Lessons from the 1929 Stock Market Crash

Out of our city season now on BBC2, was this the greatest financial lesson we chose to ignore? In 1929, years of booming prosperity ended in catastrophe. It was the biggest stock market crash since records began. It is impossible to underestimate the shock, a sense of stunned disbelief. First-time investors borrowed huge amounts of money to speculate on the market. The market broke very sharply and a lot of people were wiped out with it. It was very painful. Later, thousands of banks failed. Millions lost everything. The poverty was really all around us. It was really, really pitiful. The crash was followed by a depression that spread across the world, lasted for a decade, and was a prelude to war. This is the story of a financial disaster that we hoped would never happen again. Wednesday 23rd of October 1929. Without warning, share prices are plummeting on the New York Stock Exchange. Investors are stunned. For the last five years, the market has only gone up. In the space of an hour, a staggering two and a half million shares are sold. The next day, the downward spiral continues. As people came in to trade stocks on October 24th, there was a sense that maybe something had changed, that there was something different. All of a sudden, there just weren't buyers. People were willing to sell, but there weren't buyers coming forth to buy the stocks. And prices began to fall. two dollars four dollars ten dollars a share the support for fine that morning they were drops on the stock exchange it was so sharp and so dire stocks suddenly dropping ten twenty thirty points at the time It's said that there were shrieks and gasps in the gallery of the New York Stock Exchange. People are stunned by what is happening and terrified. Thousands of people begin to gather outside the stock market. 10,000 people. They fill the streets from Broadway to the East River. People wanted to know what was going on. They went there. These huge crowds gathered around the stock exchange, around the statues and on the stairs, waiting to get any kind of news they could as people came out of the exchange. They could hear voices. They could actually hear the shouting and yelling as people were buying and selling. But they didn't know what was going on, and so they gathered and they stayed there to find out. Few of the thousands waiting in the crowd appreciated the scale of the disaster that was about to unfold. Nor could they imagine that over the next five days, a financial catastrophe would sweep away the foundations of America's prosperity. But to understand what brought about the crash, we need to go back a decade. To a time when American confidence grew so high that it seemed the good times would last forever. In 1919, the U.S. had emerged victorious from World War I. A mood of optimism was in the air. Britain and its European allies were exhausted financially from the war. But the U.S. economy was thriving, and the world danced to the American tune. The uncertainties were over. There seemed little doubt about what was going to happen. America was going on the greatest, goddiest spree in history. and there was going to be plenty to tell about it. In the 1920s, everyday life was changing. Electrification transformed America. Towns were hooked up. to the grid. New technologies emerged. Aeroplanes, radios, domestic goods that had started life as luxuries now became necessities. The car industry also boomed as people flocked to buy one of the new Ford or Chrysler automobiles. An era of boundless prosperity seemed to have begun. This is the flowering of consumer culture and mass consumption on a scale that is not never before seen. There is also heavy installment buying to encourage people to buy big-ticket consumer items so that they can buy those items on credit. This type of consumer credit was another innovation of the 1920s. For the first time, the idea of buy now, pay later hit the mainstream. And there's a kind of play culture that develops alongside this consumerism which says... We believe now in instant gratification. Take care of the now. Don't worry about the future. Live for the moment. It was a whole ideology that we were in a new economic era, that it was the birthright of every self-respecting American to be rich. With easy credit and more disposable income, Americans were now looking for new... ways to get even richer. Since World War I the US government had sold bonds known as Liberty Bonds to pay for the war. This was a way to borrow money from the public who in turn would receive interest payments on the bonds value. Celebrities such as Charlie Chaplin and Douglas Fairbanks had been recruited to promote them at huge rallies. Liberty bonds caused many people to become investors in securities for the first time. For the first time in their lives, They got interest payments every six months, and the security was something they could trade on the market so they could look in the newspaper and see what the price of my bond is today. Liberty Bonds created an investing culture. Most people had never purchased securities before, and it got ordinary people accustomed to buying securities. Now there was another group of people who thought they could take advantage of this new investing culture. The bankers of Wall Street. For years, Wall Street, the center of American finance, was made up of a small elite group of bankers doing business with each other in a society closed off