Tuesday, 1 September 2009

American Boycott

It’s astonishing the things you hear around the Diogenes Club these days. I know you will say that it is my own fault, but sometimes you can’t help eavesdropping on certain individuals who have loud voices. I just caught part of the conversation as I was perusing the library shelves. From the other side came two voices;

"You know I think I'm going to start a boycott of American goods."

"I agree with you. In my view the US is the worlds most dangerous entity."

"Absolutely right! They have disrupted more elected democracies than any regime in history. They have bombed and invaded other countries. They supported the IRA terrorists during its bombing campaign. They have run roughshod over the peoples of a dozen different countries: Nicaragua, Vietnam, Palestine, Cambodia, Iraq, Diego Garcia in the Chagos Islands, Palestine, Chile, Panama, El Salvador... They don't obey International Law. They don't observe the Geneva Conventions. They detain thousands without trial in Guantanamo and elsewhere. They have tortured many more in Abu Ghraib. They use extraordinary rendition. They use waterboading. They operate over 800 military bases worldwide. They hold the most powerful WMDs ever created... and they are the only country to have actually used them. And no one dares stand up to them because they dominate all the world financial markets and hold the U.N. hostage with their monetary and military support. "

"You're right. Nobody should apologise for being anti-American . . . wear the badge with pride."

Well of course I walked away at that point. I just can't believe what the club is coming to.

Sunday, 30 August 2009

Lockerbie: The Flight from Justice

News at the moment is all about the release of the Lockerbie Bomber Abdel Baset Ali Mohmed Ali Megrahi. One of our club members who works in a rather hush hush government department has often claimed to know more about the Megrahi incident than has ever been told in newspapers. "Of course Megrahi had nothing whatsoever to do with the bombing," he has told us many times. "Our government and the US government know exactly what happened at Lockerbie. But they are not going to tell you."

After plying him with a few brandies he was happy to reveal all, provided we did not reveal his name I can give you a more complete picture.

The story he said started in June 1988 when an Airbus civilian airliner was shot down with the loss of all 290 lives on board. This happened 6 months before Lockerbie.

The fact that the airbus was Iranian, that people on board were Iranian, and they were shot down over the Gulf by a US warship the USS Vincennes, meant that there was no court hearing, that the captain of the Vincennes and to his gunnery crew were awarded medals, and that slaughter was blamed on Iran for not accepting a UN ceasefire in the war with Iraq in which we were backing our old friend Saddam Hussein (yes, the same!).

Iran plotted a tit-for-tat revenge and hired a Palestinian terrorist group supported by Syria to execute the plan. The security services got wind of the plan and on 5 December warnings were sent to the US embassy in Helsinki that a bomb would be planted on a Pan Am flight from Frankfurt in the next two weeks. Eighty percent of the staff in American embassies who had reserved seats on Pan Am flights out of Frankfurt cancelled their bookings. There were 159 empty seats on the plane. The bereaved families are still trying to find out why they never heard about the warning. All they have been told is the warning 'was a hoax' and it was a mistake posting it.

On 21 December 1988 Pan Am flight 103 was blown out of the sky over Lockerbie. Apparently 270 people died because the UK government didn't make the same mistake. This time there would be no medals.

The bomb in the plane was fitted into a Toshiba radio-cassette player, wrapped in clothing bought in Malta and hidden in a brown Samsonite suitcase.

According to the Washington Post the intelligence services had reported that it was 'beyond doubt' that the Lockerbie bomb had been planted by a Palestinian terrorist group led by Ahmed Jibril. The group had been hired by Iran and had the protection of the Syrian government. The Sunday Times had more detail. Jibril was supported by one Nidal, the leader of the Syrian-backed terrorist outfit. A third man, Talb, was identified as travelling to Malta to buy the clothes to put in the suitcase. The whole thing was a reprisal for the shooting down of the Iran civil airline six months before.

Thatcher and Bush spoke about Lockerbie and agreed to 'low-key' the disaster because neither could do anything about it, nor could they bring the Syrian protected terrorist to trial. And all would have been quietly forgotten had not the political climate changed in 1991 with the outbreak of the Gulf war and the dramatically shifting political scene of the middle east.

It suddenly became expedient to get Syria and Iran on board as allies and to isolate any supporters of Saddam's Iraq. And this included Libya. Quite suddenly and without any previous suggestions to the contrary, the Lockerbie evidence that pointed towards Syria and Iran was quietly abandoned and the US government now claimed that that Libya was responsible for the bombing. The press were happy to switch from one to the other and a political fury was whipped up against Libya. With public backing, the US was able to engage freely in 'revenge air strikes' on Libya. This was now marketed as 'a blow for justice' in retaliation for those killed on Pam Am flight 103, and bought by the public.

Information from US security services now implicated two Libyans, one of whom was Megrahi. They had planted the bomb on a plane in Malta. The bomb had been flown to Frankfurt where it was transferred to a plane for London. The bomb was then tranfered at London to Pan Am flight 103.

What was the evidence for this wholly new story? The CIA had a 'witness'.

Abdul Majid Giaka, a garage mechanic who once claimed to be related to King Idris of Libya, had come forward and implicated Megrahi. He saw them place the bomb and was prepared to testify in court. For this evidence the CIA paid Giaka $4 million - provided there was a conviction.

Without boring you with the tedious trial details, Paul Foot who sat through the full proceedings summed it up by saying that "the entire expensive trial of the Libyans was an intelligence frame-up; and that among the most comprehensively hoodwinked were Lord Sutherland, Lord Coulsfield and Lord Maclean" the presiding judges. The verdict was a triumph for the CIA, but does nothing to satisfy justice. Megrahi was convicted on circumstantial evidence and the hearsay of discredited witnesses. According to John Pilger this is just another case that can be added to the increasing catalogue of cases of British miscarriages of justice.

Of course after the war, the sanctions were lifted against Libya and Gaddafi agreed to pay £1.7 billion out of his oil revenue in compensation. And all was sweetness and light until Megrahi was released last week, to the baying of the press and the anger of outraged Americans.

A recent ICM Research poll for BBC News said 60% of those questioned thought it was wrong to release Megrahi, and such an evil man should have been left to die in jail . Finding myself among the 40% I believe that releasing him to die at home is not about what kind of man he is, but what kind of people we are. And if you though that the UK had released a dying man on grounds of compassion alone, today's Sunday Times headline makes it clear that even that was done as part of a deal for Libyan oil.

Sunday, 19 July 2009

Diogenes the Hells Angel

Diogenes was a rebel against authority who lived the simple life. He would have shunned gangs or other combinations that protect the individual at some loss of liberty. Were motorcycles around in his time he would have had nothing to do with being a gang member, he was not that type of “outlaw” but maybe he would have valued the independence and mobility achieved by a single machine, and of living life “on the edge”.

Yet even in his rebellion he would have been aware that that very quality, of outstripping the herd, is a manufactured image, a line designed to sell motorcycles as a commodity.

You may remember the VeloSolex lightweight bicycle that Frenchmen ride with a small motor above the front wheel. It was a post World War Two vehicle that young and old could ride without any formality offering both fun and freedom. But that was about the limit of its possibilities. It could hardly be seen as a fetish commodity.

If you go to YouTube and enter Mr Bean and VeloSolex you will get a sketch that embraces this stereotype with affection. Yet the advertising for the VeloSolex for those who wish to search google images is an extraordinary mismatch of sexy long legged models astride this bicycle. The reason is that sex, like rebellion, sells products like no other motif can.

The long legs give a clue, for elongating the leg of a model by artifice or unconscious selection of the longest legged candidate is a deliberate evocation of a female’s sudden spurt of growth a purbety…something that is hard wired into the perceptions of both male and female alike. The 50’s artist Vargas made a good living exaggerating the legs of the models he painted for this very good reason.

Now Diogenes was famous for ‘accentuating the negative’, for cynicism is nearer the end of the continuum named “hostility” than the opposite one, “friendliness”. But here we have a product and an industry, ‘accentuating the positive’ as if life itself was dependent upon this perception. And that is the clue, for the life of the product, its conception, its existence, its survival depends upon it falling upon that continuum nearer the end of ‘friendliness’. And what better proponent for “friendliness” is there than the powerful and emotive syncretism that is sex. So powerful is this motif that the alternate “handle” of rebelliousness has by and large failed to survive as well as a meme.

We all remember motorcycle rebel Marlon Brando in the film “The Wild One” which worried our mentors so much that it was banned for 15 years in the UK. Or we may have enjoyed the bad boy image of the anti-hero in Richard Thompson’s song the 1952 Vincent Black Lightning (listen to the Reina Collin’s version). More likely though we will have remembered then for their positive associations. In the case of the song it would be the combination of a red haired girl and her black leathers. You can find a version in the podcast section of http://web.mac.com/beachhutman/motorcycle

What endures here is a manufactured lack of restraint in ‘positive’ matters such as celebrating friendliness, attraction (and by association sex), rather than remembering the ‘negative’ also there in some rebellion or hostility to other social norms.

In other words, a life affirming film, song or story will usually triumph over anything that casts a shadow over our or others passing. Diogenes the cynic would have found this association with motorcycles, if such existed in his day, as problematic.

But in advertising appealing to one emotion is never enough. A tension if it can be created between opposites will get twice as much attention. So we as spectators, as consumers, have the same problem as Diogenes would have had.

What was his answer? To carry a big stick. Would he have thrown it into the spokes of any passing motorcycle that annoyed him? I do not think so. He would not have been angry at some insouisiant youth vacillating between a faux rebellion and some manufactured attraction. Diogenes would have instead lamented that the youth of his day could so easily be sold someone else’s dream instead of doing something significant.

The answer may not be to be cynical, as Diogenes was, shunning the complexities of his time. That continuum, from hostility to, shall we say, friendliness is also one from the conservation of energy to one of expending it. A doctor would recognise this is the world of the bi-polar or manic-depressive.

