Black Thursday 90 years on….
How the stock market crash of the 1929 led to the Great Depression that lasted for a decade
90 years ago, on the 24th October 1929 was the infamous Black Thursday a stock market crash which was followed by a depression that lasted for a decade, the biggest financial disasters of the 20th century.
On October 24th 1929 thousands gathered around the stock exchange there was a sense of fear ,fear of something terrible about to happen, the previous day around 2.5 millions shares were sold in in hour, no one had a clue about the catastrophe that was about to unfold.
Around 1932 Several respected stocks traded less than 20 percent of their value in 1929 ,8000 banks failed that is nearly half the number of banks in America then ,30 percent of the American workforce was unemployed, and billions of dollars of assets were wiped out.
Did you know??? No one knows what exactly caused the Great Depression, the stock market crash of the 1929 only accelerated the depression. Ben Bernanke the former Chairman of Fed spent more than 20 years of his life studying the Great depression, the insights of his research helped his steer the American economy during the Financial crisis of 2007
The roaring 20’s — the good times wont last forever
During the 1920’s there was a mood of optimism in the air as The USA has emerged victorious from the WW1 ,most of the European nations had been ruined due to the war. The world danced to the American tune as the demand for cars, refrigerators and other consumer good increased the American economy was thriving.
Around this time the concept of credit became popular the concept of buy now pay later become popular, instant gratification was on the rise. There was a significant portion of the population looking for good investments, the liberty bonds issued by the government to fund the WW1 was popular, sensing this demand the then president of Citibank Charles E. Mitchell opened a number of brokerage firms across the country so that an average Joe can start speculating on the stock market. Due to this people which no idea of the stock market started to invest their money on the stock market and most of the stock started to overvalue with blind bets ,as Wall street then was unregulated ,market manipulation was at its peak ,a few elite would pump the stock price very high and wait for the common investors to inflate the price further and after some time they would sell all the stock a very high price and since the elite owned most of the stock this would create a sudden increase in supply that stock would crash leaving the common investor take the loss.
The shoeshine boy knows more
The Calvin Coolidge’s (30th President of USA) administration was very closely related to the elite bankers of wall street during this time ,hence the regulation on the markets were almost none the market was a law on its own.
Joseph p. Kennedy the father of John F Kennedy was a very wealthy man who had humble beginnings had built his money on market speculation, he was once flabbergasted by knowing how much his shoeshine boy knew about the stock market and realized the bubble and cashed out.
Bankers to the rescue
On the 24th afternoon when the stock selling frenzy continued a few wealthy bankers of wall street representing around $ 6 billion in assets met at the JP Morgan office to discuss their further actions .They pooled $250 million and rushed to the exchange to buy stock and tried to stabilize the market and restore faith .This is exactly opposite to what happened in 2007 when the government tried to bail out banks to avert the crisis .
This calmed the markets for the weekend but on 29th Tuesday 1929 (BLACK TUESDAY) most the big companies like GM,US steel,US radio saw their stock plummet this time the selling was so relentless that the volume of shares overwhelmed any possibility of the Bankers rescue.
Within 5 days $25 billions was wiped out ,by 1929 90% of the stock was bought on margin that is if you had $1000 you could by stock up to $6000 and the banks would loan you the rest for which you had to keep some collateral ,40 cents loaned on every dollar was to buy stock.Hence people were destined to loose everything of the stock fell.
When the stocks started to fail people lost their home and everything they has worked for their entire like. The number of people jumping out of their windows to commit suicides was not uncommon.
The Hoover administration did absolutely nothing to stop the crash he kept the prices high which increased the prices of American good and people started to by imported good he increased tariff which further worsened the state the American people and the economy. Homeless people would put across sheets of paper to sleep and call it Hooverville
Roosevelt To the rescue
In 1933 Franklin d Roosevelt became the 32nd president of USA by a land slide victory, he promised to regulate the financial markets.
He established the FDIC (Federal Deposit Insurance Corporation) which guaranteed that if a bank failed the government would repay the depositors their money because of which people stared deposit their money in banks more ,he also establish the SEC (Securities and Exchange commission ) and made Joseph p. Kennedy the father of John F Kennedy as its first chairman.
After this due to the advent of WW2 and the infusion of money into the American army the American economy took off and become the economic superpower it is today.
Insights from the GREAT DEPRESSION
These are the words from a person who had witnessed the great depression of 1929 the dot com bubble and the financial crisis of 2007 ”Peoples memories are short they don’t look at the downside risk whenever we have cheap credit people speculate “
The hope is that government regulations will help and the lesson learned form Great depression is that history repeats itself and humans folly of greed are much stronger affairs in financial markets that it overtakes reason and restraint.