to the general public. But one man saw an opportunity that would change the face of the financial world. Charles Mitchell, president of National City Bank, spotted a lucrative gap in the market. Mitchell saw that investors had purchased... a lot of government bonds during World War I. And so he said, now we have an investing public there, all we need to do is market other products like corporate bonds, common stocks, and just tell people these are respectable investments. Mitchell was a natural salesman with a big ambition. If people were willing to buy bonds to raise capital for the government, surely they could be tempted to buy stocks and shares to raise capital for private companies listed on the New York Stock Exchange. exchange and they could make a profit for themselves in the process. Gradually people who never dreamed that they would invest in stocks were doing so and stocks lost a lot of this stigma. Historically stocks had been considered much too risky for ordinary people whereas in the 1920s there was a sense that investing in stocks was not only safe but reliable and respectable. The idea took off. And to exploit this lucrative new market, Mitchell opened brokerage offices all across the country, where people who had the money but not the investment know-how could speculate in stocks and shares. This speculative frenzy embraced all kinds of people, not just professionals. Ordinary people began participating as well in unprecedented numbers. All across the country, not just New York City, but in cities, in small towns, all across America, people were in love with the stock market. Technology made it all possible. The latest share prices flashed from Wall Street could be printed out within minutes across America. Using telegraphic ticker tape machines. You could find ticker tape in nightclubs, in railroad depots, in beauty parlors, on ocean liners. The market became a pervasive part of America's play culture in the 1920s. I eat, sleep, dream, talk stocks. The only way I believe to make money. It's exciting. I love it. $17,000 profit on $3,500 capital. Not bad. There were wild speculations in all kinds of securities. Movie company stocks, aeronautical stocks, all the auto company stocks. One of the hot stocks of the 1920s was Radio Corporation of America. It was a lot like today's Google. You know, it was cutting-edge technology. They had this idea that you could put radios in cars. Imagine that. The American investing public began to connect the products they were using that were coming from corporate America with the notion that, hey, I might own a share of the company that makes that product that I like. Why not what he can do? Cause I'm in the mall Get for you All sweet mid-feudal By the mid-twenties, around three million Americans were in the market, and Wall Street gripped the public imagination. With tales of fortunes being made overnight, the idea of a great bull market, where shares only seemed to go up, took hold. Every popular magazine, every newspaper, every radio station was fascinated by what was going on in the stock market. People charted the activities of celebrities like Charlie Chaplin or Groucho Marx and were fascinated by what stocks they happened to be speculating in. The young comic actor Groucho Marx invested all his savings into the market and was so pleased with his profits on paper that he persuaded his brothers to invest too. What an easy racket. RCA went up seven points since this morning. I just made myself $7,000. But it wasn't just celebrities becoming speculators. The big Wall Street speculators were... becoming celebrities themselves. They were thought of as creative, entrepreneurial, and bringing wealth to America. Joseph Kennedy, father of the future President Kennedy, was one of this new breed of shrewd financial superstar. People were fascinated because some of these men, like Joseph Kennedy, were ordinary folks. They were men from nowhere, and their rapid rise on the market was a kind of inspiration. to ordinary folk that that might even be possible for them someday. Stories circulated that anyone from bellboys to barbers could make easy money on the market. A shoeshine boy on Wall Street, Pat Bologna was one of those inspired by these tales of rags to riches. Everyone was going to make a fortune. If you lived in New York, the stock market was king. My father was probably about 17 or 18. On a daily basis, he would shine the shoes of literally of the great men of America, people like Joseph Kennedy, executives like Mitchell. He would converse with them and became somewhat of an expert on things like the Federal Reserve and things that you wouldn't think that a shoeshine would be expert on. But he was talking to the great minds of Wall Street every day, all day. And so my father began to invest in the stock market. If the truth be told, I learned how to read, reading the stock pages. Because that was what my father did. I mean, we grew up with the stock market. There was the stock market for breakfast, there was the stock market for dinner when he came home. The stock market was the world. I started in 1928 because like many young people I wanted to go to the place where everybody was making all this money. My first job was to be a messenger boy on the floor of the exchange. It took only a week or two to find out that most of the time people agreed. People had so much faith in the bull market that they borrowed increasing sums of money to