Today’s program is based on the PBS “American Experience” presentation about the 1929 Crash first broadcast in 1990, shortly after the 1989 Friday the 13th crash. Sadly, many of the reasons for the 1929 crash—the worst in world history when seen in terms of both the US and global economy—still exist today. Today’s program is a cautionary tale indeed.
There have been a total of 14 U.S. stock market crashes post-1800. Each one was triggered either by a speculative bubble collapse, an economic crisis, or a major catastrophic event:
Panic of 1819 1819 Stock Market Crash: 54% fall in index of export staples from August 1818 to June 1819; 88% drop in public land sales from 1818 to 1820. America’s first great economic crisis and depression. Three triggers provoked this downturn. First, a bubble burst – speculation in public lands. Second, in the aftermath of the Napoleonic wars, the Second Bank of the United States (BUS), the nation’s central bank back then, sharply contracted its line of credit to curb speculation. Third, banks nationwide flooded the market with too much paper money.A wave of bankruptcies and foreclosures emerged, and debtors’ prisons were overflowing. More than 1 million Americans (10%) were out of work.
Panic of 1837 May 10, 1837 Stock Market Crash: 63% for railroad stocks; 32% for banking and insurance stocks. Some blamed former U.S. presidents Andrew Jackson and his successor Martin Van Buren for the Panic that was followed by five years of depression. Hard-money advocate Jackson clashed with the BUS. Jackson refused to renew the charter of BUS, which resulted in a withdrawal of government funds from the bank and a panic. Van Buren refused to intervene to fix the crisis, believing it would settle on its own. Others blamed the panic on the BUS, for funding rampant land speculation (the sale of public lands increased fivefold between 1834 and 1836 due to Indian removal). The institution was also accused of introducing inflationary fiat money at excess – an all-too familiar criticism of our modern-day central bank…
Panic of 1857 1857 Stock Market Crash: 50% from 1857-1858. The Panic of 1857 can be chalked up to two events. First, in September, 30,000 pounds of gold were lost at sea in a shipment from the San Francisco Mint to east coast banks. Second, the Ohio Life and Insurance Co. over-speculated with risky railroad investments and embezzlement. Losses totaled over $5 million. It failed, sparking panic on Wall Street. By the end of 1857, roughly 900 mercantile firms shuttered their doors and more than 5,000 businesses failed nationwide. Hundreds of thousands lost their fortunes, including then-future U.S. President Ulysses S. Grant. Markets didn’t fully recover until 1859.
Black Friday Sept. 24, 1869 Stock Market Crash: 20% on the day. The U.S. government needed funds to rebuild after the Civil War. It took on a large amount of public debt, with the idea the “greenbacks” would be bought back with gold. Meanwhile, two men – Jay Gould and James Fisk – tried to capitalize by cornering the gold market. They caused the price of gold to skyrocket, and the stock market crashed on “Black Friday.” Former U.S. President Ulysses S. Grant managed to stabilize the economy by releasing gold into the market, but thousands still lost everything they had.
Panic of 1893 May 3, 1893 Stock Market Crash: 8.8% between April and May. Another railroad speculation bubble popped when two of the country’s largest employers, the Philadelphia and Reading Railroad and the National Cordage Co., collapsed. National Cordage stock was the most active on the market at the time – it fell 19 points on May 3 and 4. It fell, in total, from 75 in February to 18 ¾ by May 4. Banks called the loans to National Cordage, and the business went into receivership on May 4. Brokerage firms who were speculating the stock were forced to suspend operations. Solvency questions sparked panic, and bank runs began. Unemployment soared to 19% as more than 500 banks (5% of all American banks) failed and a whopping 16,000 businesses went bankrupt by the end of the year. More than $1 billion worth of bonds were defaulted. Layoffs put people on the street as they could no longer pay their rents and mortgages.