Nearly a couple of years ago after reading a book called The Hypomanic Edge I suggested Diogenes may have been a hypomanic. See it here (cut and paste)


Now I am beginning to wonder if he was a manic-depressive. Strangely this cynical perspective of hostility and negativity seems to be an evolutionary survival. Why is this? One would expect the likes of Diogenes to die out in evolutionary terms, never mind in terms of their ideas. Just as you might expect the motorcycle industry to ‘loose’ the negative bad boy associations of motorcycling. For the price of that is marginalisation and legislation to outlaw a threat to civilised society. Certainly the author of The Hypomanic Edge regards the manic or ‘positive’ behaviours at that end of the continuum to be the reason that condition persists in the world. Such people have energy and can succeed when others at the hostile pole conserve rather than express their anger in a barrel.

So do we need Diogenes? Well, next time some manic motorcyclist cuts you up imagining himself some angel of darkness or lusty rebel, think that there needs to be a counterbalance. And that is the legislators, the policemen and the cynics that refuse to fall for the line the motorcyclist is taking. Society is a spectacle. We cannot all go around in rose tinted glasses. A Diogenes has a duty not to retreat from the world but to point out the myths the rest of us slavishly follow. And that includes himself.

Friday, 29 May 2009

I Just Don't Believe it.

I was sitting in my favourite armchair with a warm brandy musing on the origins of cynicsm when I was interrupted from my reverie by Frith, our faithful retainer, who inquired if I would like another brandy.

"I think I'm happy with this one, Frith."

"Pardon my saying so, sir, but my young nephew mentioned he might be interested in joining the Diogenes club."

"Is he suitable Frith?"

"Oh I am sure I couldn't say sir, but he does have strong views and passionately believes in a number of causes, sir."

"Then he won't do for here Frith," I answered with some conviction. What makes a person a true Diogenarians is not strong views. The true cynic is defined, not by what they believe in, but by what they don't believe in."

"I see, sir"

"That's why young people are hardly suited to the Diogenarian cause. You see when you are young and wild you believe all sorts of things. But as you get older, one by one, those beliefs drop away until you are more defined by the things you don't believe than the things you do. That Frith is the definition of a true cynic.

"I see sir," said Frith and departed

Relaxing back in my armchair I picked up a pen and paper and started to jot down, just as a matter of interest the first things that came to mind of the many that I realised after a mature reflection I no longer believe in and I thought I would share will you for the record my own personal anti-creed for the age. (Other Diogenarians will no doubt have their own and are free to add to the list)

1. I don't believe we are over the worst of the crash
More money has been spent on bailing out the banks from this crash than all the money spent on World war II, the entire NASA space programme and the great crash of 1929 - put together. And that took ten years to get over.

2. I don't believe we live in a democracy.
Democracy has to be more than just being able to choose between two or three very similar things once every five years.

3. I don't believe there should be laws against offending people.

The right penalty for offending people is repudiation, not 3 years in prison.

4. I don't believe diversity is a good thing in and of itself.
Diversity without competence is useless.

5. I don't believe in dyslexia (or discalcula or dispraxia or dis....)
Giving something a name doesn't mean you can be excused from spelling, or adding up - or that you are not responsible for it, just like everyone else.

6. I don't believe in different learning styles.
Visual, auditory, kinesthetic - we all learn in each of these ways and it muddled thinking that focuses on just one

7. I don't believe we are responsible for the errors of our fathers
We are not responsible for the slavery of 200 year ago, and I don't believe we need to apologise or be made to feel guilty about things that others have done.

8. I don't believe freedom of speech is only for those who we agree with.
Freedom of speech must be for everyone or it is not true freedom.

Sunday, 17 May 2009

A History Lesson - Part 3 - Things Get Worse

More extracts from Professor Galbraith's classic work: The Great Crash 1929. A more accessible and witty summary of what happened in that year I have yet to read.

These extracts come from the chapter in his book entitled: 'Things Become More Serious'. I would urge anyone who is interested in such things, and who wishes to understand more of what is going on today, to invest in this modest volume.

A common feature of all these earlier troubles was that, having happened, they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to ensure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. (Not only were a recorded 12,894,650 shares sold on 24 October; precisely the same number were bought.) The bargains then suffered a ruinous fall. Even the man who waited out all of October and all of November, who saw the volume of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months. The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable.

Tuesday, 29 October, was the most devastating day in the history of the New York stock market, and it may have been the most devastating day in the history of markets. It combined all of the bad features of all of the bad days before. Volume was immensely greater than on Black Thursday; the drop in prices was almost as great as on Monday. Uncertainty and alarm were as great as on either.

Selling began as soon as the market opened and in huge volume. Great blocks of stock were offered for what they would bring; in the first half-hour sales were at a 33,000,000-a-day rate. The air holes, which the bankers were to close, opened wide. Repeatedly and in many issues there was a plethora of selling orders and no buyers at all.

Once again, of course, the ticker lagged - at the close it was two and a half hours behind. By then, 16,410,030 sales had been recorded on the New York Stock Exchange - some certainly went unrecorded - or more than three times the number that was once considered a fabulously big day. The Times industrial averages were down 43 points, cancelling all of the gains of the twelve wonderful months preceding.

But the worst thing that happened on this terrible day was to the investment trusts. Not only did they go down, but it became apparent that they could go practically to nothing. Goldman Sachs Trading Corporation had closed at 60 the night before. During the day it dropped to 35 and closed at that level, off by not far short of half. Blue Ridge, its offspring once removed, on which the magic of leverage was now working in reverse, did much worse. Early in September it had sold at 24. By 24 October it was down to 12, but it resisted rather well the misfortunes of that day and the day following. On the morning of 29 October it opened at 10 and promptly slipped to 3, giving up more than two-thirds of its value. It recovered later but other investment trusts did less well; their stock couldn't be sold at all.

The worst day on Wall Street came eventually to an end. Once again the lights blazed all night. Members of the Exchange, their employees, and the employees of the Stock Exchange by now were reaching the breaking point from strain and fatigue. In this condition they faced the task of recording and handling the greatest volume of transactions ever. All of this was without the previous certainty that things might get better. They might go on getting worse. In one house an employee fainted from exhaustion, was revived, and put back to work again.

In the first week the slaughter had been of the innocents. During this second week there is some evidence that it was the well-to-do and the wealthy who were being subjected to a levelling process comparable in magnitude and suddenness to that presided over a decade before by Lenin. The size of the blocks of stock which were offered suggested that big speculators were selling or being sold. Another indication came from the boardrooms. A week before they were crowded, now they were nearly empty. Those now in trouble had facilities for suffering in private.

The bankers met twice on the 29th - at noon and again in the evening. There was no suggestion that they were philosophical. This was hardly remarkable because, during the day, an appalling rumour had swept the Exchange. It was that the bankers' pool, so far from stabilizing the market, was actually selling stocks! The prestige of the bankers had in truth been falling even more rapidly than the market. After the evening session, Mr Lament met the press with the disenchanting task of denying that they had been liquidating securities - or participating in a bear raid. After explaining again, somewhat redundantly in view of the day's events, that it was not the purpose of the bankers to maintain a particular level of prices, he concluded: 'The group has continued and will continue in a cooperative way to support the market and has not been a seller of stocks.' In fact, as later intelligence revealed, Albert H. Wiggin of the Chase was personally short at the time to the tune of some millions. His cooperative support, which if successful would have cost him heavily, must have had an interesting element of ambivalence.

The rumour recurred that the 'organized support' was selling stocks, and Mr Lament, on meeting the press [again], added a minor footnote to this now completed story. He said he didn't know - the organized support was really not that well organized. The most plausible explanation is that everyone was feeling cheerful but the public. As before and later, the weekend had been a time of thought, and out of thought had come pessimism and a decision to sell. So, as on other Mondays, no matter how cheerful the superficial portents, the selling orders poured in in volume.

By now it was also evident that the investment trusts, once considered a buttress of the high plateau and a built-in defence against collapse, were really a profound source of weakness. The leverage, of which people only a fortnight before had spoken so knowledgeably and even affectionately, was now fully in reverse. With remarkable celerity it removed all of the value from the common stock of a trust. As before, the case of a typical trust, a small one, is worth contemplating. Let it be supposed that it had securities in the hands of the public which had a market value of $10,000,000 in early October. Of this, half was in common stock, half in bonds and preferred stock. These securities were fully covered by the current market value of the securities owned. In other words, the trust's portfolio contained securities with a market value also of $10,000,000.

A representative portfolio of securities owned by such a trust would, in the early days of November, have declined in value by perhaps half. (Values of many of these securities by later standards would still be handsome; on 4 November, the low for Tel and Tel was still 233, for General Electric it was 234, and for Steel 183.) The new portfolio value, $5,000,000, would be only enough to cover the prior claim on assets of the bonds and preferred stock. The common stock would have nothing behind it. Apart from expectations, which were by no means bright, it was now worthless.

This geometrical ruthlessness was not exceptional. On the contrary, it was everywhere at work on the stock of the leverage trusts. By early November, the stock of most of them had become virtually unsaleable. To make matters worse, many of them were traded on the Curb or the out-of-town exchanges where buyers were few and the markets thin.

