Post No. 17. Wall Street Crash of 1929

The Wall Street Crash of 1929, also known as Black Tuesday (October 19), the Great Crash, or the Stock Market Crash of 1929., began on October 24, 1929 (Black Thursday), and was the most devasting stock market crash in the history of the United States. The crash, which followed the London Stock Exchange’s crash of September, signaled the beginning of the 12-year Great Depression that affected all Western industrialized countries.

While the American cities prospered during the called Roaring Twenties ( the decade that followed World War I), the overproduction of agricultural produce created widespread financial despair among American farmers throughout the decade. This would later be blamed as one of the key factors that led to the 1929 stock market crash.

On March 25, 1929, after the Federal Reserve warned of excessive speculation, a mini crash occurred as investors started to sell stocks at a rapid pace, exposing the market’s shaky foundation. Two days later, banker Charles E. Mitchell announced his company the National City Bank would provide $25 million in credit to stop the market’s slide. However, the American economy showed ominous signs of trouble. Steel production declined, construction was sluggish, automobile sales went down, and consumers were building up high debts because of easy credit. Despite all these economic trouble signs and the market breaks in March and May 1929, stocks resumed their advance in June and the gains continued almost unabated until early September 1929 (the Dow Jones average gained more than 20 % between June and September). The market had been on a nine-year run that saw the Dow Jones Industrial Average increase in value tenfold, peaking at 381.17 on September 3, 1929. The optimism and financial gains of the great bull market were shaken after a well publicized early September prediction from financial expert Roger Babson that a “crash was coming”. The initial September decline was thus called the “Babson Break” as a “healthy correction” and buying opportunity.

On September 20, the London Stock Exchange crashed when top British investor Clarence Hatry and many of his associates were jailed fro fraud and forgery. The London crash greatly weakened the optimism of American investment in markets overseas. In the days leading up to the crash, the market was severely unstable. Periods of selling and high volumes were interspersed with brief periods of rising prices and recovery.

Selling intensified in mid-October. On October 24 (“Black Thursday), the market lost 11 % of its value at the opening bell on very heavy trading. The huge volume meant that the report of prices on the ticker tape in brokerage offices around the nation was hours late, so investors had no idea what most stocks were actually trading for at that moment, increasing panic. Several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor.

With the banker’s financial resources behind him, Richard Whitney (Vice president of the Exchange) placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As traders watched, Whitney then placed similar bids on other “blue chip” stocks. This tactic was similar to one that ended the Panic of 1907. It succeeded in halting the slide. The Dow Industrial Average recovered, closing with it down only 6.38 points for the day. The rally continued on Friday, October 25, and the half day session on Saturday the 26^th but, unlike 1907, the respite was only temporary.

Over the weekend, the events were covered by the newspapers across the United States. On October 28, “Black Monday”, more investors facing margin calls decided to get out of the market, and the slide continued with a record loss in the Dow for day of 38.33 points, or 13%.

The next day, “Black Tuesday”, October 29, 1929, about 16 million shared traded as the panic selling reached its peak. Some stocks actually had no buyers at any price that day (“air pockets”). The Dow lost an additional 30 points, or 12%. The volume of stocks traded on October 29, 1929, was a record that was not broken for nearly 40 years.

On October 29, William C. Durant, joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks to demonstrate to the public their confidence in the market, but their efforts failed to stop the large decline in prices. Due to the massive volume of stocks traded that day, the ticker did not stop running until about 7:45 p.m. The market had lost over $30 billion in the space of two days which included $14 billion on October 29 alone.

After a one-day recovery on October 30, where the Dow regained an additional 28.40 points, or 12 percent, to close at 258.47, the market continued to fall, arriving at an interim bottom on November 13, 1929, with the Dow closing at 198.60.

The market would not return to the peak closing of September 3, 1929, until November 23, 1954.

The crash followed a speculative boom that had taken hold in the late 1920s. During the later half of the 1920s, steel production, building construction, retail turnover, automobiles registered, even railway receipts advances from record to record. Such figures set up a crescendo of stock- exchange speculation which had led hundreds of thousands of Americans to invest heavily in the stock market. A significant number of them were borrowing money to buy more stocks. By August 1929, brokers were routinely lending small investors more than two-thirds of the face value of the stocks they were buying. Over $8.5 billion was out on loan, more than the entire amount of currency circulating in the U.S. at the time.

Good harvests had built up a mass of 250 million bushels of wheat to be ‘carried over” when 1929 opened. By May there was also a winter-wheat crop of 560 million bushels ready for harvest in the Mississippi Valley. The oversupply caused a drop in wheat prices so heavy that the net income of the farming population from wheat was threatened with extinction.

Other important economic barometers were also slowing or even falling by mid-1929, including car sales, house sales, and steel production.

After the experience of the 1929 crash, stock markets around the world instituted measures to suspend trading in the event of rapid declines, claiming that the measures would prevent such panic sales. However, the one-day crash of Black Monday, October 19, 1987, when the Dow Jones Industrial Average fell 22.6%, was worse in percentage terms than any single day of the 1929 crash (although the combined 25% decline of October 28-29, 1929 was larger than October 19, 1987, and remains the worst two-day decline ever.( Wikipedia)

References:

The Wall Street Crash. Time: 58:24:

https://www.youtube.com/watch?v=4qs_Ca_aaNk

The Wall Street Crash of 1929. Time: 9:25:

https://www.youtube.com/watch?v=Cys4512y934

Wall Street Crash. Article.

https://www.thebalance.com/the-great-depression-of-1929-3306033