by Vanda Krefft
Fox was so relieved that on Sunday evening, October 27, he attended the Jewish Theatrical Guild’s annual dinner at the Commodore Hotel. There, the stock market disturbance was literally a laughing matter. Toastmaster Eddie Cantor joked, “As for myself, I am not worried. My broker is going to carry me—he and three other pall-bearers.”
By the afternoon of Monday, October 28, Fox had disposed of all $20 million of his personal non-Fox or non-Loew’s stock. He got out just in time. Toward the end of Monday’s trading, panic set in again on the New York Stock Exchange, causing a massive sell-off at swiftly falling prices. Of the day’s trading volume of 9.25 million shares, nearly one-third of the sales occurred in the last hour, by which time Fox had completed his transactions. The day’s losses exceeded those of the entire previous week.
Ominously, the five bankers who had intervened the previous Thursday refused to prop up the market. On the evening of Monday, October 28, Morgan Co. partners Thomas W. Lamont and George Whitney announced that the group would no longer shore up falling prices but would try merely to maintain order in the market. As John Kenneth Galbraith would write, “The speculator’s only comfort, henceforth, was that his ruin would be accomplished in an orderly and becoming manner.”
The next day, “Black Tuesday,” October 29, the earth cracked open and everything tumbled into the abyss. In a “violent succession of downward plunges,” investors dumped a record 16.4 million shares onto the New York Stock Exchange. The good went with the bad. Blue-chip stocks—those of companies such as General Electric, RCA, Allied Chemical, Westinghouse, General Motors, and DuPont—fell by as much as 70 points. In less than a week, the market value of securities listed on New York stock exchanges had declined by $12–$15 billion.
Fox was completely unprepared for Black Tuesday. Relieved at having wrenched $20 million out of the plunging stock market the previous day, he stayed home in the Fox Hall boathouse, where he had been living since the car accident. While it was true that he had avoided instant ruin—had he waited until Black Tuesday to sell, both he and the Fox companies would have been bankrupt—he was by no means out of trouble.
In acquiring the additional 260,990 Loew’s shares during the spring of 1929, he had bought on margin using borrowed money. That is, he put up a fraction of the purchase price, perhaps as little as 10 or 20 percent. At the time, there was no minimum margin required either by law or by the New York Stock Exchange. To make the margin payments, he had taken out bank loans. He supplied the rest of the stock’s purchase price through brokers’ loans, which entitled the brokers to hold the Loew’s shares as collateral.
Margin buying, a widespread practice during the late 1920s, works well in an up market because as the share price rises, so does the investor’s equity. If, for instance, one puts up 50 percent of an $80 stock and the market price rises to $100, then instead of $40 of equity, one now has $60 of equity. If the market price falls, the reverse is true: one loses equity and must provide additional money or collateral to restore the position. That is, if the $80 stock falls to $60, one loses $20 in equity and must replace that $20. The buyer who fails to meet such a “margin call” forfeits everything, because the broker can keep the cash and collateral provided so far and sell off the stock to get back as much as possible.
Before Black Tuesday, Fox had met margin calls on the additional Loew’s shares with profits from the sale of his non-Fox and non-Loew’s stocks. In the process, he managed to pay in full for some of the Loew’s shares. However, at the close of trading on Monday, October 28, his brokers were still holding 233,400 Loew’s shares as collateral. That put Fox in a very vulnerable position. He couldn’t afford any more drastically bad news.
Yet more drastically bad news was on its way. A few minutes after 10:00 a.m. on Tuesday, the phone in the boathouse rang. It was one of Fox’s brokers, who told him that the market was still falling and he needed to send a $250,000 check immediately as a margin payment on the Loew’s stock. Fox agreed. “I had no more than put the receiver on the hook when another broker called, and within twenty minutes the number of brokers that called for additional margins—when I totaled the sum, it was more than $1.5 million.” Fox called his office and told them to prepare the checks for delivery to the brokers. “I had no sooner hung up the phone when the broker that wanted $250,000 on his first call wanted $500,000. And soon the others began to call. The funds with which I was to make these payments of additional margin were my personal funds. My telephone bell kept constantly ringing.”
