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Timeline The Dow Jones Industrial Average reached a high of 381.17 on September 3, 1929. On Black Thursday, October 24 1929, the stock market suffered its first one-day crash. A then-record of 13 million shares were traded that day. At 1:00pm on Black Thursday, several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor. The group included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin head of the Chase National Bank; and Charles E. Mitchell, president of National City Bank. They chose Richard Whitney, vice president of the Exchange, to act on their behalf. With the bankers' financial resources behind him, Whitney placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As amazed traders watched, Whitney then placed similar bids on other "blue-chip" stocks. This tactic was similar to a tactic that ended the Panic of 1907, and succeeded in halting the slide that day. In this case, however, the respite was only temporary. Over the weekend, the events were dramatized by the newspapers across the U.S. On Monday, October 28, investors decided to get out of the market and the slide continued with a record 13% loss in the Dow for the day. "On October 29 — amid rumors that U.S. President Herbert Hoover would not veto the pending tariff bill — stock prices crashed even further." William C. Durant joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks in order to demonstrate to the public their confidence in the market but their effort failed to stop the slide. The DJIA lost 12% with 16.4 million shares traded (a new record, surpassing the one set only the previous Thursday). The market, as well as the economy, recovered early in 1930. Late in that year, the stock market again crashed and began a steady decline until it reached the low point in 1932. The effects of the Great Depression first began to be felt by the public late in 1930. "As late as April 1942, U.S. stock prices were still 75% below their 1929 peak and would not revisit that level until November 1954 — almost a quarter of a century later." The resulting low of 41.22 on July 8th, 1932 was the lowest the stock market had been since the 1800s.Liquid Markets. Boom-bust theory 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, even borrowing money to buy more stock. Banks lent heavily to fund this share-buying spree. 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. On October 24, 1929 (with the Dow just off its September 3rd peak from at 381.17), it finally dropped and panic selling set in. 12,894,650 shares were traded in the space of one day, as people desperately tried to mitigate the 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 U.S. Congress, caused more harm than the crash itself. Explanation from supply-side economic theory Many commentators view the Smoot-Hawley Tariff Act as a consequence of the Crash, since the act was not signed by President Hoover until June of 1930. However, supply-side political economists (and others) argue that stock-market prices anticipate future profits. "In September, the tariff bill reached the Senate, the same month stock prices peaked. On October 21, an amendment to impose tariffs only on agricultural imports was defeated." In this view, the Crash reflected investors’ rational expectations that tariffs would raise prices for U.S. consumers (both final consumers and manufacturers that used the imported products as inputs) and reduce firms’ future profits. Supply-siders also blame two tariff laws for the earlier, sharp recession of 1920–1921. However, the Crash of 1929 and the subsequent Great Depression were in part longer and deeper for three reasons: Salsman, part 2, p. 15. Official investigation of the crash In 1931, the Pecora Commission was established by the U.S. Senate to study the causes of the crash. Based in part on the commission's findings, the U.S. Congress passed the Glass-Steagall Act in 1933, which mandated a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities. After the experience of the 1929 crash, stock markets around the world instituted measures to temporarily suspend trading in the event of rapid declines, claiming that they would prevent such panic sales. However, the one-day crash of Monday, October 19, 1987 was even more severe than the Crash of 1929. On Black Monday of 1987, the Dow Jones Industrial Average fell 22.6% (the markets quickly recovered, posting the largest one-day increase since 1932 only two days later). Footnotes See also Further reading | ||||||||||
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