Panic of 1901 1901 – 1903 Stock Market Crash: 46% from June 1901 to November 1903.The first-ever stock market crash on the New York Stock Exchange originated from a fight to control U.S. railroads.E. H. Harriman controlled Union Pacific, while James J. Hill controlled Northern Pacific Railway. The two men tried to the corner the market – Northern Pacific stock was quoted at $150.00 a share on May 6, 1901, but traded behind closed doors for as much as $1,000.00 a share. Ultimately Harriman and Hill negated one another, but the smaller fortunes of other investors were destroyed in the process. Around $40 million to $75 million worth of stock was lost.
Panic of 1907 October 1907 Stock Market Crash: 50% from its peak the year before. The Great San Francisco Earthquake hit in April 1906 and devastated the city. The government poured in aid, stressing money supply. Then in late 1906, another stressor came when the Bank of England raised interest rates. In July 1907, the copper market collapsed, and in August the Standard Oil Company was fined $29 million for antitrust violations. Together the events kicked off a 24% decline in stock market value from January through September 1907.As stocks continued to decline, a stock manipulation scheme gone awry in October 1907 kicked off the panic. Banks that lent money to the scheme, which was an investor’s attempt to corner the market on United Coppery Company stock, suffered runs that spread across the nation. New York’s third-largest trust, Knickerbocker, collapsed (that’s why the Panic of 1907 is also called the “Knickerbocker Crisis”), and panic spread further. Stocks fell almost 50% from their peak the year before in only three weeks. Historians believe but for the actions of financier J. P. Morgan, who gave over huge sums of his own money and convinced other bankers to do the same to shore up the banking system, the crash would have worsened. Note that this crisis gave rise to the creation of the Federal Reserve System.
Wall Street Crash of 1929 1929-1932 Stock Market Crash: 48% from September to November 1929; 86% from April 1930 to July 1932. The litmus test for all depressions and recessions, this devastating stock market crash kicked off the ten-year-long Great Depression. A speculative bubble in the manufacturing industry took hold in the 1920s, after the end of World War I. In the first six months of 1926 alone, combined net profits of 536 manufacturing and trading companies increased 36.6%. The Dow Jones gained more than 20% between June and September 1929. People poured wealth into the stock market, even borrowing money to invest. By August 1929, brokers were lending to individual investors two-thirds of the face value of stocks. More than $8.5 billion was out on loan – more than the entire amount of U.S. currency in circulation at the time. The highly speculative stock prices began to decline in September 1929, and on Oct. 18, the real fall began. A panic set in, and on Oct. 24, “Black Thursday,” the market lost 11% of its value at opening bell on record-breaking high volume. Banks and investment companies attempted to stem the bleeding by buying up huge blocks of shares, but another giant 13% drop hit the following “Black Monday.” The next day, “Black Tuesday,” saw some 16 million shares traded, and the Dow slid 12%. The volume traded that day – a record 16 million shares – was not seen again for almost 40 years. By the time the market bottomed out in 1932, the Dow had lost almost 90% of its value. By 1933, roughly half of all U.S. banks had failed. Unemployment approached 15 million people (30% of the workforce). Stock prices didn’t reach pre-crash levels for 25 years.
Kennedy Slide of 1962 May 28, 1962 Stock Market Crash: 22.5% from 1961-1962. From late 1961 to the first half of 1962, the S&P 500 lost 22.5%. This is called the “Kennedy Slide” because it was the first market decline since the Wall Street Crash of 1929, and occurred during former U.S. President John F. Kennedy’s term.Former head of the American Stock Exchange Edwin Posner attributed the drop to an adjustment to more realistic levels after a long period of economic boom.
