"Of course it's serious," Penney declared to his lead attorney one December morning in 1931. "But I really don't think it's a longterm problem. How could it be? It's just an adjustment after too much wild speculation."
"An adjustment, Mr. Penney?"
"The market is bound to come back. It has to."
"We certainly hope so, Mr. Penney. All of us here hope so. But we felt it was time to meet face-to-face because of the possibility of continued difficulties."
Penney's reply was quite amiable. "But how can you say that, sir? The market will rally, it has to. You mark my words."
"Perhaps," said the attorney, making the word sound as ominous as possible.
Penney knowingly held up a forefinger. "Or, my dear fellow, then at least as far as our own stock is concerned . After all, in no way does the current Penney price represent the real value of our company, the real value of our stock." In this, Penney was actually correct. Even in those disastrous times, the J. C. Penney Company remained well managed and financially strong. But, as the attorney knew only too well, Penney's bank loan collateral was prey to the market's capriciousness, no matter how sound the actual company happened to be. And this collateral represented the founder's entire holdings of common stock in his company.
Penney had paid for his stately lifestyle in cash, but he owed roughly $8 million  to five New York banks for expenditures primarily in agricultural and church - related philanthropy. Now the value of Penney's collateral was shrinking to that of his loans. With more negative movement, and with no foreseeable recourse on the part of the debtor, the banks would be empowered to sell him out.
"And let us not forget my personal reputation, sir," Penney continued. "I have no doubt that reason and loyalty will prevail at the banks until our price recovers."
"Mr . Penney, I am loath to be so blunt, but good intentions have perhaps diminished with the value of your stock. And I am afraid that at the moment your bankers view the market's future as tenuous." The attorney hesitated, hoping that the weight of his words would have some effect. There were two primary questions on his mind: How much in touch with reality was his client? And to what extent would Penney allow his affairs to be redirected?
Penney's reply was smugly beside the point. "You know, sir, there would be no J. C. Penney Company today if I had not taken risks and retained my faith in good men."
The attorney detested his artless reply, but it was the only thing he could think of: "Be that as it may, Mr. Penney, we feel that your personal situation is potentially rather grave. We recommend, therefore, that stern measures be taken. I know how difficult this must be for you."
With the most remarkable innocence, Penney pleasantly inquired, "What do you mean, ˜stern ?"
"Here is a complete brief prepared jointly with your accountants ." The attorney handed Penney a string-tied cardboard wallet. "In short, immediate and severe retrenchment. Assume that you shall lose all of your collateral ”"
" All of my common stock?" Penney interrupted , as though he had just heard the most preposterous story.
" ”All of it, Mr. Penney. Therefore, you should immediately liquidate all of your Florida farms, your Missouri farms, your Florida land, all your commercial property and other holdings. All proceeds into federal government paper. And, importantly, cut the Penney Foundation back to a skeleton staff and severely curtail all activities so that ”perhaps ”it may remain a viable entity for some future better day."
"Are you quite certain ?" was all Penney could say now.
"A defense must be prepared, principally because of Miami, Mr. Penney. What I have outlined will probably save your White Plains estate and your upstate farm and herd, as well as ”perhaps ”your charter position in Foremost Dairy. We can give no absolute assurances, but we are reasonably confident."
"Miami?" said Penney, as though he had heard no other word. "Yes. Troublesome."
" Troublesome? " thought the attorney, reflecting that he and his highly regarded firm had their hands full with their famous client. Penney's financial problems would stand out even in the cascade of calamity befalling America at the time. Yet when he had walked into the law offices that morning, his personal appearance had not shown any indication of distress. The attorney had observed the jauntiness, the perfectly tailored and appointed attire , the fine grooming and healthy color , the seemingly constant upturn of the mouth.
"I am afraid, Mr. Penney, it's a bit more complicated than that."
And now Penney's countenance began changing right in front of the attorney. First the eyes went bad. They became oddly skewed, searching. It was as if there were suddenly two beings inhabiting Penney's body, the old upright Western tycoon along with some newly orphaned child.
"I am afraid that the Miami situation, Mr. Penney, is much worse than we had anticipated. We have just learned that the City Nation Bank will momentarily fall into federal receivership for insolvent national banks."
Penney was out of his chair with a loud, " What? "
"You are also the defendant in a suit brought by depositors in federal court because of, ah, banking irregularities."
" WHAT? "
"Mr. Penney, I am sorry."
Penney grabbed the edge of the desk and looked at his attorney with wide, wild eyes. "But I invested more than three million dollars to shore up the liquidity of that bank! To shore it up! Three million to shore it up!"
"I am sorry, Mr. Penney."
Penney sank back into the chair. The dapper merchant prince who had earlier breezed into the law firm suddenly seemed totally spent and haunted . This moment signaled the beginning of his physical and emotional decline.
 About $150 million in 2003 dollars.