On This Day

new york stock exchange, stock market crash
Associated Press
The New York Stock Exchange, October 1929

On This Day: “Black Tuesday” Stock Market Crash Ushers in Great Depression

October 29, 2011 06:00 AM
by findingDulcinea Staff
On Oct. 29, 1929, the New York Stock Exchange closed down 12 percent for the second straight day, signaling the end of the bull market of the 1920s and the beginning of the Great Depression.

The Stock Market Crash of 1929

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During the late 1920s, the American stock market reached unprecedented levels, and financial prosperity for investors seemed certain. As prices soared, Americans began to withdraw their savings from banks and invest in the stock market.

Many also took out loans and mortgages in order to invest money in the thriving market. Because the market held a massive amount of loans and borrowed money, it could only survive if stock prices continually rose.

In September 1929, the Dow Jones Industrial Average peaked at 381 points, and then began to fall. The market fell consistently from September to October. As quickly as investors rushed into the market, they panicked and got out.

The first day of panic was Oct. 24, known as “Black Thursday,” as 12.9 million shares of stock were traded. Although millions of shares were sold, the market closed only six points down, as banks and investment companies rushed to buy back stock and prevent a more widespread panic.
Attempts to salvage the market were unsuccessful. On Oct. 28, 1929, now known as “Black Monday,” the market closed down 12.8 percent.

The following day, “Black Tuesday,” more than 16 million shares were traded as the Dow dropped another 12 percent. Many prominent American companies and financial institutions collapsed, as their company stock became virtually worthless.
 
“From every point of view, in the extent of losses sustained, in total turnover, in the number of speculators wiped out, the day was the most disastrous in Wall Street’s history,” wrote The New York Times the following day. “Hysteria swept the country and stocks went overboard for just what they would bring at forced sale.”

Along with the market tumbles on the preceding Thursday and Monday, Black Tuesday was one of the dominoes that led to the Great Depression of the 1930s.

The Great Depression and the New Deal

Following the collapse of the stock market, banks tried to collect on loans, but many borrowers had lost their loans in the market. Fearing that their banks were short on cash, depositors pulled their money from banks, which began to go out of business. “By the inauguration of Franklin D. Roosevelt as president in March 1933, the banking system of the United States had largely ceased to function,” explains PBS.

The fall of the stock market and banking systems played into the worldwide economic collapse known as the Great Depression that spanned the 1930s. At the height of the Depression in the United States, 15 million Americans, or one-quarter of the population, were unemployed.

Upon taking office, Roosevelt introduced a number of economic reforms, emergency and work relief programs, and agricultural reforms collectively known as the New Deal. In the financial sector, the most significant reform was the creation the Federal Deposit Insurance Corporation, which insured banks and guaranteed that depositors would be reimbursed even if their bank ran out of money.

The New Deal used government programs and funds to create jobs for Americans while improving infrastructure and development. While the New Deal improved living conditions for many Americans, it is debatable whether it helped lift America out of the Great Depression, which did not end until America’s entry into World War II in 1941.
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