Black Monday Oct. 19, 1987 Stock Market Crash: 22.6% on the day. The stock market fell 22.6% – the largest percentage single-day loss in Dow Jones history – and obliterated $503 billion on “Black Monday.” Stock markets around the world came crashing down, beginning in Hong Kong, spreading its tendrils west to Europe, and finally finding U.S. markets. There are a few theories regarding the cause of Black Monday, but the most popular is program trading. “Program trading” is a type of securities trading in which groups of 15 stocks or more are traded simultaneously based on preexisting factors via computer program. Investors use this method when they wish to trade a large number of stocks at the same time, or to take advantage of a window of price discrepancies between markets (arbitrage). In the late 1980s, computer technology became more common, leading to a burst of program trading use on Wall Street. The public largely blamed program trading for blindly selling stocks as the market dropped, exacerbating the crash. Whether that was actually the case, or the sheer novelty of mass program trading caused a general distrust of it, is debatable. Some other theories on what caused Black Monday are overvaluation, illiquidity, and market psychology.
Friday the 13th Mini-Crash Oct 13, 1989 Stock Market Crash: 6.9% on the day. A $6.75 billion leveraged buyout of UAL Corp., parent company of United Airlines, fell through when the Associate of Flight Attendants pulled out. This triggered the collapse of the junk bond market. Moments after the deal’s breakdown hit the news, a stock market crash began. The Dow Jones lost 6.91% by closing bell. The Nasdaq lost 3.09%, and the S&P 500 fell 6.12%.
Dot-Com Bubble March 10, 2000 Stock Market Crash: 78% from March 10, 2000, to Oct. 9, 2002. The Internet commercialized in 1995, creating a speculative bubble from 1997 to 2000. Investors were willing to overlook traditional metrics like P/E ratios. People quit their jobs to become day traders. Millionaires were made overnight. But the bubble’s collapse started in 1999, and the stock market crashed from 2000 to 2002. From March 2000 to October 2002, $5 trillion in market value was eviscerated. The Nasdaq fell 78% from 5,046 to 1,114 – that high wasn’t seen again until 15 years later. Some companies failed completely, like Pets.com. Others survived but saw a large drop in share price, like Cisco, which lost 86%. And a rare few, like Amazon.com Inc. (Nasdaq: AMZN) and Google Inc. (Nasdaq: GOOG, GOOGL) weathered the storm – shares are now worth upwards of 3,000% more than they were in dot-com bubble days.
Financial crisis of 2007-08 2007-2008 Stock Market Crash: 45% from 2007-2008. On Sept. 16, 2008, U.S. financial institutions began to collapse due to exposure of securities to packaged subprime loans and credit default swaps. The events devolved into a global crisis. Banks failed in Europe, and stocks and commodities plummeted worldwide.On Sept. 28, 2007, the Dow dropped 777.68 points, obliterating $1.2 trillion in market value. It’s the biggest single-day crash in Dow Jones history. Behind the crash was the U.S. House of Representatives’ rejection of the government’s $700 billion bank bailout plan. News that Wachovia (which was acquired by Wells Fargo in 2008) had to sell its banking assets to Citigroup (NYSE: C) the same day didn’t help, nor did the collapse of European banks. Amidst the subprime crisis, the Dow’s second-biggest single-day drop happened six days later on Oct. 15, 2008. This time, recession talk fueled the 7.9% decline. A weak sales report, bleak forecasts from the U.S. Federal Reserve, and sober comments from Fed Chairman Ben Bernanke all contributed to the day’s plummet. (Which was still far off from the largest-ever percentage loss – 22.6% on “Black Monday,” Oct. 19, 1987.) Subprime financial crisis-related events that triggered the top two largest single-day Dow drops also account for the fourth-, fifth-, and tenth-largest. The Dow hit an (at the time) all-time high on Oct. 9, 2007, closing at 14,164.43; by March 5, 2009 – a little under 18 months later – it had fallen more than 50% to 6,594.44.
2010 Flash Crash May 6, 2010 Stock Market Crash: 9% on the day. The Dow dropped 1,000 points in 20 minutes. High-frequency traders were the culprit (more on that here…), and there have been more “mini-crashes” – though less severe – since.