Never was there a time when more people wanted more money more urgently than in those days. The word that a man had 'got caught' by the markets was the signal for his creditors to descend on him like locusts. Many who were having trouble meeting their margin calls wanted to sell some stocks so they could hold the rest and thus salvage something from their misfortunes. But such people now found that their investment trust securities could not be sold for any appreciable sum and perhaps not at all. They were forced, as a result, to realize on their good securities. Standard stocks like Steel, General Motors, Tel and Tel were thus dumped on the market in abnormal volume, with the effect on prices that had already been fully revealed. The great investment trust boom had ended in a unique manifestation of Gresham's Law in which the bad stocks were driving out the good. The stabilizing effects of the huge cash resources of the investment trusts had also proved a mirage. In the early autumn the cash and liquid resources of the investment trusts were large. Many trusts had been attracted by the handsome returns in the call market. (The speculative circle had been closed. People who speculated in the stock of investment trusts were in effect investing in companies which provided the funds to finance their own speculation.) But now, as reverse leverage did its work, investment trust managements were much more concerned over the collapse in the value of their own stock than over the adverse movements in the stock list as a whole. The investment trusts had invested heavily in each other. As a result the fall in Blue Ridge hit Shenandoah, and the resulting collapse in Shenandoah was even more horrible for the Goldman Sachs Trading Corporation.

Under these circumstances, many of the trusts used their available cash in a desperate effort to support their own stock. However, there was a vast difference between buying one's stock now when the public wanted to sell and buying during the previous spring - as Goldman Sachs Trading Corporation had done - when the public wanted to buy and the resulting competition had sent prices higher and higher. Now the cash went out and the stock came in, and prices were either not perceptibly affected or not for long. What six months before had been a brilliant financial manoeuvre was now a form of fiscal self-immolation. In the last analysis, the purchase by a firm of its own stock is the exact opposite of the sale of stocks. It is by the sale of stock that firms ordinarily grow.

However, none of this was immediately apparent. If one has been a financial genius, faith in one's genius does not dissolve at once. To the battered but unbowed genius, support of the stock of one's own company still seemed a bold, imaginative, and effective course. Indeed, it seemed the only alternative to slow but certain death. So to the extent that their cash resources allowed, the managements of the trusts chose faster, though equally certain death. They bought their own worthless stock.

Men have been swindled by other men on many occasions. The autumn of 1929 was, perhaps, the first occasion when men succeeded on a large scale in swindling themselves.

Friday, 3 April 2009

A Small Difference

The others were already ensconced in the library when I arrived at the Diogenes club last week. Manton was holding forth with such force that I could hear him from the lobby, as Henry took my coat and briefcase.

"I'll have a glass of Ardbeg, Henry, when you have a free moment."

"Certainly, sir."

"What's set Manton off today?"

"I believe Mr Manton is somewhat distressed by the news of Sir John Stafford's pension arrangements, sir."

"Ah, of course." Sir John Stafford had, until recently, been the managing director of the Royal Hibernian Bank, and had attracted much adverse comment in the press due to his recently publicised pension arrangements. I opened the door to the library, and flinched as the full force of Manton's invective caught me square in the face.

"....pearl-handled revolver, but I doubt if he would have the guts to use it. Are you seriously trying to defend him, Treworthy?"

"Not at all, Manton, I share your opinion of the man."

"Well what in blazes are you blathering on about?"

"Simply that, no matter what you say, the fact remains that his pension was contractually agreed. There is nothing that anyone can do about it now."

"But he led his company to destruction. He expanded the company so far beyond what it could afford, it collapsed in on itself. He has actually destroyed the entity that was paying him the pension. If it wasn't for the fact that the government - us taxpayers - bailed them out, he wouldn't have a penny."

"That's not actually true, old boy," said Travis. "The money was set aside during his tenure."

"Well it's a pity that he didn't take the same amount of care over his employee's welfare as he clearly did over his own. I mean..... dammit all, he was using a private jet for corporate travel. Since when have bank managers used private jets?"

"There speaks a man who knows little of modern finance." I said, as I joined the group and sat in my chair. The others nodded their greetings as Manton drained his glass and motioned to Henry for another.

"Sorry about that," he said, "was I audible from the lobby?"

"You were probably audible from the end of the street. I take it that you are less than impressed with the recent news."

"Don't set him off again, please." said Abrahams, who had long since given up trying to do the crossword. "We are all of the same opinion, Manton. There just doesn't seem to be much that anyone can do about it."

"I know, that's the bloody annoying thing." snarled Manton.

"Yes, it's not like you to react this way to the news, Manton." said Travis. "If anyone is going to lose their rag, it should be me, given that I lost my job last month."

"I didn't know that, Travis." I said, turning to him in surprise. I could see by the looks on their faces that this was news to the others as well.

"No one did. That's why I haven't been in for a while. With the current situation, I'm amazed that I managed to hang on at the firm as long as I did, but the axe has finally fallen."

"I'm sorry to hear that, old boy." I said. "If there is anything that I can do..."

"The same goes for all of us," said Treworthy, as the others mumbled commiserations, "how are you going to manage?"

"Oh, no need to worry about me. They gave us all a fairly hefty golden handshake, so I should be ok for a while."

He was putting a good face on it, but none of us were fooled.

"Still, I'm going to have to start tightening my belt. This will probably be my last visit to the Club for a while. The annual subscriptions are due soon, and as we all know, they aren't cheap."

That dampened the atmosphere quite a bit. Manton seemed to have suddenly become tired, as if the anger that had been sustaining him had gone. We spent a few minutes silently meditating on the brave new world that seemed to be unfolding, and then Manton spoke, his voice unusually quiet.

"This sort of thing has always bothered me really, but I've always tucked it away in the back of my head, like we all do, and tried to forget about it, so that I could get on with life. But all this has put me in mind of old Kropotkin."

"The Russian anarchist?" asked Abrahams.

"No, no, a chap I knew at University. Joe Kropotkin. That was what we called him. I can't remember his real name. He was a real class warrior. Hated the rich with a passion - he actually argued that they were a different species."

"What, on a genetic level?" I asked. "Surely he wasn't serious?"

"Oh, deadly serious. He got sent down after a particularly lively sit-in when we occupied the Vice-Chancellor's office back in the Seventies."

"Manton, you never fail to surprise me." said Treworthy. "I've never seen you as a political activist."

"It was a long time ago, Treworthy. The cynic that currently sits before you didn't spring out of the ether fully formed."

"So what happened to him? Kropotkin, I mean." I said.

"He ended up living on an commune up in the Pennines, somewhere. You know, the sort of place where all property is held in common. We stayed in touch for a while."

"What brought him to mind?"

"Well, we used to have conversations about society, and our place in it, long into the night, as one does at that age. As I say, he always had a thing about the rich. He said that they really did regard ordinary people as dirt, beneath contempt. They were simply there to be exploited, used to generate wealth that the rich could then steal, so that they could stay rich."

"That's a bit strong."

"Oh, he absolutely believed it. He was the only person I have ever met who has actually read all three volumes of Das Kapital - and that includes all the academics who really should have read it but who made do with 'Marx for dummies' when they thought no one was looking."

"What evidence did he offer to support his hypothesis, Manton?" said Abrahams, ever the scientist.

"Well, one of the distinguishing features of the rich is that they show no shame whatsoever. They are not in the slightest bit embarrassed to possess grotesquely greater amounts of money than most other people, or embarrassed about the way that they have to treat those people in order to get their money. Indeed, their great masterstroke was to remake the world into a place where they are the normal ones, and it is the ordinary people who are at fault because they are so poor."

"It all sounds a bit far-fetched."

"Well yes, but we don't really complain about this stuff, do we? Unless something goes wrong, like it has recently. Why aren't people out on the streets? These idiot money men have brought the global economy to the point of collapse and it is only in the last couple of weeks that people have started to protest. There ought to have been riots on the streets by now."

"Well, there still might be. Things are going to get a lot worse before they get better." said Travis.

"One of Kropotkin's notions was that there ought to be, not only a minimum wage, but also a maximum wage."

"Don't be ridiculous, that would never work." said Treworthy.

"That's what I used to say," replied Manton, "I would point out to him that a company has to be free to pay whatever wages it wants, so that it can attract the right calibre of people."

"Yes, it must be difficult to find people who are able to bring the global economy to the point of meltdown. They don't just grow on trees, you know." I commented.

"Perhaps we could apply this idea to teachers and nurses? There are shortages in many areas. Maybe we ought to pay them the wages that the market demands." said Abrahams.

"Don't be ridiculous, old boy," said Travis, getting in the spirit of the thing, "that would cost a bloody fortune. Maybe as much as much as one percent of what the Government spent on bailing out the banks."

"And yet no one complains. They just accept it. That was what Kropotkin was getting at," said Manton. "Let's say that we set the maximum wage at £500,000 .. no, make it £1,000,000 a year. Now you can understand rich people complaining about that, because they get more, but why do any of us? None of us, in our wildest dreams, will ever be able to earn that sort of money in a year. And yet we disagree with the very idea of a maximum wage."

"Ah, but there is just the smallest chance that we might be able to earn it." said Treworthy. "That's why."

"And that's how they do it, according to Joe. That's how they make themselves the normal ones, and shape society accordingly. We are all complicit in it. Why do you think the national lottery is so lucrative?"

"Well, because people like the idea that they can get huge amounts of money by doing nothing."

"Exactly. That's also why they have tried really hard to promote the idea of everyone being able to own shares. A nation of small investors. To the extent that they turned building societies into banks and gave shares to people whether they wanted them or not. That really used to get Joe frothing at the mouth. 'Can't they see that they are just turning themselves into cannon fodder for the big investors?' It's like the lottery - it's just another way of harvesting money from the masses. He used to get really wound up about it. He always said that making money without actually contributing anything useful to society had always been the province of the rich, and you expect them to do that, but he couldn't understand why everyone else bought into that dream - especially as the rich would never allow more than a few people to ever actually achieve it."

"But hang on Manton," I interjected, "surely if someone has started up a company, and provided employment, they have a right to a decent wage."

"Yes, but he wasn't talking about entrepreneurs with a few paltry millions, he was talking about the sort of people who can spend £30,000 a night on drinks or £20,000 a night on a hotel room. Even if I was able to get Joe to agree that they should earn more than the workers, he could never agree on the proportions. Even a managing director isn't worth 1,000 times more than the workers, he'd say. There are always ambitious, up and coming managing directors out there who are willing to do the job for less. We had some great arguments about that. But we did agree on one thing - that it isn't a sustainable way of doing things."

