Wall Street Crash, 1929

   The greatest financial crash in the history of the United States occurred in October 1929. Following several months during which security prices fell, on “Black Thursday,” 24 October, more than 13 million shares were traded on the stock exchange. On 29 October, “Black Tuesday,” “the most devastating day in the history of the New York Stock Market,” more than 16 million shares were sold, and share prices fell by $40 billion. By July 1933, the decline in value was $74 billion, and the great boom in stocks, the “bull market” of the 1920s, was over.

   The speculation boom of the 1920s was fueled by the expansion of manufacturing and growth of consumerism based on such new products as the automobile, radio, and other electrical appliances. The mood of optimism was reflected in rising share prices, and shares themselves then became seen as a way of making money quickly, rather than as investments in the country’s industrial future. The market, however, was largely unregulated and suffered serious flaws. Investors could buy shares on “margin,” that is, paying a fraction—sometimes as little as 10 percent—of the value of the shares and borrowing the rest from brokers. As prices rose, shares could be sold, the balance paid off, and a profit made. When prices fell, panic set in as investors realized the yield would not meet the outstanding balance. Holding companies and investment trusts sprang up offering shares that often bore little relation to industrial assets or profits and sometimes were simply exercises in speculation. Brokers’ loans rose from $3.5 million in June 1927 to $8 million in September 1929, and about 4 million Americans owned stock, 1.5 million of them using brokers.

   The crash wiped out individual savings and the investments of banks and insurance companies. The loss of confidence in financial institutions due to failure and tales of fraud and embezzlement added to the downward spiral. The rush of savers to withdraw money from banks compounded the crisis that led to a general collapse in financial institutions. By 1932, almost 4,000 banks had failed. This in turn contributed to the onset of the Great Depression as investment in industry fell and loans to companies, farms, homeowners, and international banks were called in.