Charles Edwin Mitchell (October 6, 1877 – December 14, 1955) was an American banker whose incautious securities policies facilitated the speculation which led to the Crash of 1929. National City Bank's (now Citibank) abuses under his leadership brought an end to ownership of investment affiliates by commercial banks. Nicknamed "Sunshine Charley", Mitchell was elected president of National City Bank (now Citibank) in 1921 and, in 1929, was appointed chairman. Also in 1921, he was elected president of National City Company, which became the largest security-issuing entity in the world. Under his leadership, the bank expanded rapidly and, by 1930, had 100 branches in 23 countries outside the United States. His salesmen sold millions of shares in the bank totaling $650 million, much of which would be lost in the Crash of 1929. Indeed, while the Federal Reserve Bank was attempting to curb speculation earlier in 1929, Mitchell flaunted a $25 million advance to traders. Mitchell remained chairman until 1933, when he was arrested and indicted for tax evasion by then Assistant U.S. Attorney Thomas E. Dewey. Defended by attorney Max Steuer, he was found not guilty of all criminal charges, but the government won a million-dollar civil settlement against him. In 1933, the Senate's Pecora Commission investigated Mitchell as its first witness for his part in tens of millions of dollars in losses, excessive pay and tax avoidance. In November 1929, Senator Carter Glass said of him, "Mitchell more than any 50 men is responsible for this stock crash." Mitchell made a comeback and died a respected Wall Street banker, leaving his heirs a fortune. His townhouse on Fifth Avenue, built for him by Walker & Gillette in 1926, with a rusticated facade in the manner of a 16th-century Roman palazzo, now houses the French consulate.
Michael J. Meehan (1891–1948) was a stock trader on Wall St during the 1920s and 1930s. The Securities and Exchange Commission (SEC) forced him out of trading in 1935 as the first individual they prosecuted. During the Great Depression he purchased a controlling stake in the Good Humor ice cream company. Meehan was born in Blackburn, England in 1892, but grew up in Manhattan. After attending public schools in New York, he became a theater ticket seller on Wall Street. As a ticket broker in New York's financial district, brokers requested the best Broadway seats available. After six years as a ticket broker, Meehan used his connections to get him a seat on the New York Curb Exchange. Three years later he had saved $90,000 to purchase a seat on the New York Stock Exchange (NYSE). Meehan was an early investor in the Good Humor ice cream company. In what some call nothing more than a favor, he invested in the company as a favor to an old friend, the father-in-law of the franchise own, Tom Brimer. During the stock market Crash of 1929, when most other stocks lost their value, Good Humor paid high dividends. This brought the company to the attention of Meehan and he purchased a controlling stake in the company. In 1935, Meehan planned to manipulate the stock price of Bellanca Aircraft. Meehan used the strategy of 'matched orders' which had him manipulating the volume of the stock by frequently buying and selling the issue. By increasing the volume, Meehan believed he could generate interest in the company. Within a few months, the public had followed Meehan into Bellanca and pushed the share price up from $1.75 to $5.50. After Meehan completed his manipulation and sold the stock, the shares fell to their original price. The Securities and Exchange Commission (SEC) decided to prosecute Meehan under the new Securities Exchange Act. This would be the first punitive action taken by the SEC. The commission expelled Meehan from his seats on the NYSE, and also on the Curb Exchange and Chicago Board of Trade.