"What, the idea that anyone can do it? - that we should all aspire to becoming rich ourselves?"

"Exactly. That scheme only works for the few at the top of the pyramid. They can get away with it as long as most people are putting in the effort at the bottom. But if everyone tries to make money by doing nothing, then nothing will get done, and the money stops being generated."

"As Bernard Madoff's investors have discovered." added Treworthy.

"It's like my place", said Abrahams, "we have hundreds of managers and employment liason officers, and equality administrators, and openness focus groups, but they don't seem to have enough money to pay us lecturers."

"Well, at least you've got a decent pension scheme." said Travis, rather morosely.

"True, but for how much longer?" replied Abrahams.

"Yes, you'll never guess what I heard on the radio the other day." I said, "A banker complaining about how unfair the public sector pensions are, and how we were all in this together and how we all ought to be sharing the pain."

"I don't seem to remember 'us all being in it all together' when they were all earning about ten times what I do." said Abrahams, somewhat sharply.

"Exactly what Kropotkin used to say. And what do we do about it? Do we make it illegal to make money by doing nothing? No, of course not. How are the rich and powerful supposed to maintain their position at the top of the heap if we do something like that? They trot out the old line about how their money-making abilities are what keeps our country at the forefront of world trade, and if we upset them too much, they will up sticks and take their expertise elsewhere."

"I think if you asked the man on the street at the moment, the message would be 'Goodbye and good riddance'," I said, "and I would be inclined to agree with them. Why should I wish to share my planet with these people? What do they contribute to society - to any of our lives?"

"Oh come now, it's easy to say that now that they have messed everything up..." started Treworthy.

"Ah but old Kropotkin went further. He said it's actually true all the time, no matter what the economy is doing. In fact it is more true when the economy is booming, but no one cares then."

"That's all well and good, Manton," said Treworthy, "but as I said before, there are no legal obstacles to this man Stafford's pension. It was all arranged perfectly properly - no matter how distasteful we find it, and even if it does throw a rather shaming light onto how these things tend to be arranged amongst the great and the good - there is little that the government or anyone else can do about it."

"Oh I agree. What makes me angry is that he feels no moral impulse to do so himself. Joe was right: they have no shame. Absolutely none. If I had been responsible for managing a company so badly that I had destroyed it, thrown thousands of my own employees out of work and been part of bringing the global economy to the point of collapse, resulting in lots of other people being thrown out of work, I'd be too embarassed to keep my state pension, let alone a private one worth half a million."

"Oh come off it, Manton. That's easy to say, but I bet you would hold onto that money if you were in his place. It's just human nature." said Treworthy.

"I'm sorry Treworthy," said Manton, a tightness in his voice that wasn't normally there, "but you clearly don't know me as well as you think you do. I would be too ashamed to show my face in public, never mind siphoning off half a million a year of what is effectively taxpayer's money."

"Well, that's why you will never be a leader of industry, Manton." I said, trying to relieve the tension.

"Stafford wasn't a leader of industry. He was in charge of a bank. Not that he had any formal banking qualifications, from what I can gather." added Travis.

Manton gulped down the last of his drink and banged his glass down.

"Well I'm sick of the idea that these people are movers and shakers, that can generate wealth from nothing, and that we are supposed to revere them, and pay them obscene amounts of money just in case they decide to take their so-called 'expertise' elsewhere. I didn't believe it before the crash and I certainly don't now. As far as I'm concerned, they can all f..."

"Steady on, Manton, remember what your doctor said about your heart." I said, genuinely worried, as his face seemed to be turning an even more worrying shade of crimson than normal. He paused and took a few deep breaths.

"In fact it's not just that. I'll tell you what makes it even worse. It's the politicians that buy in to the myth, instead of regulating the money men properly. I'm sick of them, and I'm sick of all the people who vote for the politicians, who also buy into the myth. Especially as it's the tax money of those same voters that is now being used to pay for all the greed and incompetence. We don't bloody deserve an economic recovery. Everyone trying to get something for nothing, treating their fellows with contempt. No one seems to want to do what's right. It's a shambles. It's a bloody shambles, the whole thing."

"Come now, Manton, calm down. This isn't like you." said Travis.

After a few seconds Manton got up.

"No, you're right. I'm sorry Gentlemen, I'm not fit company at the moment. My cynicism seems to have temporarily deserted me. Please forgive me." and with that he left.

The room was silent for a moment, while we recovered. None of us had seen Manton let things get the better of him before.

"Well I wasn't expecting that." said Treworthy.

"I don't think any of us were."

We carried on talking for a while, but our hearts weren't in it. As the clock struck eleven, Travis said:

"Well, I'd better go and settle up my accounts and resign my membership. I hope you'll allow me to buy you all one last round of drinks, gentlemen? Where's Henry?"

"This is a sad day, Travis." said Abrahams

"Won't be the same without you, old boy." added Treworthy.

Henry glided over. "Yes, sir?"

"I'd like to buy one more round of drinks for my friends, Henry, and then it is my sad duty to resign my membership."

"Resign, sir?"

"I'm afraid so. Financial constraints have placed me in an impossible position, and I simply cannot afford next year's subscription. I have become a victim of the recession."

"If you will forgive me, sir, I'm afraid I can't accept."

"I beg your pardon?"

"What on earth do you mean, Henry?" I asked. "Have you taken leave of your senses?"

"I hope not, sir. I simply mean that Mr Travis's membership subscription for next year has already been paid, in full."

"What? This isn't some sort of joke, is it Henry?" exclaimed Travis.

"I am not normally given to impromptu witticism, sir."

"Well ... explain yourself then."

"It is quite simple sir. Mr Manton paid your subscription as he was leaving."


"Yes, sir. And he instructed me to give you all a message."

"What did he say?"

"Simply that he apologised once more for his outburst, and that he hoped this small gesture would be some small comfort in the difficult times ahead. He also said that even if men like Sir John Stafford did not know how to behave decently, knighthood notwithstanding, someone needed to start setting a better example."

"Good Lord." exclaimed Abrahams.

"He's not such a cynic after all." said Treworthy.

"Well I for one won't complain. I'm very grateful to him." said Travis.

"I must admit that I had always viewed Manton as the first man among us. The cynic's cynic. What about you, Henry? Have you ever seen this side to him?"

"It's not for me to say, sir. Although I do know that he does not regard himself as a cynic."


"Yes, sir. He once described himself to me as 'a constantly disappointed optimist', which I have always found to be a more appropriate description than 'cynic'. It is a small difference, but one which I suspect will serve him well during the financial difficulties ahead."

"Well, he's certainly cheered me up." said Travis. "Now what about that drink?"

Sunday, 25 January 2009

Contrary En-djinns of war

Most of us can trace our existence back through time.

We may even come to know the strange vicissitudes, narrow escapes or long wanderings of our fore-fathers. If we are lucky they may relate something of their adventures to us.

That is, if they have not fallen in the former holocausts of war or suffered some tragic or premature fate. When that happens we have not just lost some enlightenment, we have lost our past.

Letting slip the dogs of war invites all sorts of consequences.

War is a particularly cruel sieve that scatters or sorts the genes from which we may derive.

My father was a pilot and intelligence officer in WW2 for 454 squadron and would not have been my father if he had not sidestepped an unfortunate fuel starvation fault in the Baltimore bomber. This was no random shrapnel event (one that he also survived) but a design fault that was only exposed in the necessary extreme manoevers of war. See:

http://454-459squadrons.org.au/454 History.htm

So for me war, the architecture of war, the design of the engines of destruction, was personal before I became or could become a sentient being. It was going on when I was innocent. It goes on today…and for my name if not in my name.

What then of a design fault that condemned others to an early sudden death if they were brave, or left the survivors facing the charge of lack of moral fibre for excusing themselves from the fray when they knew the odds were so bad it was best to run and fight another day. This is not a cynicism about wartime exploits or a judgement on cowardice in the face of the enemy, but a warning against any overconfidence by the architects of war.

Now, I know the best equipped troops can come a cropper. I know that the new President’s new limousine, as fully armoured as it is, is vulnerable to a simple disc of copper in an improvised explosive.

Google: …concave copper armour pierce Obama….

No one is safe from ‘the dog-whip’s reach’ now. And we all have microwave ovens which can easily be modified to take out our neighbour’s if we have that intent.

But I also know that we (and the children we might have had) can be wiped from the ledgers of life by the stroke of a designers pen, with a complete absence of intent on their part. More so in the scrabble of total war when an unfortunate design oversight can be made unnecessary by a simple improvement in technology by the enemy.

All the more reason for intelligent design, anticipating your enemy, or outwitting him, rather than a negative cynicism.
Even Diogenes carried a big stick for when argument or example failed. But neither might have been enough if his enemies were more determined than him.

Then anything, any means, becomes a device, a design, a construction erected in our name. Otherwise there might be no one to erect anything in our memory.

I have just been reading the papers of a recently deceased uncle, an ex-Halton boy who joined the RAF in the days of string-bag aircraft and worked as an engineer on radial engines, then the Vulcan bomber and the Concorde, seeing the best of design and at least hearing about some of the worst designs that cost many lives.

Also he was stationed with some of our then 40 national nuclear strike Vulcan aircraft, assisting the crews who were in their cockpits at one point (on October the 27th, 1962). They were on 15 minute standby for a whole weekend waiting to see if they were required to unleash nuclear bombs at the heart of the Soviet Union. This has only recently become public knowledge.

That would have cost many lives more than the assassination of a President or the engineering faults of a few aircraft.

He was a patriot who nevertheless passed another story down to me, about the WW2 “Brewster Buffalo” aircraft.

