what was the accident?
To understand the crash, it’s helpful to look at the decade that preceded it. The booming 1920s ushered in a sense of euphoria among wealthy and middle-class Americans, and people began to speculate on wilder investments. The government was a willing partner in this effort: the Federal Reserve followed a brief postwar recession in 1920-1921 with a policy of setting interest rates artificially low, as well as easing reserve requirements at the nation’s largest banks. . As a result, the money supply in the us. increased by nearly 60 percent, convincing more Americans of the safety of investing in questionable schemes. they felt that prosperity had no limits and that extreme risks were probably tickets to riches. Named for Charles Ponzi, the original “Ponzi schemes” arose in the early 1920s to encourage novice investors to divert funds to unsubstantiated companies, which in reality simply used the new investors’ funds to pay off investors. older as the schemes grew in size. speculation, where investors bought high-risk schemes that they hoped would pay off quickly, became the norm. Several banks, including depository institutions that originally eschewed investment lending, began offering easy credit, allowing people to invest, even when they lacked the money to do so. An example of this mindset was Florida’s 1920s real estate boom: developers touted Florida as a tropical paradise, and investors went all-in, buying land they had never seen with money they didn’t have and selling it at prices they didn’t even have. Taller.
the florida land boom crashed in 1925-1926. a combination of negative press about the speculative nature of the boom, his investigations into the questionable financial practices of several land brokers, and a rail embargo limiting the delivery of construction supplies in the region significantly hampered investor interest. The subsequent Great Miami Hurricane of 1926 bankrupted most real estate developers. however, speculation continued throughout the decade, this time in the stock market. buyers bought stocks “on margin”—buying for a small down payment with borrowed money, with the intention of selling quickly at a much higher price before the remaining payment was due—which worked well as prices continued to rise. Speculators were aided by retail stock brokerage firms, which catered to average investors eager to play the market but lacked direct ties to larger investment banking houses or brokerage firms. When prices began to fluctuate in the summer of 1929, investors looked for excuses to continue speculating. when fluctuations became absolute and constant losses, everyone started selling. In early September, the Dow Jones Industrial Average peaked at 381 points, or about ten times the value of the stock market, in the early 1920s.
Several warning signs heralded impending collapse, but Americans paid them no heed, still dazed by the possible fortunes that speculation might promise. A brief market crash on September 18, 1929 raised questions among more experienced investment bankers, leading some to predict an end to high stock values, but it did little to stem the wave of investment. even the london stock market crash on september 20 failed to completely dampen the optimism of us investors. However, when the New York Stock Exchange lost 11 percent of its value on October 24, often referred to as “Black Thursday”, major American investors sat up and took notice. In an effort to prevent the much-feared panic, major banks including Chase National, National City, J.P. Morgan, and others, conspired to buy large amounts of blue-chip stocks (including US steel) to keep prices artificially high. even that effort floundered in the rising tide of stock sales. however, hoover delivered a radio address on friday in which he assured the american people, “the fundamental business of the country. . . is on a solid and prosperous foundation.”
As newspapers across the country began covering the story in earnest, investors eagerly awaited the start of the following week. When the Dow Jones Industrial Average lost another 13 percent of its value on Monday morning, many knew the end of stock speculation was near. the night before the infamous accident was ominous. Jonathan Leonard, a newspaper reporter who regularly covered the pace of the stock market, wrote of how Wall Street “lit up like a Christmas tree.” brokers and businessmen who feared the worst the next day crowded into restaurants and speakeasies (a place where alcoholic beverages were sold illegally). after a night of heavy drinking, they retired to nearby hotels or boarding houses (cheap boarding houses), all of which were overbooked, and waited for the dawn. kids from nearby slums and tenements played stickball on the streets of the financial district, using wads of duct tape as balls. Although everyone woke up to newspapers full of predictions of a financial turnaround, as well as technical reasons why the decline could be short-lived, the crash on Tuesday morning, October 29, took few by surprise.
nobody heard the opening bell on wall street that day, like shouts of “sell! Sell!” choked him out. In the first three minutes alone, nearly three million shares, representing $2 million in wealth, changed hands. Western Union’s telegram volume tripled and phone lines couldn’t keep up with the demand, as investors sought any means available to dispose of their shares immediately rumors spread of investors jumping from their office windows fist fights broke out on the trading floor, with one broker fainting from physical exhaustion stock trading occurred at such a breakneck pace that brokers had nowhere to keep trading receipts, so they resorted to throwing them in the trash Although the stock exchange’s board of governors briefly considered closing the exchange early, they subsequently opted to let the market took its course, lest the American public panic further at the thought of shutting down. At the final bell, errand boys spent hours sweeping up tons of paper, ticker tapes, and sales slips. Among the more curious finds in the trash were ripped jackets, crumpled eyeglasses and a runner’s artificial leg. outside a nearby brokerage house, a policeman allegedly found a discarded birdcage with a live parrot squawking, “more margin! more margin!”
On Black Tuesday, October 29, shareholders traded over sixteen million shares and lost over $14 billion in wealth in a single day. To put this in context, a trading day of three million shares was considered a busy day in the stock market. people unloaded their stock as fast as they could, not caring about the loss. banks, in debt and seeking to protect their own assets, demanded repayment of loans they had made to individual investors. those who couldn’t pay found their shares sold immediately and their life savings gone in minutes, but their bank debt still remained ([link]).
The financial result of the accident was devastating. Between September 1 and November 30, 1929, the stock market lost more than half its value, falling from $64 billion to approximately $30 billion. any effort to stem the tide was equivalent, as one historian noted, to bailing out Niagara Falls with a bucket. the crash affected far more than the relatively few Americans who invested in the stock market. while only 10 percent of households had investments, more than 90 percent of all banks had invested in the stock market. many banks went bankrupt due to declining cash reserves. This was due in part to the Federal Reserve lowering limits on cash reserves that banks were traditionally required to keep in their vaults, as well as the fact that many banks invested in the stock market. eventually, thousands of banks closed their doors after losing all their assets, leaving their customers penniless. While some smart investors got out at the right time and eventually made fortunes buying discarded stocks, those success stories were rare. the housewives who speculated on the purchase money, the bookkeepers who embezzled company funds in hopes of striking it rich and paying the funds back before they were caught, and the bankers who used customer deposits to follow speculative trends, everyone lost. While the stock market crash was the trigger, the lack of proper financial and banking guarantees, coupled with a public psyche that chased wealth and prosperity at all costs, allowed this event to turn into a depression.