one month after the now infamous Stock Market Crash of 1929.
And Trusts & Estates magazine was there.
Then, the magazine was called Trust Companies, having been created in 1904 by a trust industry that'd coalesced in the late 1800s.
This was the voice of the trust industry. And their words show how difficult it can be — then, as now — to predict the future at the beginning of an economic cataclysm.
In November of 1929, just as the world was about to plunge into the Great Depression, they actually declared the disaster over.
In the wake of 1987’s Black Monday, a commentator writing for our magazine, by then called Trusts & Estates, showed a little more caution and wisdom. He did have the benefit of historical perspective.
So, because it's still true that those who do not learn the lessons of the past are condemned to repeat it, we offer this look back.
In 1929, we wrote:
“The inevitable has happened. A prolonged joy ride has come to an inglorious and abrupt end with the cyclonic collapse of fantastic stock prices. Painful and humiliating as was the ordeal, it means deliverance from a long drawn drunken debauch of speculation and reckless perversion of credit. With the highway cleared of dangerous obstructions, American business, industry and finance are enabled to press onward with renewed incentive to genuine progress and constructive achievement.
“The stock ticker has lost its siren refrain. Its harsh tempo spelled disillusionment and the wiping out of over 30 billions of speculative values, but it also conveyed a message of economic retribution and of realities which have been wantonly ignore. Blind infatuation for the fickle Goddess of Fortune, now stripped of tinsel and gaudy draperies, yields to chastened regard for the homely virtues of honest industry and savings. . .”
-->The magazine also optimistically reported:
“ ‘Any lack of confidence in the economic future or the basic strength of business in the United States is foolish,’ said President Hoover in calling upon leading representatives of business, industry, labor, banking and agriculture to join with government officials in a series of conferences in Washington. To all appearances the primary object of these conferences has been attained, namely, to secure pledge (sic) of concerted action for continued business progress, to take up any slack in the present situation and to disabuse the public mind of undue pessimism or fears that may have resulted from the crash in stock prices. Distinctly helpful was the announcement from the Treasury Department of a proposed reduction in Federal income tax rate . . .”
The editors said there were two questions that "now transcend all others in immediate importance. The first is: What will be the effect on general business in the coming year? The second is: What will be the probably course of security markets?”
And their answer was: “[I]t does not seem probable that the bear market of 1929 will be followed by any slowing down of business at all comparable with the old-time business depressions.”
Writing not long after Back Monday (Oct. 19, 1987), Henry Gaillot, a senior vice president and economist at Federated Research Corporation was much more guarded in his assessment of the economy. He also was more on target.
-->“Twice in our history what was a broad, deep and long recession deteriorated into an escalating and cascading series of deep recessions. Historians term those cycles ‘great depressions,’" wrote Gaillot for the February 1988 edition of Trusts & Estates. "Nineteen twenty-nine and 1837 are two special events. We do not believe they will occur again. . .
"They started out like so many other downturns — firms and banks which essentially failed — they made the wrong bets — were wiped out in the crash and the recession. But that’s the way it should be. What happened in these two cycles was that the failures fed back into the banking system which could not handle the problem and dramatically contracted its balance sheet by calling in loans, and in a cascading sense brought down firms and banks that were survivors. . .
“They were brought down by a collapsing banking system. The key transmission factor is the banking system. . .
“The first time (1837) we had no central bank. . . The second time, we did have a central bank, but it was young and, as it turned out, rather inexperienced. . .
“Today we have a central bank. We understand what has to be done."
So, Gaillot asked, will true crisis be averted? “What about 1987?”
The best answer is, he noted (all in caps):“NO ONE KNOWS.”
Yet he did have some advice on how his colleagues could proceed in uncertain times.
The full text of his and the 1929 articles are available to the public in Trusts & Estates’ online Bookstore & Library, under FINANCIAL DISASTERS OF THE PAST.