Here are a few excerpts from a book he mentioned:

A Captain Phillip R White said in the book ” that any commander who orders pilots out for combat in a Brewster should consider the pilot as lost before leaving the ground”….

…it seems the Americans had made the awful mistake of believing their own PR…. Aided no doubt by early models, one ton lighter having some success with the Finnish Air Force against enemy biplanes.

In comparing the ‘Brewster Buffalo’ to its then Japanese opponent, the Mitsubishi Zero, ….the Brewster was a big barge, full of armour plate but with rotten little guns; while the Zero was extremely light, with fantastic range, and two big cannons firing explosive shells. A Zero could out turn a Brewster without even trying….

As if that wasn’t enough, there were reports of sabotage in the American factory…drilling holes in a life saving arrester hook to weaken it. One flight of three buffaloes intercepted some bombers only to find that out of their combined total of twelve guns only one was working. In three months 154 Buffaloes were destroyed by Japanese enemy action, one entire squadron was wiped out to a man. Only one Buffalo survived the fall of Singapore.

The above was published in a book “ the World’s Worst Aircraft” found in Nelson Public Library, New Zealand, but my late uncle appended this note which as far as I know has never been published about a Far East incident regarding the 27th Squadron.

…”21 Squadron RAAF were with them and were supposed to be an escort for 27 on the way out to their target and to rendevous half way on 27’s return from their mission. On the last 27 mission there was no escort awaiting them at the halfway mark and when they got back to Sungi Patani airfield they found the base deserted with Buffaloes all over the place and fuel tankers belching out fuel unattended, the stores ransacked and all the Aussies vanished off the base.
The only ‘erks’ or ground staff were 27’s and they were stationed on the opposite side of the airfield to 21 Squadron. Apparently there was a fifth column report that the ‘Japs’ were five miles away in the rubber advancing and the Aussies just up and skidaddled leaving 27 to cope with the situation. …but there is no doubt that they had to fly with an aircraft which they knew was useless against the ‘Japs’ who bombed Singapore from 27,000 feet and the Buffaloes could only reach 17,000 feet . Not that they could have done much good against the Zero escorts”.

From the book again, “one pilot , ‘Pappy’ Boyington, speaking from a mess bar that was understandably riddled with machine gun bullet holes, was told as a newcomer that “Long before the RAF gets around to announcing an alert, you will see two Brewster Buffaloes take off in a Westerly direction regardless of the wind sock. That’s the signal”, he was told, The Japanese were flying in from the East.”

So much for distant events.

Also passed down to me, this time, from my Grandfather, I have a rare Tissot gold hunter stopwatch that he had been given to him by a wartime ‘test’ pilot, Walter Handley.

They flew together as civilians before the war. Walter was a famous TT rider, motor-car racer and a test pilot. Once in practice he found himself going in the wrong direction but often won races and once managed to set the fastest lap record.

He broke every bone in his body apparently and was helped by my Grandfather from time to time according to family testimony. He would have been an unfortunate choice of pilot if the aircraft he flew failed on him, being a celebrity much admired by his peers. This is exactly what happened

He died flying an RAF Bell P-39 Airacobra in Scotland in 1941. Whilst later models had some success, apparently RAF fighter pilots soon dismissed the heavy fighter as a “widowmaker” and simply refused to fly it. Internet forums have noticed USAF pilots in the Pacific joking saying “they would have preferred to fly trucks, as they had “better speed and a higher service ceiling”.

It was mid-engined and with a propshaft leading forward to the propeller, accidents were best avoided. I am a veteran of a propshaft failing beneath my feet and the complex mathematics of physical force usually prevails over the supposed easy arithmetic of flight.

But for me, the architecture of war, even the failure or near failure of the design of the engines of war has touched my life in benevolent ways. But not for the millions who have died. Some unnecessarily.

And we are right to be cynical if it will save lives.

It is all about the survival of the fittest normally. Normally those with the most flexibility are those who will prevail.
But that flexibility must also allow for cynicism, dissent, and insisting on safety. It is not all about Heros and Zeros.

I am grateful that my father survived the design flaw of the Baltimore. Because he survived and reported the fuel starvation in a particular manoever, others lives were probably saved. Walter Handley’s sacrifice early on probably saved many more lives. But war insists on sacrifice, and
The organisation of war does not allow for pilots to refuse to fly, for a squadron to run away or to fly in the opposite direction when ordered to engage an enemy. Yet it happens.

Much truth is lost in war, morale has to be kept up, Defeatism has to be kept in check. I hope this account some 60 years after events, offers some hope that lives will today not be wasted at either end of the barrel of a gun, and that other methods are employed so that some good might prevail. We should learn from history that the only ‘sin’ is unnecessary cruelty. Lest We Forget.

Otherwise we might all become cynics. And then we could not prevail. We might as well hole up in a barrel complaining about people stealing our light.

And the inspiration for this piece:

Books, like men, have their fates. Some meet solitary and tragic ends, some fall in holocausts; and some, after strange vicissitudes, narrow escapes, and long wandering, find peaceful asylums where, nursing their scars and mellowed by experience, they will relate something of their adventures to the curious.

James Westfall Thompson,
The Medieval Library.

Monday, 19 January 2009

A History Lesson - Part 2 - The Crash

More extracts from Professor Galbraith's classic work: The Great Crash 1929. A more accessible and witty summary of what happened in that year I have yet to read.

I hope the ghost of the Professor will forgive me for inserting the occasional Diogenerian comment here and there, especially as we currently seem to be living through a similar period in our history.

Most of these extracts come from the chapters in his book that are entitled: 'The Twilight of Illusion' and 'The Crash'. I would urge anyone who is interested in such things, and who wishes to understand more of what is going on today, to invest in this modest volume.

Without doubt, the most striking feature of the financial era which ended in the autumn of 1929 was the desire of people to buy securities and the effect of this on values. But the increase in the number of securities to buy was hardly less striking. And the ingenuity and zeal with which companies were devised in which securities might be sold was as remarkable as anything.

The most notable piece of speculative architecture of the late twenties, and the one by which, more than any other device, the public demand for common stocks was satisfied, was the investment trust or company. The investment trust did not promote new enterprises or enlarge old ones. It merely arranged that people could own stock in old companies through the medium of new ones. Even in the United States, in the twenties, there were limits to the amount of real capital which existing enterprises could use or new ones could be created to employ. The virtue of the investment trust was that it brought about an almost complete divorce of the volume of corporate securities outstanding from the volume of corporate assets in existence. The former could be twice, thrice, or any multiple of the latter. The volume of underwriting business and of securities available for trading on the exchanges all expanded accordingly. So did the securities to own, for the investment trusts sold more securities than they bought. The difference went into the call market, real estate, or the pockets of the promoters. It is hard to imagine an invention better suited to the time or one better designed to eliminate the anxiety about the possible shortage of common stocks.

Things like investment trusts are the holy grail to the financial markets. They don't want to be held back by trivial things like 'How much is the company worth?' or 'How many things have we got to sell to people?'. They want to be able to generate huge profits, out of all proportion to their own size. Imagine if a bank could only lend out the equivalent of how much gold it had in it's vaults? How is it meant to grow into a world beating company that can afford to pay it's executives huge bonuses?

The trouble with selling real things is that once you have sold them all, you have to spend money making or buying more of them. You are limited by your assets - what you have in stock. You are never going to get rich that way.

If you want to get rich, it is vital that you come up with some way - be it investment trusts, consolidated debt obligations, securities or derivatives - that enables you to separate your ability to generate money, from any aspect of reality. Reality is far too limiting. You are interested in unlimited growth. Things in the real world don't grow without limit.

The idea of the investment trust is an old one, although, oddly enough, it came late to the United States. Since the eighties in England and Scotland, investors, mostly smaller ones, had pooled their resources by buying stock in an investment company. The latter, in turn, invested the funds so secured. A typical trust held securities in from five hundred to a thousand operating companies. As a result, the man with a few pounds, or even a few hundred, was able to spread his risk far more widely than were he himself to invest. And the management of the trusts could be expected to have a far better knowledge of companies and prospects in Singapore, Madras, Capetown, and the Argentine, places to which British funds regularly found their way, than the widow in Bristol or the doctor in Glasgow. The smaller risk and better information well justified the modest compensation of those who managed the enterprise. Despite some early misadventures, the investment trusts soon became an established part of the British scene.

The managers of the British trusts normally enjoy the greatest of discretion in investing the funds placed at their disposal. At first the American promoters were wary of asking for such a vote of confidence. Many of the early trusts were [literally] trusts - the investor bought an interest in a specified assortment of securities which were then deposited with a trust company. At the least the promoters committed themselves to a rigorous set of rules on the kinds of securities to be purchased and the way they were to be held and managed. But as the twenties wore along, such niceties disappeared. The investment trust became, in fact, an investment corporation. It sold its securities to the public - sometimes just common stock, more often common and preferred stock, debenture and mortgage bonds - and the proceeds were then invested as the management saw fit. Any possible tendency of the common stockholder to interfere with the management was prevented by selling him non-voting stock or having him assign his voting rights to a management-controlled voting trust.

Brilliant! Use their money, but don't allow them to have any say over how it is used. Which is fine as long as the interest keeps rolling in, of course - no one cares too much. It's when it stops and people realise that their money isn't actually their money any more, that things get interesting.

Historians have told with wonder of one of the promotions at the time of the South Sea Bubble. It was 'For an Undertaking which shall in due time be revealed'. The stock is said to have sold exceedingly well. As promotions the investment trusts were, on the record, more wonderful. They were undertakings the nature of which was never to be revealed, and their stock also sold exceedingly well.

I'm sure that no one would be this stupid today! Fancy buying something without knowing or understanding what it was.