speculate on rising share prices. This way of buying shares was known as buying on margin. The investor was required to put down only part of the money with their broker funding the rest. The culture of buy now, pay later had spread to the stock market. Buying stocks on margin means essentially that you're buying them with borrowed money. By the late 1920s, 90% of the purchase price of the stock is being made with borrowed money. There were no rules about how much you could borrow, and people borrowed enormous sums of money to buy stocks. You could buy a $100 stock for $25, and then the brokerage firm would loan you the other $75. And if the stock went up, and in the late 20s everything seemed to go up and up, then that $25 could turn into investment that was worth $200 or $300. So it became a huge part of the U.S. economy to loan money for the stock market. In the late 1920s, nearly 40 cents of every dollar loaned was for stocks. This vast influx of borrowed money into the stock market created more demand for shares, pushing prices ever upwards. In 1928, the market went up by almost 50% in just 12 months. And as stocks continued to rise, more and more investors borrowed money to get a piece of the action. One of them... with shoeshine boy pat bologna my father didn't have a lot of money in the stock market he told me at the time he had about six thousand dollars in cash but remember six thousand dollars in cash translated into a lot of stock because in those years you only had to put ten percent down for margin so at six thousand dollars you could have sixty thousand dollars worth of stock Wall Street was hungry for new punters. There was one group of would-be investors that the street had always ignored, but whose money it now wanted. Up until the 1920s, women had played a very small role in the stock market. Part of this was simply gender prejudice. They were considered incapable of the kind of cool sang-froid that was necessary if you speculated in the market. But in the 20s, part of the popularization of the stock market included huge numbers of women. Well, the 20s were a big time for women anyway. They really stepped out on their own. They began to take control of their own money. They went to college, actually, in record numbers in the 1920s. And as they did that, they also got interested in the stock market and in its way for them to build their own wealth. One such investor was a pioneering New York photographer called Alice Austin. She lived in Staten Island, just across the water from Wall Street. She had moved into this house when she was a couple of months old. She was bright, she was adventurous. By the time she was 11, she had received a camera, which was a new invention by the time, and she immediately took to it. Over the years, she took some 8,000 glass plate negatives, making her one of America's earliest and most prolific photographers. Alice's inheritance from her grandfather had funded a comfortable lifestyle, but it had dwindled by the 1920s, and she was tempted by Wall Street's promise of a quick buck. So Alice Austin discovers that she's running a little low, and the question then becomes what to do. Her friends urged her to be conservative, cut some spending, maybe not go to Europe, maybe not buy a car. Instead, Alice found a broker who advised her no. Buy stocks, become rich quick. And you know what? You can borrow money so you can buy even more stocks, buying on margin. And Alice Austin thought that, hey, sounds like a good idea to me. Throughout the soaring market of the 1920s, the Republican Party stayed in power on the back of America's increasing prosperity. Calvin Coolidge became president in 1923. An investor himself, he was notably silent in the speculative mania gripping Wall Street. Calvin Coolidge typifies the laissez-faire, devil-may-care recklessness of the 1920s. He's famous for saying that the business of America is business. It was a prosperous period. Business was making money. Wall Street was making money. The politicians, I think, just said, well, everything's fine. The economy's growing. The market takes care of things pretty well, and the government's job is to get out of the way. During the Coolidge presidency, Wall Street's power continued to grow unchecked. His administration had close links with an elite group of bankers and financiers, Wall Street's inner circle. Their wealth and connections gave them immense influence over the government's financial policy. There were small elite private partnerships. This was really the royalty of Wall Street. These were very mysterious and discreet places. They were small firms with limited capital, but they exercised really an outsized power. The most prestigious of these elite firms was the J.P. Morgan Bank. Strategically located directly opposite the stock exchange, it would play a key role in events to come. As senior partner at J.P. Morgan, Thomas Lamont was the most powerful man on Wall Street. His influence extended well beyond New York. Lamont and the other J.P. Morgan partners spoke regularly with successive presidents. Grandfather was a very, very busy man. He didn't have time, as some grandfathers might do, take his grandson to the baseball game or go fishing and do things like that. Grandfather's lifestyle was certainly a very handsome lifestyle, there's no question about it. He did have his yacht, the Renet, which was a 72-foot, very handsome yacht, which he often would cruise down from his