As usual, there were dark portents. On Sept. 5, 1929, just two days after the New York stock market reached its highest level in history, an eccentric statistician named Roger Babson warned the National Business Conference that "sooner or later a crash is coming, and it may be terrific." The market responded nervously, with the New York Times's 25 leading industrial stocks taking a 10-point dip, then recovering. The Times fretted about the "idea of an utterly disastrous and paralyzing crash."
Also as usual, the portents went largely ignored. People yearned to believe what the authorities told them. Calvin Coolidge, on turning over the White House to Herbert Hoover earlier that year, had pronounced the U.S. economy "absolutely sound." Charles E. Mitchell, chairman of the National City Bank of New York, echoed the former President in early October by declaring that the "industrial situation of the U.S. is absolutely sound, and our credit situation is in no way critical."
That is what the market seemed to have been saying for some time. The average top price for the Times industrials had risen from 186 in 1926 to 469. Just in the previous 18 months, General Motors had climbed from 73 to 140, General Electric from 129 to 396. Best of all, in the view of the investors who spent much of their spare time eyeing the tickers in the brokerage houses that were springing up around the country, stocks could be bought on margin, or credit, for as little as 10% in cash. About one-third of the nation's more than 3 million stockholders were playing the market on margin, and people at dinner parties kept telling stories about barbers or messenger boys who had kept their ears open, bought on margin and become millionaires. John J. Raskob, who had been a director of General Motors and was now the Democratic Party chairman, published an article titled "Everybody Ought to Be Rich." The jazz age would never end. What almost nobody seemed to notice was that while the leading stocks kept climbing, many others did not. Celanese, for example, had dropped from 118 to 66 since 1927, Philip Morris from 41 to 12. The speculators also did not seem to notice that the allegedly sound economy had started slowing. By October of 1929 the Federal Reserve index of industrial production had dropped from 126 to 117 since June. Homebuilding had been down for several years, and farming had been in trouble since the early 1920s.
Or if they noticed, they didn't believe. Though stocks zigzagged but generally declined through September, Banker Mitchell announced on Oct. 15 that the "markets generally are now in a healthy condition." Irving Fisher, a Yale professor of political economy, declared that stock prices had reached "what looks like a permanently high plateau."
One thing people did notice the following week was that quite a few brokers were sending out quite a few margin calls: speculators who had bought declining stocks on credit would have to provide more cash or face the loss of their stocks. Late on Wednesday, Oct. 23, came a sharp break: 2.6 million shares sold in the closing hour. The Times industrial average dropped from 415 to 384. The market looked ahead to the next day's opening with a sense of dread.