During 1928 an estimated 186 investment trusts were organized; by the early months of 1929 they were being promoted at the rate of approximately one each business day, and a total of 265 made their appearance during the course of the year. In 1927 the trusts sold to the public about $400,000,000 worth of securities; in 1929 they marketed an estimated three billions worth. This was at least a third of all the new capital issues in that year; by the autumn of 1929 the total assets of the investment trusts were estimated to exceed eight billions of dollars. They had increased approximately elevenfold since the beginning of I927.

The parthenogenesis of an investment trust differed from that of an ordinary corporation. In nearly all cases it was sponsored by another company, and by 1929 a surprising number of different kinds of concerns were bringing the trusts into being. Investment banking houses, commercial banks, brokerage firms, securities dealers, and, most important, other investment trusts were busy giving birth to other trusts.

So a company that has no assets is able to borrow enough money to create other companies, none of which have any assets, and they in turn can borrow money to set up yet more companies, none of which have any assets, and so on, and on.

Yet, had these securities all been sold on the market, the proceeds would invariably have been less, and often much less, than the current value of the outstanding securities of the investment company. The latter, obviously, had some claim to value which went well beyond the assets behind them.

That premium was, in effect, the value an admiring community placed on professional financial knowledge, skill, and manipulative ability. To value a portfolio of stocks 'at the market' was to regard it only as inert property. But as the property of an investment trust it was much more, for the portfolio was then combined with the precious ingredient of financial genius. Such special ability could invoke a whole strategy for increasing the value of securities.

Consider by way of illustration, the case of an investment trust organised in 1920 with a capital of $150 million - a plausible size by then. Let it be assumed, further, that a third of the capital was realised from the sale of bonds, a third from preferred stock , and the rest from the sale of common stock. If this $150 million were invested, and if the securities so purchased showed a normal appreciation, the portfolio value would have increased by midsummer by about fifty percent. The assets would be worth $225 million. The bonds and preferred stock would still be worth only $100 million; their earnings would not have increased, and they could claim no greater share of the assets in the hypothetical event of a liquidation of the company. The remaining $125 million, therefore, would underlie the value of the common stock of the trust. The latter, in other words, would have increased in asset value from $50 million to $125 million, or by a hundred and fifty per cent, and as the result of an increase of only fifty per cent in the value of the assets of the trust as a whole.

This was the magic of leverage, but this was not all of it. Were the common stock of the trust, which had so miraculously increased in value, held by still another trust with similar leverage, the common stock of that trust would get an increase of between seven hundred and eight hundred per cent from the original fifty per cent advance. And so forth.

In 1929 the discovery of the wonders of the geometric series struck Wall Street with a force comparable to the invention of the wheel.

There was a rush to sponsor investment trusts which would sponsor investment trusts, which would, in turn, sponsor investment trusts. The miracle of leverage, moreover, made this a relatively costless operation to the ultimate man behind all of the trusts. Having launched one trust and retained a share of the common stock, the capital gains from leverage made it relatively easy to swing a second and larger one which enhanced the gains and made possible a third and still bigger trust.

Ah, leverage. I learned about this magic when I first read Galbraith's book. It seems to be inherent in the way that all financial markets work, at least nowadays. It is what caused the problems then, and it is what has caused many of the problems now. All the laws and regulations that were put in place after 1929, to stop it happening again, have been slowly removed and repealed.

The thing that immediately occurred to me, the first time I read Galbraith's book, was: 'Well that's ok when things are going well, but what happens when things are not going well?'

Galbraith addresses this very point later on in the chapter.

Leverage, it was later to develop, works both ways. Not all of the securities held by the Founders were of a kind calculated to rise indefinitely, much less to resist depression. Some years later the portfolio was found to have contained 5,000 shares of Kreuger and Toll, 20,000 shares of Kolo Products Corporation, an adventuresome new company which was to make soap out of banana oil, and $295,000 in the bonds of the Kingdom of Yugoslavia. As Kreuger and Toll moved down to its ultimate value of nothing, leverage was also at work - geometric series are equally dramatic in reverse. But this aspect of the mathematics of leverage was still unrevealed in early 1929, and notice must first be taken of the most dramatic of all the investment company promotions of that remarkable year, those of Goldman, Sachs.

That's the trouble with financial genius - good on calculating consolidated debt obligations, bad at remembering their school maths lessons.

In the two months after its formation, the new company sold some more stock to the public, and on 21 February it merged with another investment trust, the Financial and Industrial Securities Corporation. The assets of the resulting company were valued at $235 million, reflecting a gain of well over a hundred per cent in under three months. By 2 February, roughly three weeks before the merger, the stock for which the original investors had paid $104 was selling for $136.50. Five days later, on 7 February, it reached $222.50. At this latter figure it had a value approximately twice that of the current total worth of the securities, cash, and other assets owned by the Trading Corporation.

This remarkable premium was not the undiluted result of public enthusiasm for the financial genius of Goldman, Sachs. Goldman, Sachs had considerable enthusiasm for itself, and the Trading Corporation was buying heavily of its own securities. By 14 March it had bought 560,724 shares of its own stock for a total outlay of $57,021,936. This, in turn, had boomed their value. However, perhaps foreseeing the exiguous character of an investment company which had its investments all in its own common stock, the Trading Corporation stopped buying itself in March. Then it resold part of the stock to William Crapo Durant, who re-resold it to the public as opportunity allowed.

That's clever. I don't know if it's legal, but it's very clever.

The spring and early summer were relatively quiet for Goldman, Sachs, but it was a period of preparation. By 26 July it was ready. On that date the Trading Corporation, jointly with Harrison Williams, launched the Shenandoah Corporation, the first of two remarkable trusts. The initial securities issue by Shenandoah was $102,500,000 (there was an additional issue a couple of months later) and it was reported to have been oversubscribed some sevenfold. There were both preferred and common stock, for by now Goldman, Sachs knew the advantages of leverage. Of the five million shares of common stock in the initial offering, two million were taken by the Trading Corporation, and two million by Central States Electric Corporation on behalf of the co-sponsor, Harrison Williams. Williams was a member of the small board along with partners in Goldman, Sachs. Another board member was a prominent New York attorney whose lack of discrimination in this instance may perhaps be attributed to youthful optimism. It was Mr John Foster Dulles. The stock of Shenandoah was issued at $17.50. There was brisk trading on a 'when issued' basis. It opened at 30, reached a high of 36 and closed at 36, or 18.5 above the issue price.

Meanwhile Goldman, Sachs was already preparing its second tribute to the countryside of Thomas Jefferson, the prophet of small and simple enterprises. This was the even mightier Blue Ridge Corporation, which made its appearance on 20 August. Blue Ridge had a capital of $142,000,000, and nothing about it was more remarkable than the fact that it was sponsored by Shenandoah, its precursor by precisely twenty-five days. Blue Ridge had the same board of directors as Shenandoah, including the still optimistic Mr Dulles, and of its 7,250,000 shares of common stock (there was also a substantial issue of preferred) Shenandoah subscribed a total of 6,250,000. Goldman, Sachs by now was applying leverage with a vengeance.

This is all starting to sound a bit incestuous. I don't usually subscribe to the idea of a small clique of rich, powerful people running things behind the scenes, but I am starting to wonder - although this happened in 1929 - I'm sure it's different now.
Having issued more than a quarter of a billion dollars' worth of securities in less than a month - an operation that would not then have been unimpressive for the United States Treasury -activity at Goldman, Sachs subsided somewhat.

Thus, on 1 August the papers announced the formation of Anglo-American Shares, Inc., a company which, with a soigné touch not often seen in a Delaware corporation, had among its directors the Marquess of Carisbrooke, G.C.B., G.C.V.O., and Colonel the Master of Sempill, A.F.C., otherwise identified as the President of the Royal Aeronautical Society, London.

American Insuranstocks Corporation was launched the same day, though boasting no more glamorous a director than William Gibbs McAdoo. On succeeding days came Gude Winmill Trading Corporation, National Republic Investment Trust, Insull Utility Investments, Inc., International Carriers, Ltd, Tri-Continental Allied Corporation, and Solvay American Investment Corporation.

On 13 August the papers also announced that an Assistant U.S. Attorney had visited the offices of the Cosmopolitan Fiscal Corporation and also an investment service called the Financial Counsellor. In both cases the principals were absent. The offices of the Financial Counsellor were equipped with a peephole like a speakeasy.

Do you know, I'm starting to wonder if these were real companies. I think they were just making them up as they went along.

More investment trust securities were offered in September of 1929 even than in August - the total was above $600 million. However, the nearly simultaneous promotion of Shenandoah and Blue Ridge was to stand as the pinnacle of new era finance. It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity. If there must be madness something may be said for having it on a heroic scale.

I'm shocked that a respected economist like Professor Galbraith should describe this behaviour as gargantuan insanity. Clearly he does not understand the complexities of the financial markets, and how they can provide continuous growth and ever-increasing wealth. Forever.

More than the prices of common stocks were rising. So, at an appalling rate, was the volume of speculation.

Brokers' loans during the summer increased at a rate of about $400,000,000 a month. By the end of the summer, the total exceeded seven billions. Of that more than half was being supplied by corporations and individuals, at home and abroad, who were taking advantage of the excellent rate of return which New York was providing on money. Only rarely did the rate on call loans during that summer get as low as six per cent. The normal range was seven to twelve. On one ocasion the rate touched fifteen. Since, as earlier observed, these loans provided all but total safety, liquidity, and ease of administration, the interest would not have seemed unattractive to a usurious moneylender in Bombay. To a few alarmed observers it seemed as though Wall Street were by way of devouring all the money of the entire world. However, in accordance with the cultural practice, as the summer passed, the sound and responsible spokesmen decried not the increase in brokers' loans, but those who insisted on attaching significance to this trend. There was a sharp criticism of the prophets of doom.

