Crash of 1929 the Stock

¶ … Crash of 1929

The stock market during the 1920's was going through the roof and it seemed as if the United States had the magic formula for limitless prosperity, however, this magic formula would also be responsible for what came to known as Black Tuesday (Causes pp).

An unstable economy was created due to the disparately distribution of money between the rich and the middle-class, and between industry and agriculture within the United States and between United States and Europe (Gusmorino pp). Excessive speculation kept the market artificially high, eventually leading to large market crashes (Gusmorino pp).

The world was in a post-war rebuilding mode in the twenties, and moreover, electricity was opening up a whole new frontier of electric appliances as more homes became electric, thus consumerism was a major contributor to the decade's boom (Crash pp). Furthermore, from 1925 to 1929, so many people were caught up in the stock market that it was almost a craze because instead of buying stock, people could purchase them with cash down and the rest on credit (Crash pp). So as more and more people bought stock by essentially making monthly payments, stock values increased (Crash pp).

Although experts were wary, the government held to a policy known as laissez-faire, which means, 'let things be' or basically non-intervention, which allowed the stock craze to grow unchecked (Crash pp). Although there was concern and discussions, "no one wanted to take the blame if the market crashed because of measure taken to prevent it...So laissez-faire continued and they hoped for the best" (Crash pp).

On Monday, March 25, 1929, the first of many 'mini' crashes and recoveries began and continued for the next six months until September 3, when a bear market became firmly established (Crash pp). On Thursday, October 24th, 12,894,650 shares changed hands on the New York Stock Exchange, breaking the previous record of 3,875,910 set the previous year (Crash pp). So busy was the Exchange that "issues were behind as much as one hour to an hour and a half on the tape" and phones were jammed, causing crowds to gather outside in an effort to communicate which led police to be called to control the riot of investors (Crash pp). By the weekend the market had returned to Thursday's status, but on Monday, 28th the volume was huge-over 9,250,000 shares traded, the losses were great as well, but unlike Thursday, there was no dramatic recovery (Crash pp). On Tuesday, the 29th, 16,410,030 shares were traded, and in order to get out, one had to get his broker to sell the stock at market value, however, most of the stock was bought on margin (Crash pp). People were paying interest on loan for a stock which itself is being used as collateral, called a security, thus, if the stock suffered a loss, one had to cover the call for margin (Crash pp). Investors began dumping their securities, causing more downward pressure on the market, as stockbrokers tried desperately to get in touch with customers for margin (Crash pp). The panic to sell prevented recovery and by closing bell the market had crashed (Crash pp).