house in Palisades, commuting by boat, if you will, down the Hudson River to Wall Street and then walk up to the bank. Under Lamont's leadership, J.P. Morgan steered clear of the worst excesses of the stock market. But the close relationship between elite bankers and politicians helped keep government regulation of Wall Street to a minimum. While amateur speculators were transfixed by the soaring value of their investments, they were hopelessly unaware of how Wall Street really worked. With little government supervision, the market was a law unto itself, and insider dealing was rife. There was a lot of market manipulation going on. It was rampant. There was no disclosure at all to speak of. And when Wall Street was very small and very self-contained, that was probably okay. But as people... People like you and me began to put our hard-earned money into the market. Then it really mattered. The stock market of the 1920s was neither fair nor democratic. It was a big gambling casino, and it was rigged by professional speculators. As smaller investors gambled with their life savings, they failed to realize that the odds were stacked against them. Men like Joseph Kennedy did not make their fortunes by simply picking the right stocks. The truth was that they were cashing in on the naivety of gullible newcomers. A bunch of sharp speculators would get together and in coordinated fashion, they would start quietly but relentlessly buying an individual stock. What they would do is hype up a particular stock, buy it up themselves, and then dump it on the market so that they took the profits while the average investor in those stocks were left with the losings. Even some of the elite investment houses on Wall Street were engaged in this type of market manipulation. In March of 1929, a new Republican President, Herbert Hoover, was inaugurated. In his address, he reassured Americans. We have reached a higher degree of comfort and security than ever existed before in the history of the United States. history of the world. But behind the scenes, he was less confident. Hoover is actually skeptical about what's going on on Wall Street and the economy generally, but he doesn't have the political courage of his convictions. And so when he becomes president, he does nothing to rein in this wild speculative fervor. He doesn't do anything to encourage the Federal Reserve or the Treasury to tighten up margin speculation in the stock market. In private, Hoover talked of an orgy of speculation. But like his predecessor, Coolidge, he had no appetite for regulation of the marketplace. Yet Hoover was not alone in his fears that the stock market bubble might be about to burst. Days after the inauguration speech, a prominent and highly respected banker, Paul Warburg, broke ranks with the Wall Street aristocracy and issued a bleak warning. If orgies of unrestrained speculation are permitted to spread too far, the ultimate collapse is certain to bring about a general depression involving the entire country. My great-grandfather issued a warning in March of 1929. He actually used the word, uh, depression. And he was shouted down. I think he was disregarded. He was, you know, a party pooper. I mean, no, no, everything's fine. Everybody's making money and having a good time at the party. So when there's a good bull market going on, the person who says this might be getting overvalued, you'd better be careful, he's sort of dismissed. Warburg's prediction fell on deaf ears. And between May and September 1929, 60 new companies were floated in the New York Stock Exchange, adding more than 100 million shares to the marketplace, fueling the investment bubble. You hear the same things in every bubble. This time is different. It's a different financial world. It's a new financial world. In fact, Raucho Marx went to his broker at some point and said, you know, I just don't understand how these prices just keep going up. And the broker said to him, well, you just have to understand that it's a global economy now. And this was 1928, 1929. Gee, I think I've heard that sometime since then. Some professional speculators sensed that the market was overheating. The more astute got out during the summer. One day apparently Joe Kennedy, according to Joe Kennedy's later recollections, he said, if the shoeshine guy knows as much as I do about the stock market, maybe it's time for me to get out. In September, the market became increasingly volatile. Behind closed doors, President Hoover's unease was growing. Herbert Hoover did keep making inquiries among his Wall Street friends, asking if he should be concerned, and he received a memo from Thomas W. Lamont, who was the senior partner of J.P. Morgan and Company. Grandfather said in that, letter the market will correct itself and it doesn't appear that would not appear to be any need for any kind of government intervention in the market lamond reassured hoover that there was absolutely no cause for concern and the memo ended with the line the future appears brilliant Five days later, the stock market crashed. No one knows what triggered the sudden loss of confidence that happened at the end of Wednesday 23rd of October. But out of nowhere, a sharp fall in automobile stocks provoked a frantic last hours trading. Millions of shares were suddenly sold. The next day, the great crash of 1929 began. October 24th, 1929, Black Thursday is often considered to be the beginning of the crash. There was really a