Wall Street Crash of 1929
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The The Wall Street Crash of 1929, also called the Great Crash or the Crash of '29, was the stock-market crash that occurred in late October 1929. It started on 29 October 1929 ("Black Tuesday"), when share prices on the New York Stock Exchange (NYSE) collapsed. However, the days leading up to the 29th had also seen enormous stock-market upheaval, with panic selling and vast levels of trading interspersed with brief periods of recovery.
“ Anyone who bought stocks in mid-1929 and held on to them saw most of his adult life pass by before getting back to even.”
- — Richard M. Salsman[1]
The Dow Jones Industrial Average recovered early in 1930, only to reverse once again, eventually hitting the bottom of the bear market in 1932. After 1930, the market did not come back to pre-1929 levels until 1955.[2]
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[edit] Timeline
The Dow Jones Industrial Average reached a high of 381.17 on September 3, 1929. On the so-called "Black Thursday", October 24, 1929, the stock market suffered its first crash. A then-record of 12.9 million shares were traded that day.
At 1 p.m. on Black Thursday, several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor. The group included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of National City Bank. They chose Richard Whitney, vice president of the Exchange, to act on their behalf. With the bankers' financial resources behind him, Whitney placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As amazed traders watched, Whitney then placed similar bids on other "blue-chip" stocks. This tactic was similar to a tactic that ended the Panic of 1907, and succeeded in halting the slide that day. In this case, however, the respite was only temporary.
Over the weekend, the events were dramatized by the newspapers across the U.S. On Monday, October 28, investors decided to get out of the market and the slide continued with a record 13% loss in the Dow for the day. Richard M. Salsman wrote that "[On] October 29 — amid rumors that U.S. President Herbert Hoover would not veto the pending tariff bill — stock prices crashed even further."[1]
William C. Durant joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks in order to demonstrate to the public their confidence in the market but their effort failed to stop the slide. The DJIA lost 12% with 16.4 million shares traded (a new record, surpassing the one set only the previous Thursday).
The market, as well as the economy, recovered early in 1930. Late in that year, the stock market again crashed and began a steady decline until it reached the low point in 1932. The effects of the Great Depression first began to be felt by the public late in 1930.
Salsman observed that "As late as April 1942, U.S. stock prices were still 75% below their 1929 peak and would not revisit that level until November 1954 — almost a quarter of a century later."[1]
The resulting low of 41.22 on July 8, 1932 was the lowest the stock market had been since the 1800s.[3]
[edit] Boom-bust theory
The crash followed a speculative boom that had taken hold in the late 1920s, which had led millions of Americans to invest heavily in the stock market, even borrowing money to buy more stock. Banks lent heavily to fund this share-buying spree.[citation needed]
The rising share prices encouraged more people to invest, as they hoped the shares would rise further, thus fueling further rises, and creating an economic bubble. On October 24, 1929 (with the Dow just off its September 3 peak of 381.17), it finally dropped and panic selling set in. 12,894,650 shares were traded in the space of one day, as people desperately tried to mitigate the situation, and was a major contributing factor to the Great Depression. There is a good deal of controversy among economists and historians about the nature of that contribution, though. Some hold that political over-reactions to the crash, such as in the passage of the Smoot-Hawley Tariff Act through the U.S. Congress, caused more harm than the crash itself.
[edit] Official investigation of the crash
In 1931, the Pecora Commission was established by the U.S. Senate to study the causes of the crash. Based in part on the commission's findings, the U.S. Congress passed the Glass-Steagall Act in 1933, which mandated a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.
After the experience of the 1929 crash, stock markets around the world instituted measures to temporarily suspend trading in the event of rapid declines, claiming that they would prevent such panic sales. However, the one-day crash of Monday, October 19, 1987 was even more severe than the Crash of 1929. On Black Monday of 1987, the Dow Jones Industrial Average fell 22.6% (the markets quickly recovered, posting the largest one-day increase since 1932 only two days later).
[edit] Footnotes
- ^ a b c Salsman, Richard M. "The Cause and Consequences of the Great Depression, Part 1: What Made the Roaring '20s Roar" in The Intellectual Activist, ISSN 0730-2355, June, 2004, p. 16. Emphasis original.
- ^ Yahoo! Finance.
- ^ Liquid Markets.
[edit] See also
[edit] Further reading
- Bernard C. Beaudreau (2005) How the Republicans Caused the Stock Market Crash of 1929: GPT’s, Failed Transitions and Commercial Policy New York, NY: iUniverse.
- John Kenneth Galbraith (1954), The Great Crash, 1929.
- Jude Wanniski (1978), The Way the World Works.
- Gordon Thomas & Max Morgan-Witts (1979). The Day the Bubble Burst: A Social History of the Wall Street Crash. Hamish Hamilton. ISBN 0-241-10291-X.
- Salsman, Richard M. “The Cause and Consequences of the Great Depression” in The Intellectual Activist, ISSN 0730-2355. Mr. Salsman argues that the Great Depression was fundamentally caused by statist government policy, and ended only when government policy became less statist and more laissez-faire.
[edit] External links
- Article on the 1929 Crash from EH.NET's Encyclopedia
- Great Myths of the Great Depression
- When filmmakers Ellen Hovde and Muffie Meyer produced in 1990, The Crash of 1929, they interviewed many people about the Wall Street disaster, including noted business historian, Robert Sobel.
- About.com: Black Thursday - 1929
- About.com: 1929 Stock Market Crash
