Wall Street Crash of 1929

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Brytani Shea:

Graph of the 1929 crash on Wall Street as part of a timeline from Oct 1928 - Oct 1930.

Brytani Shea:
Official investigation of the Crash

In 1931, the Pecora Commission was established by the U.S. Senate to study the causes of the crash. 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. The one-day crash of Black Monday, October 19, 1987, however, was even more severe than the crash of 1929, when the Dow Jones Industrial Average fell a full 22.6%. (The markets quickly recovered, posting the largest one-day increase since 1933 only two days later.)

Brytani Shea:
Impact and academic debate

Together, the 1929 stock market crash and the Great Depression "...was the biggest financial crisis of the" 20th century.  "The panic of that October day has come to serve as a symbol of the economic contraction that gripped the world during the next decade." "The crash of 1929 caused 'fear mixed with a vertiginous disorientation', but 'shock was quickly cauterized with denial, both official and mass-delusional'." "The falls in share prices on October 24 and 29, 1929 ... were practically instantaneous in all financial markets, except Japan." The Wall Street Crash had a major impact on the U.S. and world economy, and it has been the source of intense academic debate—historical, economic and political—from its aftermath until the present day. "Some people believed that abuses by utility holding companies contributed to the Wall Street Crash of 1929 and the Depression that followed." "Many people blamed the crash on commercial banks that were too eager to put deposits at risk on the stock market. "

The "1929 crash brought the Roaring Twenties shuddering to a halt." As "tentatively expressed" by "economic historian Charles Kindleberger", in 1929 there was no "...lender of last resort effectively present", which, if it had existed and were "properly exercised", would have been "key in shortening the business slowdowns that normally follows financial crises." The crash marked the beginning of widespread and long-lasting consequences for the United States. The main question is: Did the "'29 Crash spark The Depression?", or did it merely coincide with the bursting of a credit-inspired economic bubble? The decline in stock prices caused bankruptcies and severe macroeconomic difficulties including business closures, firing of workers and other economic repression measures. The resultant rise of mass unemployment and the depression is seen as a direct result of the crash, though it is by no means the sole event that contributed to the depression; it is usually seen as having the greatest impact on the events that followed. Therefore the Wall Street Crash is widely regarded as signaling the downward economic slide that initiated the Great Depression.

Brytani Shea:
True or not, the consequences were dire for almost everybody. "Most academic experts agree on one aspect of the crash: It wiped out billions of dollars of wealth in one day, and this immediately depressed consumer buying." The failure set off a worldwide run on US gold deposits (i.e., the dollar), and forced the Federal Reserve to raise interest rates into the slump. Some 4,000 lenders were ultimately driven to the wall. Also, the uptick rule, which "...allowed short selling only when the last tick in a stock’s price was positive," "...was implemented after the 1929 market crash to prevent short sellers from driving the price of a stock down in a bear run."

Many academics see the Wall Street Crash of 1929 as part of a historical process that was a part of the new theories of boom and bust. According to economists such as Joseph Schumpeter and Nikolai Kondratieff the crash was merely a historical event in the continuing process known as economic cycles. The impact of the crash was merely to increase the speed at which the cycle proceeded to its next level.

Milton Friedman's monumental A Monetary History of the United States, co-written with Anna Schwartz, makes the now standard interpretation of what made the "great contraction" so severe. It was not the downturn in the business cycle, trade protectionism or the 1929 stock market crash that plunged the country into deep depression. It was the collapse of the banking system during three waves of panics over the 1930-33 period.

Brytani Shea:
Timeline: A selected Wall Street chronology

1653-1918 | 1923-2000 

 October: A bull market begins. It will continue growing for nearly six years.
 April 13: The N.Y.S.E. introduces new and improved high-speed tickers. The devices can print 500 characters per minute, almost twice as fast as the earlier models.
  February: Astrologer Evangeline Adams, who counts Charlie Chaplin, Mary Pickford, and J. P. Morgan among her clients, predicts the market will rise in the coming months.

March 4: President Herbert Hoover is inaugurated. Nicknamed "The Great Engineer," the former geologist and mining engineer takes office amid booming prosperity. During the campaign, he has promised: "We shall soon, with the help of God, be in sight of the day when poverty will be banished from this nation."

March 8: Michael J. Meehan begins one of the most successful brokerage pools in Wall Street history. Over the next ten days, he drives the value of R.C.A. stock up almost 50%. In today's money, his pool will make the colluding investors $100 million.

March 15: Newspapers quote Treasury Secretary Andrew Mellon saying there are bargains to be found in the bond market. Wall Street is in the midst of a buying frenzy. As the market rises, some begin to fear it will soon collapse. The Federal Reserve Board meets, but does not make any public statements.

March 25: A mini-crash begins as investors start to sell, revealing the market's shaky foundations. For the many people playing the market with borrowed money, the day is a disaster, as margin calls wipe out their holdings. While the investors seek to borrow more money, interest rates soar to 20 percent. The New York Daily News calls it a "selling avalanche."