tremendous drop which scared a lot of people. It is impossible to underestimate the shock, a sense of stunned disbelief. People panic as the market just drops and drops and drops. Desperate for news, thousands gathered outside the Stock Exchange. Tremendous crowds standing there, very grimly staring ahead, men who had just been wiped down. City officials are so alarmed by this that they send 400 mounted police, fearing that there's going to be a kind of Bastille-like invasion of the Stock Exchange. And it's said that there was a strange murmur in the air, that there was a very, very strange kind of haunting sound, which must have been the cumulative voices of all of these people sharing their concerns. The popular reaction is one of, uh, this can't be happening. A visitor from Britain was there that day too. Winston Churchill had invested much of his own money in the US stock market and had decided to pay a visit. I happened to be walking down Wall Street at the worst moment of the panic and a perfect stranger who recognized me invited me to enter the gallery of the stock exchange. I expected to see pandemonium, but the spectacle that met my eyes was a ghost. was one of surprising calm and orderliness. The 1,200 members of the stock exchange were walking to and fro like a slow-motion picture of a disturbed ant heap, offering each other enormous blocks of securities at a third of their own prices. Churchill was to lose a fortune in the crash that day. Outside, the crowds continued to wait for news. Rumors were fueling the mounting panic. Once the crash is underway, the real question becomes one of confidence. When you lose all confidence in the economy, good and bad go down together. And so the chief investment elite is at great pains to try to restore that confidence, to convince people that the economy and the stock market is sound. The bankers knew they had to do something to avert a total financial meltdown. A Times journalist watched events unfold. The crowd grew thicker and noisier, and then there was an eddy in the middle of it, and a man in shirt sleeves was pushing his way across the street in the direction of the Morgan officers. This was Charles E. Mitchell, chairman of the National City Bank. He pushed his way into the offices of the House of Morgan, and a little later, we learned what he'd gone for. Charles Mitchell had been summoned to a meeting at the offices of J.P. Morgan. Around the table were four other leading bankers, including Richard Whitney, Vice President of the New York Stock Exchange. These were some of the wealthiest businessmen in America, representing around six billion dollars in assets. Chairman was Thomas Lamont. I think it was a great shock to Grandfather. He did not foresee that anything like the great crash that took place would happen. Grandfather called a meeting at his office at 23 Wall Street of some of the leading bankers in town. and figured out what they could do to support the stock market, which was plunging. What they came up with was a plan to put together a pool of $250 million, and those funds would be used to support a key list of stocks. At lunchtime, Richard Whitney marched across the street back to the trading floor of the stock exchange. With a huge injection of the bankers cash, Whitney hoped to get the market moving again. Whitney parades over to the desk where US Steel is being sold and buys 25,000 shares of US Steel at a price well above what it was then selling for. And then makes a similar promenade to other blue chip stocks and makes a similar purchase. The idea being we will now restore everybody's confidence in the market. And other great financial titans of the time, including John D. Rockefeller, make similar purchases, hoping that this symbolic act will turn the tide. And it worked. Such was the magical power of the Whitney name and the Morgan name that stocks suddenly turned around and started to go up. By now, news of the meeting had leaked out, and journalists were desperate for information. Grandfather was meeting with a group of reporters who were assembled on Wall Street outside of his bank office. His style was always to stay calm and never say anything that would cause, that would erode people's confidence in the stock market. Silverhead, Mr. Lamont, received us with a manner so reassuring. It was like the man who comes on the stage of a burning theater and urges everyone to keep perfectly cool, stating there is no cause for alarm. There has been a little distress selling in the stock exchange, and we have held a meeting to discuss the situation. We have found that there are no houses in difficulty, and margins are being maintained satisfactorily. Grandfather and many others felt that the worst was over, but they were very, very wrong. Over the weekend, the bankers'interventions seemed to have worked. Trading on Friday and Saturday was calm and uneventful. President Hoover also tried to steady nerves by repeating a mantra that has been used during market crashes many times since. The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis. But in the offices of the financial district, there was total chaos. One of the things that we forget is how primitive the technology was. So many stocks traded on October 24th that it took four hours for the ticker to print all of the stock trades after the market had closed. The ticker. hopelessly swamped, fell hours behind the actual trading and became completely meaningless. All night