There were two sources of intelligence on brokers' loans. One was the monthly tabulation of the New York Stock Exchange, which in general is used here. The other was the slightly less complete return of the Federal Reserve System which was published weekly. Each Friday this report showed a large increase in loans; each Friday it was firmly stated that it didn't mean a thing, and anyone who suggested otherwise was administered a stern rebuke. It seems probable that only a minority of the people in the market related the volume of the brokers' loans to the volume of purchases on margin and thence to the amount of speculation. Accordingly, an expression of concern over these loans was easily attacked as a gratuitous effort to undermine confidence. Thus, in Barren's on 8 July, Sheldon Sinclair Wells explained that those who worried about brokers' loans, and about the influx of funds from corporations, simply did not know what was going on. The call market had become a great new investment outlet for corporate reserves, he argued. The critics did not appreciate this change.

The bankers were also a source of encouragement to those who wished to believe in the permanence of the boom. A great many of them abandoned their historic role as the guardians of the nation's fiscal pessimism and enjoyed a brief respite of optimism. They had reasons for doing so. In the years preceding, a considerable number of the commercial banks, including the largest of the New York houses, had organized securities affiliates. These affiliates sold stocks and bonds to the public, and this business had become important. It was a business that compelled a rosy view of the future. In addition, individual bankers, perhaps taking a cue from the heads of the National City and Chase in New York, were speculating vigorously on their own behalf. They were unlikely to say, much less advocate, anything that would jar the market..

However, there were exceptions. One was Paul M. Warburg of the International Acceptance Bank, whose predictions must be accorded the same prominence as the forecasts of Irving Fisher. They were remarkably prescient. In March 1929, he called for a stronger Federal Reserve policy and argued that if the present orgy of 'unrestrained speculation' were not brought promptly to a halt there would ultimately be a disastrous collapse. This, he suggested, would be unfortunate not alone for the speculators. It would 'bring about a general depression involving the entire country'.

He was clearly a troublemaker - best to ignore him.

Only Wall Street spokesmen who took the most charitable view of Warburg contented themselves with describing him as obsolete. One said he was 'sandbagging American prosperity'. Others hinted that he had a motive - presumably a short position. As the market went up and up, his warnings were recalled only with contempt.

The most notable sceptics were provided by the press. They were a great minority to be sure. Most magazines and most newspapers in 1929 reported the upward sweep of the market with admiration and awe and without alarm. They viewed both the present and the future with exuberance. Moreover, by 1929 numerous journalists were sternly resisting the more subtle blandishments and flattery to which they have been thought susceptible.

Thank goodness - at least they could rely on the gentlemen of the press for fair and objective reporting.

Instead they were demanding cold cash for news favourable to the market. A financial columnist of the Daily News, who signed himself 'The Trader', received some $19,000 in 1929 and early 1930 from a free-lance operator named John J. Levenson. 'The Trader' repeatedly spoke well of stocks in which Mr Levenson was interested. Mr Levenson later insisted, howeyer, that this was a coincidence and the payment reflected his more or less habitual generosity.

Main Street had always had one citizen who could speak knowingly about buying or selling stocks. Now he became an oracle. In New York, on the edge of any gathering of significantly interesting people there had long been a literate broker or investment counsellor who was abreast of current plans for pools, syndicates, and mergers, and was aware of attractive possibilities. He helpfully advised his friends on investments, and pressed, he would always tell what he knew of the market and much that he didn't. Now these men, even in the company of artists, playwrights, poets, and beautiful concubines, suddenly shone forth. Their words, more or less literally, became golden. Their audience listened not with the casual heed of people who are collecting quotable epigrams, but with the truly rapt attention of those who expect to make money by what they hear.

That much of what was repeated about the market - then as now - bore no relation to reality is important, but not remarkable. Between human beings there is a type of intercourse which proceeds not from knowledge, or even from lack of knowledge, but from failure to know what isn't known. This was true of much of the discourse on the market. At luncheon in downtown Scranton, the knowledgeable physician spoke of the impending split-up in the stock of Western Utility Investors and the effect on prices. Neither the doctor nor his listeners knew why there should be a split-up, why it should increase values, or even why Western Utility Investors should have any value. But neither the doctor nor his audience knew that he did not know. Wisdom, itself, is often an abstraction associated not with fact or reality but with the man who asserts it and the manner of its assertion.

In later years, a Senate committee investigating the securities markets undertook to ascertain the number of people who were involved in securities speculation in 1929. The member firms of twenty-nine exchanges in that year reported themselves as having accounts with a total of 1,548,707 customers. (Of these, 1,371,920 were customers of member firms of the New York Stock Exchange.) Thus only one and a half million people, out of a population of approximately 120 million and of between 29 and 30 million families, had an active association of any sort with the stock market. And not all of these were speculators. Brokerage firms estimated for the Senate committee that only about 600,000 of the accounts just mentioned were for margin trading, as compared with roughly 950,000 in which trading was for cash.

The striking thing about the stock market speculation of 1929 was not the massiveness of the participation. Rather it was the way it became central to the culture.

By the end of the summer of 1929, brokers' bulletins and letters no longer contented themselves with saying what stocks would rise that day and by how much. They went on to say that at 2 p.m. Radio or General Motors would be 'taken in hand'. The conviction that the market had become the personal instrument of mysterious but omnipotent men was never stronger. And, indeed, this was a period of exceedingly active pool and syndicate operations - in short, of manipulation.

During 1929 more than a hundred issues on the New York Stock Exchange were subject to manipulative operations, in which members of the Exchange or their partners had participated. The nature of these operations varied somewhat but, in a typical operation, a number of traders pooled their resources to boom a particular stock. They appointed a pool manager, promised not to double-cross each other by private operations, and the pool manager then took a position in the stock which might also include shares contributed by the participants. This buying would increase prices and attract the interest of people watching the tape across the country. The interest of the latter would then be further stimulated by active selling and buying, all of which gave the impression that something big was afloat. Tipsheets and market commentators would tell of exciting developments in the offing. If all went well, the public would come in to buy, and prices would rise on their own. The pool manager would then sell out, pay himself a percentage of the profits, and divide the rest with his investors.

While it lasted, there was never a more agreeable way of making money.

Of course, no party can go on forever. In the end, you always have to pay the piper.

On 3 September, by common consent, the great bull market of the nineteen-twenties came to an end. Economics, as always, vouchsafes us few dramatic turning points. Its events are invariably fuzzy or even indeterminate. On some days that followed - a few only - some averages were actually higher. However, never again did the market manifest its old confidence. The later peaks were not peaks but brief interruptions of a downward trend.

There were some who said, cause and effect run from the economy to the stock market, never the reverse. In 1929 the economy was headed for trouble. Eventually, that trouble was reflected in Wall Street.

In 1929 there were good, or at least strategic, reasons for this view, and it is easy to understand why it has become high doctrine. In Wall Street, as elsewhere in 1929, few people wanted a bad depression. In Wall Street, as elsewhere, there is deep faith in the power of incantation. When the market fell many Wall Street citizens immediately sensed the real danger, which was that income and employment - prosperity in general - would be adversely affected. This had to be prevented.

Preventive incantation required that as many important people as possible repeat as firmly as they could that it wouldn't happen. This they did. They explained how the stock market was merely the froth and that the real substance of economic life rested in production, employment, and spending, all of which would remain unaffected. No one knew for sure that this was so. As an instrument of economic policy, incantation does not permit of minor doubts or scruples.

No one seemed to want to admit that the tail had started to wag the dog. That far from the stock market being the speculative froth on top of the solid, sound and, above all, real economy, the sheer amount of speculation was instead capable of overturning and possibly sinking the real economy. A bit like someone in a tree sawing off the very branch they are sitting on.

I'm not sure how that affects us now, here in dear old Blighty, because for many years we haven't really had much production, so most of our wealth seems to be of the more 'frothy' kind anyway.

In the later years of depression it was important to continue emphasizing the unimportance of the stock market. The depression was an exceptionally disagreeable experience. Wall Street has not always been a cherished symbol in our national life. In some of the devout regions of the nation, those who speculate in stocks - the even more opprobrious term gamblers is used - are not counted the greatest moral adornments of our society. Any explanation of the depression which attributed importance to the market collapse would accordingly have been taken very seriously, and it would have meant serious trouble for Wall Street.

Wall Street, no doubt, would have survived, but there would have been scars. We should be clear that no deliberate conspiracy existed to minimize the consequences of the Wall Street crash for the economy. Rather, it merely appeared to everyone with an instinct for conservative survival that Wall Street had better be kept out of it. It was vulnerable.

Professor Galbraith shows himself to have a truely Diogenerian turn of phrase.

It is in the nature of a speculative boom that almost anything can collapse it. Any serious shock to confidence can cause sales by those speculators who have always hoped to get out before the final collapse, but after all possible gains from rising prices have been reaped. Their pessimism will infect those simpler souls who had thought the market might go up forever but who will now change their minds and sell. Soon there will be margin calls, and still others will be forced to sell. So the bubble breaks.

Along with the downturn of the indexes Wall Street has always attributed importance to two other events in the pricking of the bubble. In England on 20 September 1929 the enterprises of Clarence Hatry suddenly collapsed. Hatry was one of those curiously un-English figures with whom the English periodically find themselves unable to cope. Although his earlier financial history had been anything but reassuring, Hatry in the twenties had built up an industrial and financial empire of truly impressive proportions. The nucleus, all the more remarkably, was a line of coin-in-the-slot vending and automatic photograph machines. From these unprepossessing enterprises he had marched on into investment trusts and high finance. His expansion owed much to the issuance of unauthorized stock, the increase of assets by the forging of stock certificates, and other equally informal financing. In the lore of 1929, the unmasking of Hatry in London is supposed to have struck a sharp blow to confidence in New York.

A bit like Northern Rock asking for help from the Bank of England.

