The 80th anniversary of the Wall Street crash of 1929 is now upon us. But this time of year brings the anniversary of a few other infamous financial panics, too: 2008 (September and October, roughly), 1987 (Black Monday, Oct. 19), 1907 (began in October) and 1873 (began in September).
Autumn seems to beget a disproportionate share of American financial crises. But why?
Once upon a time, there was a relatively clear-cut explanation for fall financial market problems: the crop cycle.
From “The First Tycoon: The Epic Life of Cornelius Vanderbilt”:
As described earlier, the creation of a national bank system formalized the centralization of the U.S. financial structure in the city of New York. With the restriction of gold to specialized uses (mostly in the import and export trade), the volume of money was ultimately pegged to the number of physical greenbacks authorized by Congress. To use the technical term, this was “high-powered money.” All bank deposits and national banknotes were redeemable in greenbacks, so national banks were obligated to maintain a minimum reserve of them. The law required “country banks” to deposit reserves with national banks in designated cities, which in turn had to deposit their own reserves in New York. All year long, money flowed from the countryside toward New York, where banks loaned this surplus to stockbrokers. This was the money that brokers used to finance the purchase of securities on margin.
What went to New York did not stay in New York; like tourists from Topeka, those greenback reserves toured Wall Street and then went home again. In the fall, the harvest and shipping of foodstuffs to the seacoast — known as “the moving of the crops” — required a countermovement of currency to the countryside to accommodate the accompanying flurry of transactions. Country banks drew down their accounts in reserve cities; those banks drew down accounts in New York; and New York banks called in their loans to brokers. Stock trading slowed; prices tended to stall or fall. For this reason, Wall Street panics almost always occurred late in the year.
But the shrinking of the agricultural sector as a share of the overall economy, plus the Federal Reserve’s ability to more finely calibrate the money supply, mean that this annual liquidity problem should no longer exist.
So what explains all the autumnal financial crises since then?
Perhaps the rhythm of the school year, so ingrained in the American family’s calendar, means that problems that appear earlier in the year are allowed to fester during summer vacation and then finally explode right when workers return from the Poconos. Or perhaps the approaching Christmas-bonus season gets businesses and people looking more closely at their balance sheets.
Or perhaps it’s just randomness creating the illusion of a pattern. These are, after all, relatively few data points.
Are there alternative explanations?
“Summer is for vacations, and for putting things off.”? That may be why “Sell in May, and go away” still works so well.
Mere formally, consider a model where possible defaults on payments are accumulating. There comes a point where one default triggers others. That point is more likely to occur when people get round to pressing for payment - after the vacations.
“Fall”.
Enough said!
The shorter days and approaching winter may make people in the Northern Hemisphere apprehensive of the dark days ahead and put them in a mood to hoard their resources. The fall just seems like a natural time to pull back.
“Are there alternative explanations?” asks Catherine Rampell.
Biology?
Dwindling light in the northern hemisphere signals to us that it’s time to take stock and lay in supplies, to refrain from risks, to lay low. To examine — with our minds and eyes and hearts shaped by the scores of generations before us who survived humanity’s countless famines — whether we have means to survive yet another winter. Even our exposure to celebrity culture, free-trade sermons and consumer advertising cannot erase the harsh fact of famine and hardship within the recent family experience of almost every one of us.
September-October is under the sign of Libra. Venus, planet of money, rules Libra; and Saturn, planet of limitation, is exalted in Libra. Combine the two: a limitation of money. Voila.
I was going to simply say: “Halloween is responsible” but I thought I might try a more serious explanation.
Equity markets are b.s. driven. The summer affords an ideal environment for pitching equities because all of the players are not on the field and volatility is higher. As Fall arrives and year’s end grows close individuals are concerned about tax ramifications and mutual funds are concerned about their year end balance sheet and the “irrational exuberance” of the summer fades as decisions making becomes more objective.
The coming end of the fiscal year? If you want to book some of your profits, you would be wise to do it before the end of the year AND before everyone else does. If you wait too long, you might be the last one out.
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David Leonhardt writes the Economic Scene column, which appears in The Times on Wednesdays.
Catherine Rampell is the economics editor at nytimes.com.
R.M. Schneiderman is a Web producer for nytimes.com.
Marc Lacey is The Times's bureau chief for Mexico, Central America and the Caribbean.
Carter Dougherty is a European economic correspondent for The Times and the International Herald Tribune.
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