long the lights blazed in the windows of the tall office buildings where margin clerks and bookkeepers struggled with the desperate task of trying to clear one day's business before the next day began. They fainted at their desks. The weary runner fell exhausted on the marble floors of banks and slept. On Monday, the stock tickers running out of tape, panicking investors desperate for the latest share prices, jammed the telephone lines between New York and other major cities. For the first time, many speculators were discovering the downside of easy credit and buying on margin. A fairly significant number of people who were buying stocks in the 1920s were buying it with borrowed money. And of course the wonder of buying stocks with borrowed money is that the gains are tremendously accelerated and magnified on the way up, and then of course on the way down the entire machinery is thrown into it. reverse and the losses are also magnified. All these people who had borrowed to buy stock now had to put up more collateral. And this was something that had not happened as the market had gone up and up. You've got $25 down for $100 stock, but now the stock has dropped. So what happened is the brokerages that had made all these loans got very concerned that the loans wouldn't be paid back. People got calls to bring in more cash or their stocks would be sold. Account needs $600. Unless this amount received before 1 p.m. Tuesday, we'll sell all securities in your account. Consider this notice to that effect. And that's a difficult thing to do. Some people didn't have additional cash to bring in. Or they took them some time perhaps to do it, but the brokers were very uneasy. They couldn't wait. And so Monday, the market begins to fall even at a steeper rate than it fell on Thursday. In fact, this would turn out to be one of the very worst days ever in the history of the United States stock market. 1929, when the stock market crashed, I was a very young lady, just seven years old. However, I do remember bits and pieces of that day very clearly in my memory. We didn't have many means of communication, and when something extraordinary happened, the papers would put out an extra, that's what it was called, an extra for two cents, and the little boys in their little pea caps would come running through the streets. screaming, extra, extra, read all about it. And invariably somebody in the house would go down and buy a daily for two cents and then we would know what happened. And that's how we found out about the crash. At the time, Vera was with a family friend, but news came that the friend's aunt had lost everything. The little lady was crying quietly. She was crying quietly and wringing her hands and wringing her hands and walking from room to room to room. So that was my actual memory of that day. On Tuesday morning, some of the most famous names in corporate America saw their share price plummet. U.S. Steel, Radio, General Motors, stocks that had been symbols of the boom years. On Tuesday, there were tremendous waves of selling that just kept coming. This time the selling was so powerful and so relentless, there was no lunchtime meeting at J.P. Morgan. Clearly, the volume of the sales overwhelmed any possibility of the bankers trying to stem the tide. By evening Tuesday, all American stocks were worth about 22% less than they were when the market opened in the morning on Monday. 36 hours, you lost 22% of the value of American industry. Hoover was president and he and Andrew Mellon, the Secretary of the Treasury, were way to the right and felt that it was not the government's... job to interfere with this. They believed in pure unfettered capitalism, and so they did very little or nothing to alleviate the crash. They said it'll solve itself. The market broke very sharply, and a lot of people were wiped out with it. It was very painful. Almost everybody lost money, as has happened now. Oh, the market's not so good today. Your stocks look kind of sick. In fact, they all drop down a point each time the tickers tick. It's estimated... By the end of these five days trading, $25 billion worth of personal wealth had simply disappeared. The stock market continues to sag without end. Have orders in to sell everything. I figure I'll have about 500 left if I'm lucky. A humble ending to a potential profit not four months ago of nearly 100,000. At least, I say to myself, I lost all in the greatest panic in history. I was very lucky. I never lost my job. I did get a cut in salary. Fortunately, my employers were wealthy people. And when they told me about this, they said, Why are you smiling? I said, I thought you were going to fire me. Those who could afford to face their losses with black humor. One of the lambs that Wall Street has shorn. When I was a little girl, a patron of art left me a million dollars for my musical education. But I thought I couldn't live on the income of a million dollars. So I asked all my rich friends for tips. on the market. They gave them to me and I lost my millions. Now the only thing I have left is this chinchilla coat of mine. From now on my hands are off the ticker and on the piano keys. But if you're lucky enough to have a million dollars, hold everything and don't play the market. Another performer who had gambled and lost was Groucho Marx. His reckless speculation cost him everything he'd earned. The fate of Alice Austen, the photographer from Staten Island, was also typical of