By noon on Tuesday, October 29, Fox’s brokers wanted $4 million in margin payments on the Loew’s stock. Fox briefly considered giving up and letting his brokers sell the 233,400 Loew’s shares they were still holding as collateral. However, when he called between 12:30 and 1:00 p.m. and asked what price he could get, the news was appalling. Although Loew’s would end the day with an official quote of $40 per share, one of Fox’s brokers told him that the only available bid price was $5 per share. The Loew family’s 400,000 shares had cost him $125 each; for the additional 260,990 Loew’s shares he subsequently bought on the open market, he had paid an average of $77 each.
The situation was incomprehensible. Only a few weeks earlier, the future had appeared bright and full of promise. “And then came this thunderbolt out of the sky, or earthquake, or whatever it was. To me it looked like more than an earthquake. It looked like a canyon had opened up, that hell had broken loose and the earth had caved in,” Fox would recall. “I called my secretary and told him to tear up the checks. We would send no money to anyone. I was tired and weary.” Alone in the boathouse, Fox took the receiver off the hook and went upstairs to the room where Jacob Rubinstein, his friend and fellow passenger in the car accident, had been staying. He lay down on the bed and fell asleep.
Around 3:30 p.m., he woke up to hear his name being called loudly. Downstairs, he found a highly agitated Rubinstein. “He said he had been yelling for a half hour . . . The boat was not tied up to the dock and he thought I had made short work of it.”
Reassuring Rubinstein that he had no intention of killing himself, Fox urged his friend to calm down. They would both go to Manhattan, Fox said, “and see what we can do about it.” They left Woodmere around 4 p.m. “I thought it was going to be a perfectly simple matter to straighten my affairs out in a day or two . . . I thought in a perfectly normal way, having gotten into difficulty, I would get myself out of it.”
As soon as he arrived at his suite at the Ambassador Hotel on Park Avenue between Fifty-First and Fifty-Second Streets, Fox began making calls. He owed $10 million in margin payments to thirteen brokers, and he didn’t have it. He believed his friends would help.
It was a very long night. First, he tried his Grandeur partner, Harley Clarke. When Clarke had visited Fox in early August, shortly after his release from the hospital, to ask about buying the Fox companies’ voting shares, he had cheerfully offered to lend Fox several million dollars at any time. Now, Fox asked Movietone News head Courtland Smith, who was friendly with Clarke, to phone for the money. Clarke sent Smith back with a counterproposal. Clarke still wanted to buy the Fox companies’ voting shares. How much did Fox want?
Previously, Fox had been unwilling to sell at any price. Now, stricken by the enormous financial chasm facing him, his resolve weakened. He would accept a sum large enough to numb all pain of loss. He wrote the number on a piece of paper and handed it to Smith: $100 million.
Clarke refused. $100 million was a pre-crash price, not the sort of fire sale bargain he had evidently expected. Yet if Clarke was tone-deaf in his blunt approach to Fox—to whom Fox Film and Fox Theatres were worth far more than the figures on their balance sheets—Fox showed no more sensitivity to Clarke’s point of view. He immediately called Clarke and asked to borrow $3–$4 million. Fox recalled, “He didn’t say that he didn’t have it, or that he was affected by the crash himself, but on my plea for a loan, it was just NO. He didn’t whisper the word, he yelled it.”
Next,
Fox tried Halsey, Stuart, where he already owed $12 million. Firm president Harry Stuart was in Chicago, but the New York office manager quickly tracked him down. “No,” the answer came back. Harry Stuart himself was in trouble. The investment trust he had reluctantly created at Fox’s urging, Corporation Securities, was due to settle on November 1, 1929, and he didn’t have a single dollar to spare.
Despite these two rejections, Fox wasn’t worried. Of course, AT&T, which had loaned him $15 million toward the Loew’s purchase, would rescue him. Late in the evening on Tuesday, October 29, Courtland Smith brought John Otterson to Fox’s suite at the Ambassador Hotel. Fox asked for another $13 million. Ten million would meet his current need, and the extra $3 million would provide a cushion against any future share price decline. According to Fox, Otterson listened “very attentively” and agreed to ask his superiors for the money first thing in the morning.
