Wall Street Crash of 1929
The Wall Street Crash of 1929, also called the Great Crash, is the stock market crash that occurred late October 1929. It started on October 24, Black Thursday. It reached its peak on October 29, 1929, Black Tuesday, when share prices on the New York Stock Exchange collapsed, leading eventually to the Great Depression. However, the days leading up to the 29th ("Black Thursday" & "Black Monday") had also seen enormous stock market upheaval, with panic selling and vast levels of trading interspersed with brief periods of recovery.
Some statistics for the 1929 crash:
- Black Thursday: 12.9 million shares traded (a record at the time).
- Black Monday: 13% loss in the DJIA (a record at the time).
- Black Tuesday: 12% loss in the DJIA; 16.4 million shares traded (a record at the time).
- The stock market lost 40% of its value in September and October of 1929.
- The stock market lost 89%, falling from a high of 381.17 in September, 1929, to a low of 41.22 in July, 1932.
- The stock market took 22 years to recover its 1929 high value.
The crash followed a speculative boom that had taken hold in the late 1920s, which had led millions of Americans to invest heavily in the stock market.
This investment drove share prices up to artificially high levels; the rising share prices encouraged more people to invest, as they hoped the shares would rise further, thus fueling further rises, and creating an economic bubble. The banks lent heavily to fund this share-buying spree. On October 24, 1929 (with the Dow Jones Industrial Average market index just off its peak from September 3rd at 381.17), the bubble finally burst and panic selling set in. Thirteen million shares were sold in the space of one day, as people desperately tried to dispose of their shares before they became worthless.
Over the following few days another thirty million shares were sold, and share prices collapsed, ruining millions of investors.
The banks which had lent heavily to fund share buying found themselves saddled with debt, which caused many banks to fail.
While millions of people lost their savings, businesses lost their credit lines and were forced to close, causing massive unemployment.
The crash dramatically worsened an already fragile economic situation, and was a major contributing factor to the Great Depression. There is a good deal of controversy among economists and historians about the nature of that contribution, though. Some hold that political over-reactions to the crash, such as in the passage of the Smoot-Hawley Tariff Act through the US Congress, caused more harm than the crash itself.
After the experience of the 1929 crash, stock markets around the world instituted measures to temporarily suspend trading in the event of rapid declines, so as to prevent such panic sales. As a result, later stock market crashes, such as the crash of 1987 (Black Monday), have never been quite as severe as that of 1929.
Further reading
- John Kenneth Galbraith (1954), The Great Crash, 1929.
- Jude Wanniski (1978), The Way the World Works.
External links
- About.com: Black Thursday - 1929
- About.com: 1929 Stock Market Crash