By Dr. Showket Ahmad Dar
October 29 marks the anniversary of “Black Tuesday” -the biggest market panic the United States had ever seen. Many will never forget this day of October 29, 1929 market crash that helped catapult the country into Great Depression. The years preceding the stock market crash of 1929 were defined by Irrational Exuberance. Stock prices had risen across the board and investors were very optimistic that the general upward trend of the market and economy would continue for some time. At that time, it was the longest bull market ever recorded. Some thought that it would last forever. It is noteworthy to mention here that during the roaring 1920s, the American economy grew by 42%. More importantly, America’s victory in the World War I gave the country its first experience of being a global power. Following the World War II victory, the stock market value was increased by 218% during the seven year period from 1922 until right before the crash. This was the period when advertisers were selling opportunity and euphoria, further feeding the notions of many Americans that prosperity would never end. Unsurprisingly, the optimism lured more investors to the market, investing on margin with borrowed money. By 1929, 2 out of every 5 dollars a bank loaned were used to purchase stocks.
On October 29, 1929, shares were traded as panic selling reached its peak. Some stocks had no buyers at any price. In the first half hour, around 30 million shares were traded and around $ 30 billion were lost which was estimated to be more than twice the US national debt. This was the worst stock market crash in US history which set the beginning of the Great Depression because it marked not only the end of one of the nation’s great bull market but also the end of widespread optimism and confidence in the US economy.
The days surrounding the stock market crash of 1929 were especially painful for investors who had borrowed money to purchase stocks that had become worthless. Many of the borrowers, who had leveraged themselves considerably in an effort to participate in the bull market, were ruined financially. They had to sell everything to pay back their debts and many could not pay them back at all. As a result, by the end of 1933, some 15 million Americans were unemployed and nearly half the country’s banks had failed and the nation’s disposable income fell precipitously.
The situation turned even worse during the years ahead as each day, 12000 people lost their jobs, 20,000 companies went bankrupt and around 23,000 people committed suicide. The crash hit the economy so hard that it took 36 months and 6 days for the country to recover. The more worrisome fact was that between 1930 and 1935, nearly 7, 50,000 family farms disappeared through foreclosures or bankruptcy. A famous example of the farmer’s plight was that, when the price of coal began to exceed that of corn, formers burnt corn to stay warm in the winter.
Without sufficient government relief, Americans thus turned to private charities, churches, synagogues and other religious organizations for assistance. To quote Hubert Gilbert, 90, who remembers the days before and after the crash, “It didn’t get that bad until the banks shut down; people started jumping out of windows committing suicide in places like New York. His family cut wood to stay warm and bought what they could afford. He recalls sleeping in his car until he could afford a room. The only relief that helped mitigate the worst effects of the Great Depression was the victory of Franklin D Roosevelt in the Presidential elections after which he passed legislation that aimed to stabilize industrial and agricultural production and stimulate recovery. He created many organizations to prevent abuses of the kind that led to the market crash of 1929.
—The author is an Assistant Professor at Government Degree College, Tral. He holds a Ph.D in International Business from the Aligarh Muslim University and can be reached at: [email protected]