Jesse Lauriston Livermore (July 26, 1877 – November 28, 1940 [suicide]), also known as the Boy Plunger and the Great Bear of Wall Street, was an American stock trader. He was famed for making and losing several multimillion-dollar fortunes and short selling during the stock market crashes in 1907 and 1929. He sometimes played hunches, famously selling Union Pacific railroad short right before the 1906 San Francisco earthquake. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. Adjusted for inflation, $100 million in 1929, equals about in $1.384 billion in 2014, it would be over $125 billion today if put into Dow Jones Index with dividends reinvested. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly. For unknown reasons, he lost much of his trading capital accumulated through 1929. Thus, on March 7, 1934, the bankrupt Livermore was automatically suspended as a member of the Chicago Board of Trade. It was never disclosed to anyone what happened to the great fortune he had made in the crash of 1929, but he had lost it all. It is possible that Livermore turned prematurely bullish and bought stocks and commodities long before the market finally bottomed in the summer of 1932. Perhaps the rule changes after the crash that made it harder to short stocks hurt his trading style. On September 16, 1932, his first wife, Dorothy, divorced Livermore on grounds of desertion. They had been married 14 years. Dorothy retained custody of their boys. On March 28, 1933, Livermore married 38-year-old Harriet Metz Noble in Geneva, Illinois; there was no honeymoon. It was Harriet's fifth marriage; all four of her previous husbands had committed suicide. Livermore would be no different. On November 28, 1940, Livermore shot and killed himself in the cloakroom of the Sherry Netherland Hotel in Manhattan. The police revealed that there was a suicide note of eight small handwritten pages in Livermore's personal notebook. The press wanted to know what it said, and the police tersely responded: “There was a leather-bound memo book found in Mr. Livermore's pocket. It was addressed to his wife.” A police spokesman read from the notebook: “My Dear: Can’t help it. Things have been bad with me. I am tired of fighting. Can’t carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me. Love Laurie”. He left behind two sons Jesse Jr. and Paul. Untouchable trusts and cash assets at his death totaled over $5 million. A lifelong history of clinical depression had become the dominant factor in his final years.
William Crapo "Billy" Durant (December 8, 1861 – March 18, 1947) was a leading pioneer of the United States automobile industry, who created the system of multi-brand holding companies with different lines of cars; and the co-founder of General Motors with Frederic L. Smith, and of Chevrolet with Louis Chevrolet. He also founded Frigidaire. In the 1920s, Durant became a major "player" on Wall Street and on Black Tuesday joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks, against the advice of friends, to demonstrate to the public their confidence in the stock market. His effort proved costly and failed to stop the market slide. By 1936, the 75-year-old Durant was bankrupt. After the fall of Durant Motors, Durant and his second wife, Catherine Lederer Durant, lived on a small pension provided by R S McLaughlin, Mr Marr and Dupont as arranged by Alfred P. Sloan at $10,000.00 a year on behalf of General Motors. He suffered a stroke in 1942, which left him "a semi-invalid", and managed a bowling alley, slinging hamburgers in Flint until his death in 1947. He was interred in a private mausoleum at the Woodlawn Cemetery in the Bronx, New York.
Evangeline Smith Adams (February 8, 1868– November 10 or 12, 1932) was a late 19th- / early 20th-century American astrologer, based in New York. She ran a thriving astrological consulting business, gained widespread notability for successfully defending her astrological practice in court, and wrote a number of popular books about astrology, including Astrology: Your Place in the Sun (1927), Astrology: Your Place Among the Stars (1930), and her autobiography, The Bowl of Heaven (1926). While Aleister Crowley ghostwrote her books on astrology, Adams is an acknowledged contributor to Crowley's own astrological text The General Practice of Astrology. She has been described as "America's first astrological superstar.” Adams was well paid by her clients for her predictions. She was said to successfully predict changes in the stock market. However, author Carol Krismann noted that: “Skeptics point out that Adams had no knowledge of economics and that her predictions were always fuzzy, foretelling disaster but not specific disasters, and telling that the market would go up when in fact the country was in a period of remarkable growth in the stock market. People who believed often forget the erroneous predictions and used the ones that happened to come true to ‘prove’ that she was accurate.” Investment analyst Kenneth Fisher has written that her few successful predictions were publicized whilst her misses were ignored by those desperate to believe. He described Adams as an "obvious quack with no real investment knowledge."
