When the stock market crashed in 1929, it didn’t happen on a single day. Instead, the stock market
continued to plummet over the course of a few days setting in motion one of the most devastating
periods in the history of the United States.

Black Thursday

The most significant events started on Black Thursday, October 24, 1929. On that day, nearly 13 million
shares of stock were traded. It was a record number of stock trades for the U.S. and marked the end of
an upward trend on stock prices. On Black Thursday, the stock prices dropped so quickly, the stock
ticker could not keep up. As the day progressed, the stock ticker lagged behind, failing to show the most
up to date stock prices.

Top American Bankers Try to Save the Banking System

On the next day, Friday, October 25, several of the nation’s largest bankers met to decide what they
could do about the situation. Among the attendees were the heads of Morgan Bank, Chase National
Bank, and National City Bank. The bankers ultimately decided to purchase a number of U.S. Steel
shares above market price. A similar tactic worked to end a previous stock market scare in 1907 when
the New York Stock Exchange plummeted, causing many banks and businesses to file bankruptcy.
American banker J.P. Morgan and a few other bankers bailed out the banking system using their own
money. The bankers who tried to thwart the 1929 stock market crash were unsuccessful. There were
positive results, but they were short lived.

In those days, the stock market traded six days a week instead of five. The bankers’ move led to a slight
increase in stock price on Saturday, October 26. But over the weekend many investors lost faith in the
stocks and decided to sell their shares. When the markets reopened on Monday, October 28, 1929,
another record number of stocks were traded and the stock market declined more than 22%. The
situation worsened yet again on the infamous Black Tuesday, October 29, 1929 when more than 16
million stocks were traded. The stock market ultimately lost $14 billion that day.

What Caused the 1929 Stock Market Crash?

In the years leading up to the stock market crash of 1929, the stock market
had gained much popularity as a way of making money. Because stocks
prices had been on the rise, they gained the reputation of being a safe way
to invest. Many investors believed stocks were their ticket to riches.

A great number of investors were purchasing stock on the margin, meaning
they put 10% of the investment and borrow the remaining 90%. For example,
if $10 worth of stock was purchased, the investor put in $1, while the
mortgage broker put in the other $9. It was a good deal as long as stocks
were gaining value. However, if the stock lost value, the stockbroker would
issue a
margin call requiring the investor to pay back the loan. In the
example above, not only did the investor lose the $1 he invested, he also
had to pay back the $9 he’d borrowed.

How Mass Trades Lowered Stock Prices

All was well for most of the 1920s. People believed that stock values would
never stop rising. But, in 1929, some of the larger investors realized the
stock prices were artificially high as a result of the mass investments from
speculative investors. So, those “savvy” investors started trading their stocks
and consequently, stock prices began to fall. Then, brokers issued margin
calls leading to further stock market drops. The situation peaked on Black
Tuesday when the stock market completely crashed.

Even after Black Tuesday, stock prices continued to fall until November 23,
1929 when there was a brief period of stabilization. Though it seemed like
the worst had been seen, there was more decline to come. After that, the
stock market continued to decline until it reached its lowest point on July 8,
1932.

The Stock Market Crash’s Effect on the U.S. Economy

The stock market crash devastated the American economy because not only had individual investors put
their money into stocks, so did businesses. When the stock market crashed, businesses lost their
money. Consumers lost their money too, because many banks had invested their money without their
permission or knowledge.

The Great Depression soon followed. Even though the stock market crash of 1929 was one of the
contributors to The Depression, it was not the only cause.

  •        Factories had begun to overproduce consumer goods, but demand for those goods didn’t
increase at the same rate. Prices of those goods began to fall, but once the stock market
crashed, few people could afford to purchase goods.

  •        A similar situation happened with farm crops as farmers planted more wheat than was
demanded on the market.

  •        Banks had little to no government regulations to abide by and lost many of their customers’ life
savings in the stock market crash. Hundreds of banks failed over the course of the Great
Depression, worsening the situation as many consumers were left with no money.

  •        Herbert Hoover, who was President from 1929 to 1933, believed the government shouldn’t
intervene with the economy. Rather, he said, families could turn the economy around if they
continue to work hard and rely on themselves.

  •        In 1930, Hoover signed the Smoot-Hawley Tariff, which increased the tariff rates on imported
goods. Foreign nations responded by boycotting American products. This severely hurt         
American producers who were in dire need of sales.

New Government Programs Created

After the stock market crash of 1929, the government took several measures to prevent a similar crash
from occurring. The Securities and Exchange Commission (SEC) was created on October 1, 1934 to
regulate stocks, bonds, and other commissions. The Federal Deposit Insurance Corporation (
FDIC)
was also created to insure consumers’ deposits in FDIC-enrolled financial institutions. The Federal Crop
Insurance Corporation (FCIC) was created to insure crops planted by farmers. These are a few of the
government-created agencies that have been put in place to prevent another stock market crash of the
magnitude of the stock market crash in 1929.

Sources: NYTimes.com, OhioHistoryCentral.org, PBS.org, SparkNotes.com: The Great Depression
(1920-1940).
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The Stock Market Crash of 1929
The 1929 Stock Market Crash is well known as the
most devastating crash in United States history.
Here's a look at this historic event, which marked
the beginning of the Great Depression.
1929 Stock Market Crash
People crowd Wall Street after the Stock Market Crash of 1929.