March 27: Banker Charles Mitchell announces that the national city bank will provide $25 million in credit to stop the market's slide. His move stops the panic, and call money declines from 20 to eight percent. Senator and former Treasury Secretary Carter Glass calls for Mitchell to resign from his post on the Federal Reserve Board because of his intervention in the market.

Spring: The American economy shows ominous signs of trouble. Steel production is declining, construction is sluggish, car sales are down, and consumers are building up high debts because of easy credit. Yet the stock market continues its upward momentum, heedless of real economic indicators.

May 14: The N.Y.S.E. opens a new bond room, adding 6,000 feet to the trading floor.

Summer: The market continues to rebound, and stocks hit record levels month after month.

August 17: Michael Meehan's brokerage firm launches a new service: an office aboard ocean liners, including the Berengaria. This convenience allows transatlantic passengers to buy or sell shares during the weeklong passage between the U.S. and Europe.

September 3: After a surge of optimism, the bull market reaches its peak -- the Dow Jones Industrial Average closes at 381.17. A newspaper headline trumpets, "Public Demand for Stock Appears Insatiable."

September 5: Bearish economist Roger Babson gives a speech, saying, "Sooner or later, a crash is coming, and it may be terrific." He has been delivering this message for two years, but for the first time, investors listen. The market takes a severe dip, which will be called the "Babson Break." The next day, prices will stabilize, but the collapse has begun.

Mid-September: The market fluctuates wildly up and down.

October 24: "Black Thursday." The economic bubble finally bursts. Stock prices fall sharply on a day of heavy liquidation. Ticker tape runs four hours later than normal at a volume of 12.9 million shares. Headlines will report the market's paper loss at $5 billion. A pool of bankers act to stem the drop by putting more money into the market, and President Hoover reassures Americans that U.S. business is sound. Within a few days, a headline will read, "Brokers Believe Worst is Over and Recommend Buying of Real Bargains."

October 28: "Black Monday." The stock market falls 22.6%, the highest one-day decline in U.S. history. The crash triggers similar declines in markets around the world.

October 29: "Black Tuesday." Panic sets in as investors all try to sell their stocks at once. Over 16 million shares of stock are sold, setting a record -- and the market records over $14 billion in paper losses. Stock tickers cannot keep up with the heavy trading volume. At the end of the day, the market is down 33 points, more than 12.8%. Some of the nation's financial elite, including General Motors' William C. Durant and the Rockefeller family, show confidence by buying stocks, but their efforts fail to stem the tide.

November 23: After weeks in freefall, the market hits its bottom and stabilizes. The New York Times reports, "Regular Schedule to be Resumed, but Trading Will Be Suspended Last Half of Week; Business Nearly Normal." The market's daily volume is at 3 million shares with "orderly although irregular" prices.
 January 7: A report released by the Committee for Unemployment Relief states that over four million Americans are unemployed.
 July 8: The Dow Jones Industrial Average reaches its lowest point of the Great Depression, closing at 41.22, down 89 percent from its peak in 1929.
 October 1: The Securities and Exchange Commission is created to regulate stocks, bonds and other commissions. Kennedy patriarch and former Wall Street speculator Joseph P. Kennedy is appointed as its chairman.
 December 8: The day after a Japanese surprise attack on Pearl Harbor in Hawaii, the U.S. enters World War II.
 Women are allowed to enter the N.Y.S.E. trading floor for the first time.
 September 2: Japan formally surrenders to the U.S., ending World War II. The U.S. enters a new era of prosperity, with New York City becoming a global financial and cultural capital.
 March 4: The Standard & Poor 500 Index is introduced. Computer technology allows the S & P 500 to calculate and report market levels at one-minute intervals throughout the day.
 June 22: The N.Y.S.E.'s census of shareholders reports that 17 million Americans own stock, a 10 million increase since 1952.
 November 22: In anticipation of panic selling, Wall Street closes shortly after President John F. Kennedy is assassinated.
 February 12: Joseph L. Searles III becomes the first African American to be accepted as a member of the N.Y.S.E.
 February 8: The National Association of Securities Dealers Automated Quotation (N.A.S.D.A.Q.) opens its first day of trading, becoming the world's first electronic stock market.
 November 14: The Dow Jones Industrial Average closes the day over 1000 points for the first time.
 October 19: The stock market crashes and the Dow Jones Industrial Average drops 508 points or 22.61 percent, its largest one-day percentage drop in history.
 August: The first Internet stock trade is completed by K. Aufhauser & Company, Inc., launching a new era of online stock trading.
 November 21: The stock market closes with the Dow Jones Industrial Average at 5023.55, topping 5000 for the first time.
 Real-time stock tickers are used on cable television channels CNBC and CNN-FN. Market data, which had previously been delayed 20 minutes, is now reported in real time.
 A crisis in Asia's financial markets triggers a global stock sell-off, leading the Dow Jones Industrial Average to fall 554 points -- its largest single-day point drop.
 March 19: The Dow Jones industrial average tops 10,000 points for the first time.
 April 14: The Dow Jones industrial average falls 617.78 points, its largest single-day point decline to date.


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