those who had been lured into the market without realising the risks. Basically, she loses everything. In 2930, her account is wiped out. And it comes as a shock for Alice Austin. And I don't think she believes it, like a lot of people. You just can't believe it. And she thinks, all I have to do is to wait a little bit and the market will come back. And she continued living as if she was rich. And, uh... She mortgaged Alice Olsen, mortgaged her house, not to pay her bills, but because she once again wanted to take a fancy trip to York. My father lost everything. He was losing everything, but he was 22. He took it magnanimously. You know, when you're 22, it isn't as dramatic. The people around him who were established people in their 50s and 60s and were losing their life savings were in an absolute panic. Not everyone coped with their losses. Although the number of suicides has been exaggerated, to some, it seemed the only way out. I know that people read about the stories on Wall Street of people opening the windows in their offices and jumping out. That actually happened. That isn't an urban legend. People did commit suicide. People who had worked 30 and 40 years on Wall Street and had amassed fortunes within a period of days lost everything. I'm sorry I was unable to return the two books until now. The conditions down in the financial neighborhood have been such as to keep us working. Yesterday, a woman jumped from the roof of our building, 44 floors, right past our window. I saw her body lying in the street, and the sight was so harrowing that I became half-sick. The effects of the catastrophic crash on Wall Street rippled out across America. Even those who had never owned shares and who had never benefited from the stock market boom became victims too. The crash had undermined Americans'faith in their fragile banking system, made up of thousands of small town banks that lacked the size or reputation to convince customers that their money was safe. As confidence in the economy sank further, a domino effect began. In 1931, over 2,000 banks were destroyed. Banks failed. After the crash, the banks closed. That, I think, affected us a little more seriously. Us, meaning us, the people of my stature. Many people had money in the bank. A little bit of money. A couple of hundred dollars, you know. A thousand dollars, maybe. There was no infrastructure then. There was no federal deposit insurance corporation to guarantee people's deposits. There was no way to back up the banks. So if the banks had made bad choices, you as a depositor paid for it. You went to go get your money, it wasn't there. And then people would hear that the bank down the street wasn't good, and they worried about their own bank, and that would cause a run on their bank. And it became a terrible, vicious cycle. And something like 3,000 banks closed in the following... couple of years after that. The whole financial system then seemed not just unstable, but worthless. After that, when people saved money, they were very leery of banks, and money went under the mattress. The stock market crash in 1929 did not create the Great Depression, but it did start a sequence of events that eventually culminated with the Great Depression. Well, you know, some of this is going to sounds sort of familiar. The banks were loaning money for the stock market. The companies were loaning money. The brokerages were loaning money. And when those prices fell, all that money just disappeared. Almost immediately, companies began to feel the pinch. of not having the capital and having lost money and they began to lay off people to let people go to shut down production there were mass bankruptcies there was a liquidity crisis of exactly the same kind we have today that is to say all kinds of businesses could no longer get loans to keep themselves afloat even if those businesses were entirely solvent they couldn't get the kind of short-term commercial credit to pay their workers to buy new inventory to pay their suppliers And so they began going bankrupt. And as they went bankrupt, they laid people off. And as they laid people off, demand fell. And this is what does traumatic damage to the whole society. So traumatic that it's second only to the Civil War in American memory as a tragic moment in American history. My father had a modest-sized insurance brokerage agency. One night at dinner, my father said that he had to fire an employee. And I very cavalierly said, well, he'll be able to get a job, won't he? And my father said, no, he's an older man who isn't very capable, and I don't think he can. And at that point, my father burst into tears. It was the first time I had ever seen my father cry. There was such a change in our lives and all the people around me after the crash. Many of my girlfriend's fathers lost their jobs and they couldn't pay the rent. They were evicted. The poverty was really all around us. Men had no clothing. They were in rags, really rags. They used to wrap their feet up in newspaper. and put them in cardboard makeshift shoes to walk around the street and then if you took a walk over to central park you saw this big area a deserted reservoir that had been drained and they made little huts of cardboard boxes and they would sleep there overnight and they called it hooverville because that was the name of our president at the time and of course all this Stock market crash and all this poverty was of course put in his lap. It was