Roger Ward Babson (July 6, 1875 – March 5, 1967), remembered today largely for founding Babson College in Massachusetts, was an entrepreneur and business theorist in the first half of the 20th century. He also founded Webber College, now Webber International University, in Babson Park, Florida, and the defunct Utopia College, in Eureka, Kansas. He was born to Nathaniel Babson and his wife Ellen Stearns as part of the tenth generation of Babsons to live in Gloucester, Massachusetts. Roger attended Massachusetts Institute of Technology and worked for investment firms before founding, in 1904, Babson's Statistical Organization, which analyzed stocks and business reports. It continues today as Babson-United, Inc. Babson had "ten commandments" he followed in investing and encouraged his readers to do the same. These were:
Keep speculation and investments separate.
Don't be fooled by a name.
Be wary of new promotions.
Give due consideration to market ability.
Don't buy without proper facts.
Safeguard purchases through diversification.
Don't try to diversify by buying different securities of the same company.
Small companies should be carefully scrutinized.
Buy adequate security, not super abundance.
Choose your dealer and buy outright (i.e., don't buy on margin.)
On September 5, 1929, he gave a speech saying, "Sooner or later a crash is coming, and it may be terrific." Later that day the stock market declined by about 3%. This became known as the "Babson Break". The Wall Street Crash of 1929 and the Great Depression soon followed.
Julius Marx (Groucho)The Cocoanuts (1929) is the Marx Brothers' first feature-length film. Produced for Paramount Pictures by Walter Wanger, who is not credited, the musical comedy stars the four Marx Brothers, Oscar Shaw, Mary Eaton, and Margaret Dumont. It was the first sound film to credit more than one director (Robert Florey and Joseph Santley), and was adapted to the screen by Morrie Ryskind from the George S. Kaufman Broadway musical play. Five of the film's tunes were composed by Irving Berlin, including "When My Dreams Come True", sung by Oscar Shaw and Mary Eaton. The Cocoanuts is set in the Hotel de Cocoanut, a resort hotel, during the Florida land boom of the 1920s. Mr. Hammer (Groucho Marx) runs the place, assisted by Jamison (Zeppo Marx), who would rather sleep at the front desk than actually help him run it. Chico and Harpo arrive with empty luggage, which they apparently plan to fill by robbing and conning the guests. Mrs. Potter (Margaret Dumont, in the first of seven appearances with the Marxes) is one of the few paying customers. Her daughter Polly (Mary Eaton) is in love with struggling young architect Bob Adams (Oscar Shaw). He works to support himself as a clerk at the hotel, but has plans for the development of the entire area as Cocoanut Manor. Mrs. Potter wants her daughter to marry Harvey Yates (Cyril Ring), whom she believes to be of higher social standing than the clerk. This suitor is actually a con man out to steal the dowager's diamond necklace with the help of his conniving partner Penelope (Kay Francis).
John Jakob Raskob (19 March 1879 – 15 October 1950) was a financial executive and businessman for DuPont and General Motors, and the builder of the Empire State Building. He was chairman of the Democratic National Committee from 1928 to 1932 and a key supporter of Alfred E. Smith's candidacy for President of the United States. After Franklin D. Roosevelt became President, Raskob was a prominent opponent of the New Deal through his support of a number of anti-Roosevelt organizations including the American Liberty League. Raskob was also a leader in the Association Against the Prohibition Amendment. Raskob was very bullish in the stock market in the 1920s and gave an interview to Samuel Crowther for Ladies Home Journal in which he suggested every American could become wealthy by investing $15 per month in common stocks (at a time when average American's weekly salary was between $17 to $22). The article (entitled "Everybody Ought to be Rich") arrived at newsstands just two months before the Wall Street Crash of 1929.
Sources include Wikipedia and the following:
Bierman, Harold (March 26, 2008). Whaples, Robert, ed."The 1929 Stock Market Crash". EH.Net Encyclopedia. Santa Clara, California: Economic History Association. Retrieved May 13, 2010.