Finally, still on the night of Black Tuesday, as a backup option, Fox sent for Richard Hoyt, the tall, thin, chain-smoking Hayden, Stone banker from whom he had bought the controlling interest in West Coast Theaters in January 1928. Hoyt had been at a dinner party. He “came just as though there hadn’t been a panic that day,” Fox recalled. “He didn’t seem to be worried or annoyed . . . The nation was worried, but Hoyt was having a good time.” After about ten minutes, Fox realized he might just as well have been talking “to a stone wall.” Hoyt, Fox sensed, was still angry about being pressured by AT&T into selling West Coast Theaters to Fox at an artificially low price. Fox told Hoyt, “what you would like to do is to cut out my left kidney.”
“I am glad to see you did that mind-reading act so well, because when you go broke, as you will, you will be able to earn a good living doing a mind-reading act on the stage,” Hoyt replied. “You have made only one mistake. It isn’t the left kidney I want to cut out, but both your kidneys.” Then, Fox said, Hoyt “took his tall silk hat and walking stick and walked out.”
It was now about midnight. All the New York brokerage houses were still open while clerks tried to figure out the amount of margin their customers would have to put up the next day. About 1:00 a.m. on Wednesday, Fox began calling the thirteen brokerage houses that were holding his Loew’s shares and asked them to send representatives to the Ambassador at 9:00 a.m.
Ever the showman, he staged a suspenseful scene. As the frazzled brokers trudged into his hotel suite on Wednesday morning, he had a waiter from the Ambassador’s room service kitchen, directly opposite his apartment, wheel in his breakfast. Normally he didn’t eat breakfast, but today he had ordered enough food for three people. It was all for himself. “It was plain to see that the majority had not only had no breakfast, but had not been to bed. They were nervous, and the strain showed very clearly. I realized that the longer I kept them waiting, the more nervous they would become.”
He ate his breakfast very slowly. After about twenty minutes, knowing that the brokers needed to be in their offices by 10:00 a.m., he asked for a twenty-four-hour moratorium on balancing his accounts. Calmly, he pointed out that if the brokers didn’t agree, then the 437,500 Loew’s shares that he owned outright would be useless to him, and he would offer them for sale. Once he did so, the market price would probably drop to $1. They, too, would lose their shirts on the stock.
In fact, Fox wouldn’t have sacrificed the 437,500 Loew’s shares, but the threat was a useful theatrical gesture. “I waited for a reply and no reply came.” Finally, one broker said to the others, “What are you hesitating about? If we agree not to sell these shares, he may be able to raise this money. There is a chance.” Fox got his twenty-four-hour reprieve.
Shortly after 10:00 a.m., Otterson called with bad news. AT&T was not willing to lend Fox any more money. Fox thought about it and a few minutes later called Otterson back, offering to provide collateral consisting of personal assets and Fox company properties worth more than $50 million, for both the proposed new $13 million loan and the existing $15 million loan, which was as yet unsecured. Otterson said he would check with AT&T president Walter S. Gifford. Five or ten minutes later, Otterson called back. The answer was still no.
Fox was stunned. AT&T had a lot at stake in their relationship and whatever the personal feelings of a subdivision head such as Otterson, Fox had assumed that the parent company would act primarily to protect its financial interests.
“So I said to myself, ‘Well, now, that is all right. These men do not want to do it. I will have no trouble,’ ” Fox recalled. There were still “hundreds of places” to borrow money. Feeling “calm, cool,” and “in perfect health” even though he wasn’t, he set out on a door-to-door canvass of all the large commercial banks in the New York area. He recalled his mother’s advice to him as a boy: “The way to judge a general is not in time of peace, but in war. In time of peace, all he has to do is be well groomed. In time of war, he proved whether he had a right to call himself ‘general.’ ”
He aimed to borrow enough money to pay in full for the 233,400 Loew’s shares in the hands of his brokers. Under his arm he carried his companies’ financial statements. The numbers were all on his side, reflecting record profits. For the nine months ending September 30, 1929, Fox Film had net earnings of $9.6 million, compared to $4.4 million for the same period in 1928. Fox Theatres’ net earnings for the fiscal year ending October 27, 1929, had totaled $2.748 million, up from $1.775 for 1928. During its fiscal year ending August 31, 1929, Loew’s had earned a profit of more than $12 million, compared to $8.6 million for the previous year. Many experts believed that the motion picture industry would actually benefit from the economic crisis because movies offered inexpensive escape from fear and uncertainty. In late 1929, Motion Picture News reported that industry leaders expected 1930 to be “the most prosperous [time] since film first found its way out of the can.”
