The World Is In Panic!
The Stock Market has Crashed!
The Start Of The Chaos
The end of World War I introduced a new era in the United States. It was an era of enthusiasm, confidence, and optimism. A time when inventions such as the airplane and radio made anything seem possible. It was a time when Prohibition renewed confidence in the productivity of the common man. It is in such times of optimism that people take their savings out from under their mattresses and out of banks and invest it. In the 1920s, many invested in the stock market.
Although the stock market has the reputation of being a risky investment, it did not appear that way in the 1920s. With the mood of the country exuberant, the stock market seemed an infallible investment in the future. As more people invested in the stock market, stock prices began to rise. This was first noticeable in 1925. Stock prices then bobbed up and down throughout 1925 and 1926, followed by a strong upward trend in 1927. The strong bull market (when prices are rising in the stock market) invited even more people to invest. And by 1928, a stock market boom had begun.
How has this happened?
Black Thursday - October 24, 1929
On the morning of Thursday, October 24, 1929, stock prices plummeted. Vast numbers of people were selling their stocks. Margin calls were sent out. People across the country watched the ticker as the numbers it spit out spelled their doom. The ticker was so overwhelmed that it quickly fell behind. A crowd gathered outside of the New York Stock Exchange on Wall Street, stunned at the downturn. Rumors circulated of people committing suicide.
To the great relief of many, the panic subsided in the afternoon. When a group of bankers pooled their money and invested a large sum back into the stock market, their willingness to invest their own money in the stock market convinced others to stop selling.
The morning had been shocking, but the recovery was amazing. By the end of the day, many people were again buying stocks at what they thought were bargain prices. On "Black Thursday," 12.9 million shares were sold - double the previous record. Four days later, the stock market fell again.
Although the market had closed on an upswing on Black Thursday, the low numbers of the ticker that day had shocked many speculators. Hoping to get out of the stock market before they lost everything (as they thought they had on Thursday morning), they decided to sell. This time, as the stock prices plummeted, no one came in to save it.
October 29, 1929, "Black Tuesday," is known as the worst day in stock market history. There were so many orders to sell that the ticker quickly fell behind. (By the end of close, it had lagged to 2 1/2 hours behind.) People were in a panic; they couldn't get rid of their stocks fast enough. Since everyone was selling and nearly no one was buying, stock prices collapsed.
Rather than the bankers rallying investors by buying more stocks, rumors circulated that they were selling. Panic hit the country. Over 16.4 million shares of stock were sold - a new record.
Aftermath
To say that the Stock Market Crash of 1929 devastated the economy is an understatement. Although reports of mass suicides in the aftermath of the crash were most likely exaggerations, many people lost their entire savings. Numerous companies were ruined. Faith in banks was destroyed.
The Stock Market Crash of 1929 occurred at the beginning of the Great Depression. Whether it was a symptom of the impending depression or a direct cause of it is still hotly debated.
Historians, economists, and others continue to study the Stock Market Crash of 1929 in the hopes of discovering the secret to what started the boom and what instigated the panic. As of yet, there has been little agreement as to the causes. In the years after the crash, regulations covering buying stocks on margin and the roles of banks have added protections in the hopes that another severe crash could never happen again.
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