By Lorelie Brown I think I must have been feeling particularly full of hubris when I volunteered to post on the stock market crash of 1929. Really. At this moment, I feel like I'm circling a rattlesnake and poking it with a stick. Please Mr. Snake, won't you hop in this neat little sack for me? And while you're at it, can we try and make this entertaining?
OK. Here we go, Cliffs Notes style.
The 1920s rocked. People were having a grand old time, business was booming. The common man felt like the sky-rocketing stock market was both accessible and understandable. If they didn't have enough ready cash to buy in, banks were handing out loans for goodness sake. I mean, if a bank's ready to hand out cash for a bloke to buy stock (called buying on margin), it must be safe, right? The banks themselves were even investing in the stock market. Economist Irving Fisher was quoted as saying, "Stock prices have reached what looks like a permanently high plateau." (For the record, the Dow Jones high of the period was the 3rd of September, at 381.17. The moment I'm writing this, the Dow Jones is 10,598.17.)
The beginning of the end came on October 24, 1929. There'd been plenty of fluctuations the weeks prior, and they were later attributed to a certain tariff bill's maneuvering through Congress. But on the 24th, later known as Black Thursday, stock trading went through the roof, four times the normal high. And it seemed like everyone was selling.By one in the afternoon a contingent of bankers met to find a solution. We're talking the big-wigs here--representatives from both Morgan Bank and Chase Bank, among others. They decided to make a show of good faith by buying up huge blocks of US Steel and other "blue chip" stocks at above market prices. It had worked before, in 1907, and they had no reason to think it might not work again. And phew, it sure did seem like it worked. The market stabilized.
But it didn't last long.
Over the weekend, word got out about the huge slump. People got scared. Small banks got scared. By Tuesday the 29th, people were selling like mad. Over 16 million stocks were traded, almost all of them in a downward direction. Black Tuesday was even worse than Black Thursday. There's a myth that investors were jumping out of Wall Street windows to their deaths by the boatload, but it's not really true. There were suicides linked to the stock market crash, but not the way the urban legend would have it--not the way we as Americans wanted it to be, filled with immediate guilt and knocked low by their own hubris. But the bubble had officially burst, and that wasn't even all. The market kept choking until 1932. When average Joes heard banks might be in trouble, there were bank runs where they demanded their money back. And not all the banks had it to give, causing further panic. The Federal Deposit Insurance Corporation was created as a direct result of all this. You know that little "FDIC Insured" notice at the bottom of your bank statements? Yup, that one. The one assuring you that even if the bank rolls over and dies, you'll still get your money back. Didn't exist then. The money was flat-out gone. Poof.
People have arm-chair-quarterbacked the 1929 market to death, saying that it should have been predictable. But...particularly considering the recession we're in now...I can't help but have sympathy.