Ranking with Hatry in this lore was the refusal on 11 October of the Massachusetts Department of Public Utilities to allow Boston Edison to split its stocks four to one. As the company argued, such split-ups were much in fashion. To avoid going along was to risk being considered back in the corporate gaslight era. The refusal was unprecedented. Moreover, the Department added insult to injury by announcing an investigation of the company's rates and by suggesting that the present value of the stock, 'due to the action of speculators', had reached a level where 'no one, in our judgement ... on the basis of its earnings, would find it to his advantage to buy it'.

Confidence did not disintegrate at once. As noted, through September and into October, although the trend of the market was generally down, good days came with the bad. Volume was high. On the New York Stock Exchange sales were nearly always above four million, and frequently above five. In September new issues appeared in even greater volume than in August, and they regularly commanded a premium over the offering price. On 20 September the Times noted that the stock of the recently launched Lehman Corporation which had been offered at $104 had sold the day before at $136. (In the case of this well-managed investment trust the public enthusiasm was not entirely misguided.) During September brokers' loans increased by nearly $670 million, by far the largest increase of any month to date. This showed that speculative zeal had not diminished.

Ah, Lehmans - whatever happened to them?

Other signs indicated that the gods of the New Era were still in their temples. In its 12 October issue, The Saturday Evening Post had a lead story by Isaac F. Marcosson on Ivar Kreuger. This was a scoop, for Kreuger had previously been inaccessible to journalists. 'Kreuger,' Marcosson observed, 'like Hoover, is an engineer. He has consistently applied engineer precision to the welding of his far-flung industry.' And this was not the only resemblance. 'Like Hoover,' the author added, 'Kreuger rules through pure reason.'

In the interview Kreuger was remarkably candid on one point. He told Mr Marcosson: 'Whatever success I have had may perhaps be attributable to three things: one is silence, the second is more silence, while the third is still more silence.' This was so. Two and a half years later Kreuger committed suicide in his Paris apartment, and shortly thereafter it was discovered that his aversion to divulging information, especially if accurate, had kept even his most intimate acquaintances in ignorance of the greatest fraud in history. His American underwriters, the eminently respectable firm of Lee, Higginson and Company of Boston, had heard nothing and knew nothing. One of the members of the firm, Donald Durant, was a member of the board of directors of the Kreuger enterprises. He had never attended a directors' meeting, and it is certain that he would have been no wiser had he done so.

Well, the greatest fraud in history until Bernard Madoff hit the headlines.

On Sunday the market was front-page news - the Times headline read, 'Stocks driven down as wave of selling engulfs the market', and the financial editor next day reported for perhaps the tenth time that the end had come. (He had learned, however, to hedge. 'For the time at any rate', he said, 'Wall Street seemed to see the reality of things.') No immediate explanation of the break was forthcoming. The Federal Reserve had long been quiet. Babson had said nothing new. Hatry and the Massachusetts Department of Public Utilities were from a week to a month in the past. They became explanations only later.

The papers that Sunday carried three comments which were to become familiar in the days that followed. After Saturday's trading, it was noted, quite a few margin calls went out. This meant that the value of stock which the recipients held on margin had declined to the point where it was no longer sufficient collateral for the loan that had paid for it. The speculator was being asked for more cash.

The other two observations were more reassuring. The papers agreed, and this was also the informed view on Wall Street, that the worst was over. And it was predicted that on the following day the market would begin to receive organized support. Weakness, should it appear, would be tolerated no longer.

Never was there a phrase with more magic than 'organized support'. Almost immediately it was on every tongue and in every news story about the market. Organized support meant that powerful people would organize to keep prices of stocks at a reasonable level. Opinions differed as to who would organize this support. Some had in mind the big operators like Cutten, Durant, and Raskob. They, of all people, couldn't afford a collapse. Some thought of the bankers - Charles Mitchell had acted once before, and certainly if things got bad he would act again. Some had in mind the investment trusts. They held huge portfolios of common stocks, and obviously they could not afford to have them become cheap. Also, they had cash. So if stocks did become cheap the investment trusts would be in the market picking up bargains. This would mean that the bargains wouldn't last. With so many people wanting to avoid a further fall, a further fall would clearly be avoided.

In the ensuing weeks the Sabbath pause had a marked tendency to breed uneasiness and doubts and pessimism and a decision to get out on Monday. This, it seems certain, was what happened on Sunday, 20 October.

Monday, 21 October, was a very poor day. Sales totalled 6,091,870, the third greatest volume in history, and some tens of thousands who were watching the market throughout the country made a disturbing discovery. There was no way of telling what was happening.

Previously on big days of the bull market the ticker had often fallen behind, and one didn't discover until well after the market closed how much richer he had become. But the experience with a falling market had been much more limited. Not since March had the ticker fallen seriously behind on declining values. Many now learned for the first time that they could be ruined, totally and forever, and not even know it. And if they were not ruined there was a strong tendency to imagine it. From the opening on the 21st the ticker lagged, and by noon it was an hour late. Not till an hour and forty minutes after the close of the market did it record the last transaction. Every ten minutes prices of selected bonds were printed on the bond ticker, but the wide divergence between these and the prices on the tape only added to the uneasiness - and to the growing conviction that it might be best to sell.

Of course that could never happen today, with modern technology. Provided that the computer's don't crash. Or a particularly virulent computer virus infests the computer networks used by the financial centres. Or a ship's anchor slices through an undersea cable. Or the country becomes the victim of a cyberattack from a hostile nation.

On Tuesday, Charles M. Mitchell dropped anchor in New York with the observation that 'the decline had gone too far'. (Time and sundry congressional and court proceedings were to show that Mr Mitchell had strong personal reasons for feeling that way.) He added that conditions were 'fundamentally sound', said again that too much attention had been paid to the large volume of brokers' loans, and concluded that the situation was one which would correct itself if left alone.

However, another jarring suggestion came from Babson. He recommended selling stocks and buying gold.

That afternoon and evening thousands of speculators decided to get out while - as they mistakenly supposed - the getting was good. Other thousands were told they had no choice but to get out unless they posted more collateral, for as the day's business came to an end an unprecedented volume of margin calls went out.

Thursday, 24 October, is the first of the days which history - such as it is on the subject - identifies with the panic of 1929. Measured by disorder, fright, and confusion, it deserves to be so regarded. That day 12,894,650 shares changed hands, many of them at prices which shattered the dreams and the hopes of those who had owned them. Of all the mysteries of the Stock Exchange there is none so impenetrable as why there should be a buyer for everyone who seeks to sell. 24 October 1929, showed that what is mysterious is not inevitable. Often there were no buyers, and only after wide vertical declines could anyone be induced to bid.

The panic did not last all day. It was a phenomenon of the morning hours. The market opening itself was unspectacular, and for a while prices were firm. Volume, however, was very large, and soon prices began to sag. Once again the ticker dropped behind. Prices fell further and faster, and the ticker lagged more and more. By eleven o'clock the market had degenerated into a wild, mad scramble to sell. In the crowded boardrooms across the country the ticker told of a frightful collapse. But the selected quotations coming in over the bond ticker also showed that current values were far below the ancient history of the tape. The uncertainty led more and more people to try to sell. Others, no longer able to respond to margin calls, were sold out.

By eleven-thirty the market had surrendered to blind, relentless fear. This, indeed, was panic.

Outside the Exchange in Broad Street a weird roar could be heard. A crowd gathered. Police Commissioner Grover Whalen became aware that something was happening and dispatched a special police detail to Wall Street to ensure the peace. More people came and waited, though apparently no one knew for what. A workman appeared atop one of the high buildings to accomplish some repairs, and the multitude assumed he was a would-be suicide and waited impatiently for him to jump.

In New York at least the panic was over by noon. At noon the organised support appeared.

A bit like our Government pumping £37 billion into our banking system. They are about to do it again, presumably because it worked so well the first time. Get banks lending. Get people spending. Get back to normal.

Or maybe we are starting to get a glimpse of just how little real money we have really got, and see just how successful - or unsuccessful - some companies, including banks, really are. That is, when you take away the make-believe money that the financial markets seem to work with.

At twelve o'clock reporters learned that a meeting [of the chief executives of the major banks] was convened at 23 Wall Street at the offices of JP Morgan and Company. A decision was quickly reached to pool resources to support the market. Prices firmed at once and started to rise.

Then at one thirty Richard Whitney appeared on the trading floor and went to the post where steel was traded. [...] He bid 205 for 10,000 shares. This was the price of the last sale, and the current bids were several points lower.

This was it. The bankers, obviously, had moved in. The effect was electric. Fear vanished and gave way to concern lest the new advance be missed. Prices boomed upwards.

On Friday and Saturday trading continued heavy - just under six million on Friday and over two million at the short session on Saturday. Prices, on the whole, were steady - the averages were a trifle up on Friday but slid off on Saturday. It was thought that the bankers were able to dispose of most of the securities they had acquired while shoring up the market on Thursday. Not only were things better, but everyone was clear as to who had made them so. The bankers had shown both their courage and their power, and the people applauded warmly and generously. The financial community, the Times said, now felt 'secure in the knowledge that the most powerful banks in the country stood ready to prevent a recurrence [of panic]'. As a result it had 'relaxed its anxiety'.

Almost everyone believed that the heavenly knuckle-rapping was over and that speculation could be now resumed in earnest. The papers were full of the prospects for next week's market.

Stocks, it was agreed, were again cheap and accordingly there would be a heavy rush to buy. Numerous stories from the brokerage houses, some of them possibly inspired, told of a fabulous volume of buying orders which was piling up in anticipation of the opening of the market. In a concerted advertising campaign in Monday's papers, stock market firms urged the wisdom of picking up these bargains promptly. 'We believe', said one house, 'that the investor who purchases securities at this time with the discrimination that is always a condition of prudent investing, may do so with utmost confidence.

On Monday the real disaster began.

Coming soon: Things become more serious - The Aftermath