The end of the Great War, now known as World War I, was the prelude to a decade of wealth and fun that came to be known as the Roaring 20s. Even just five days before the stock market crash, Yale economist Irving Fisher commented that “The nation is marching along a permanently high plateau of prosperity.” Little did he know just how wrong he would be less than a week later. Still, even in the days leading up to the crash, the stock market boomed and even small companies or companies that did not ordinarily post large profits were showing increases in stock values.
But on 29 October 1929, that all changed. Called Black Tuesday in retrospect because of the economic misery it triggered, the Great Depression, the New York Stock Exchange stock average lost nearly a quarter of its value that day and stocks, in general, fell in price dramatically. Stock investors literally could not sell their stocks fast enough. The ticker tape machines could not keep up with the rapidly changing volume of transactions.
Those ticker tapes lagged behind by several hours, so for many, the final stock price was not known until the end of the day. Some stock exchanges even closed early because of the lack of information. This along with the rapid decline in prices caused panic among traders who traded on margin. Margin allows people to put down a small amount of money on a stock and pay for the balance at the time of sale. On Black Tuesday and in the following days, margin investors ended up deep in the hole.
Margin buying had become popular in the 1920s since the market had been so good for so long and people were rushing to try to take advantage of the success.
Across the country, local stock exchanges were equally overwhelmed as people crammed into the buildings to take note of what was happening. One of the local exchanges in Seattle saw one stock, Fulton Petroleum, nosedive from $15.30 on 25 October down to $8 at the end of the 29th. Overall, over 16 million trades occurred on Black Tuesday, a record up to that point. From when the trading began to the end of the day, the NYSE crashed from 299 points down to 230.07.
Though the 29th was the day that marked the biggest decline, stocks had been falling for about seven weeks, since September when the NYSE reached a high of 381. By the time Black Tuesday was over, the Dow Jones average had fallen forty percent since its high. The panic over the falling prices kept fueling more panic and more sales.
The stock prices didn’t stop their downward trend, however. Instead, they continued to fall rapidly for several more weeks. By 13 November, the Dow was down to 198.69, a drop of 48% since September. Investors would lose over $30 billion dollars in the downturn, eradicating entire savings accounts in the process. It would take some time for the market to calm down again. Stock prices would finally stabilize two and a half years later, in July 1932.
The overall economy suffered greatly, sparking nearly unheard of unemployment that affected almost a quarter of the working population. Banks failed at an alarming rate as people rushed in to pull out what cash they had there, a scene recalled in the holiday film classic It’s a Wonderful Life. By 1933, half of all banks had completely failed.
Other people had to sell assets to cover their margin losses, while still others simply were in so much debt that they couldn’t pay what they owed. There are stories that some people became so despondent that they crawled out of their high-rise office windows and jumped to their deaths.
As the economy continued to decline, and banks were being more frugal with lending, more and more businesses had to close due to a lack of capital resources. The lack of faith in the stock market led consumers to have an overall lack of confidence in the economy, and that didn’t help matters at all. And, with reduced employment, the amount of disposable income in the US dropped dramatically. It would take nearly a decade and the increased production necessary to meet the military needs of World War II to pull the US out of the Depression.
In the wake of the market crash, a number of programs were instituted that were designed to prevent such a financial catastrophe from ever happening again. One was the creation of the Securities and Exchange Commission that was intended to regulate stock trading and keep caps on sell-offs. Also created was a federal banking insurance fund, the FDIC, which would guarantee deposits up to a certain amount. Faster ticket tape machines were invented that could keep up in heavy trading so they could provide nearly real-time information.
Social policies were passed by Congress establishing agencies like the Tennessee Valley Authority, the Civilian Conservation Corps, and the Works Progress Administration that would help put people back to work on infrastructure projects like Timberline Lodge in Oregon and the Hoover Dam in Nevada. But, it wouldn’t be until the United States entered the Second World War in the 1940’s that the economic misery caused by the stock crash was finally put to rest.