As collateral for the prospective new bank loans, Fox offered the Loew’s stock itself and real estate owned by the Fox companies, some $25–$30 million worth.
All the bank presidents responded alike. “They listened attentively, yes. They gave me all attention, all the attention I wanted. They listened to the whole story, and then were very sorry they could not make a loan. It mattered not whether I offered to give $5 as collateral for a one-dollar loan. Oh no, it made no difference.”
Actually, one banker did help, but only with a four-month loan of $550,000, too little to matter.
“Well, a sort of miracle happened,” Fox said, recalling subsequent events on Wednesday, October 30. The phone rang. The caller was Albert M. Greenfield, Fox’s friend and partner in the Philadelphia-based Bankers Securities. Unaware of Fox’s plight, Greenfield said he’d spoken that morning by phone to the Warner brothers, who wanted to buy Fox’s 25,001 shares of First National stock. The Warners owned most of First National’s 75,000 shares, but Fox’s holdings left them just short of the two-thirds majority they needed to merge First National with Warner Bros. (Fox had received 21,000 First National shares as a bonus when he bought the West Coast Theaters stock in January 1928, and then, to forestall the Warners’ merger ambitions, had bought another 4,000-plus First National shares from an Oklahoma City original franchise holder.)
The Warners would pay Fox $5–$6 million in cash for the First National stock, Greenfield said. Desperate though he was, Fox would not show weakness, even to a close friend. Gambling that the Warners would go higher to get full control of First National, he told Greenfield that $5–$6 million was “ridiculous.” He wanted $12.5 million.
Greenfield had his own agenda. Fox had borrowed $10 million from Bankers Securities to buy the Loew family’s stock, and Greenfield wanted to make sure that debt would be repaid. He immediately took a train to New York, and by midnight on Wednesday he had nudged the Warners up to $10 million. They would pay $7.5 million in cash, along with ten one-year notes, each for $250,000. Greenfield would take two of the notes as a commission, netting $9.5 million for Fox. The deal was an astonishing windfall. Although Fox had carried th
e First National stock on the Fox company books with a value of $3.8 million, he had never wanted it and had considered it worthless.
Fox interpreted this turn of events as a signal of divine favor. “It is clear that my help came from God Almighty,” he said. “The Lord didn’t want me destroyed. He wanted to save me. Why these fools [the Warners] went out that day and borrowed $10 million to buy these shares I never could figure out . . . Is it humanly possible for me to believe otherwise than that God inspired them to the point of wanting to buy these shares?” That was the narrative that had always quietly sustained him since his spiritual awakening at his bar mitzvah. As long as he kept “great faith in God,” he would never be alone in any crisis. For the just, life was just.
Ever the idealist, Fox was no less a pragmatist. On the morning of Thursday, October 31, pretending he hadn’t yet found the money to meet their margin calls, Fox asked his thirteen brokers for another twenty-four-hour moratorium. They agreed. They had no choice. During the day, Greenfield finalized the First National stock sale contract with the Warners and, around midnight, gave Fox the $10 million.
Again, Providence seemed to work to Fox’s advantage. By Friday morning, Loew’s market price had recovered substantially, so that instead of owing $10 million, Fox now had to meet a margin call of only $3 million. Before handing the money over to the thirteen brokers, he made a deal with them. He would pay $4.5 million now as long as the brokers agreed to hold his Loew’s shares on a 35 percent margin basis until the end of 1929. According to Fox, 35 percent was the highest margin percentage that brokers had been accustomed to getting. They agreed.