really, really pitiful. Like many others, the photographer Alice Austin struggled to keep up mortgage payments as the Great Depression took hold. A few years into the Depression, Alice Austin runs out of money. There is nothing left. She is out of her house. They take her to a poor house, and it's a poor house out of a Dickens novel, and she lingers there for a couple of years. Miraculously, her photographs are discovered. A few of her photos are sold to Time and Life magazine, and that earns her enough money to move out of the poorhouse and into a decent retirement home. In a sense, her photographs come to her rescue and take her out of poverty and into a year or two of decent living. Paul Warburg, who so accurately predicted the crash and the depression, saved the life bank he ran from disaster by getting out of the market in time but it was of little consolation to him my great-grandfather probably never really recovered his own personal equilibrium after the crash To be called the Cassandra of Wall Street, I think was very painful for him. And if we all remember Cassandra, she couldn't just see the future. She was also doomed to be disregarded. And I think it caused him to go into a depression of his own. I'm not sure that he ever would have said, I told you so. I think he felt that it was really tragic, that this worldwide depression could have been averted or headed off, or at least it didn't have to crash so hard. And I think it probably led to his early death. When he died, it was the last year of Hoover's presidency, and there was no end in sight. But in 1932, 12 years of Republican rule came to an end. I, Franklin Delano Roosevelt, do solemnly swear that I will faithfully execute the office of President of the United States. Democrat Franklin Roosevelt was elected President in a landslide victory. His first task was to restore confidence. The only thing we have to fear is fear itself. Seen as a savior, Roosevelt promised a new deal for the American people and to regulate the financial system. There must be a strict supervision of all banking and credits and investments. There must be an end to speculation with other people's money. The new president acted quickly. He guaranteed bank deposits and introduced laws forcing bankers to operate under strict government supervision. An investigation into the crash was launched by the Senate Banking Committee. It would last more than three years, and the 10,000 pages of testimony blackened the reputation of Wall Street. The committee's ambitious lawyer, Ferdinand Pecora, challenged the banking elite to account for their behavior. He calls these bankers to testify. And what does he learn? He learns that Charlie Mitchell of National City Corp. had sold stock to his wife to avoid taxes. Richard Whitney, who had so boldly bought stock on Black Thursday, lost money of his own and began borrowing from his brother. And then when that didn't work, he began stealing from customers. He ended up in jail doing time. The most prestigious bank in America, J.P. Morgan, was also found to be far from blameless. The hearings uncovered evidence of a list that offered preferential deals on stocks to friends in high places, including a former president. Not only Morgan partners and Morgan family members, but also prominent corporate executives and even some politicians. Calvin Coolidge was on the preferred stock list, for example. That was a practice that a lot of people felt was wrong. Ferdinand Pecora had a great quote. He said it was shocking disclosures of low standards in high places, which I love because, you know, you could say the same thing today. In response to public outrage at the banker's dirty dealings, President Roosevelt set up the Securities and Exchange Commission. Its task? To clean up Wall Street. At its head, he chose a man who knew more about unethical practice than most. President Roosevelt, when he introduced the Securities and Exchange Commission to regulate Wall Street, named his old friend and supporter Joe Kennedy to be the first chairman. That's putting the fox in the chicken coop. Although Roosevelt restored confidence in the banking system, the Great Depression would last until the outbreak of World War II. Then, as now, the globalized economy meant that the crash and subsequent depression rippled out across the world. In Britain, there was a slump in manufacturing, and millions lost their jobs. Germany, still suffering from defeat in the First World War, was hit even harder. So many people had their life savings destroyed during the Great Depression that it created in many countries a desire for some authoritarian government that would save them, that would rescue the economy. No doubt that the crash and the depression strengthened anti-capitalist movements. The communists had taken over in Russia, and there were rising fascist movements. Mussolini was already in power in Italy. and Hitler's political base was growing in Germany. And when American-style free market capitalism suffered from this Wall Street crash followed by a depression, it just strengthened those people who wanted to say there's a better way. While communism and fascism prospered, many nations put up barriers to prevent free trade and turned inwards in an attempt to save their economies. Economic nationalism led to trade wars and later, world war. Eighty years on, those who remember the bubble of the 20s and the crash that followed feel that they have seen it all before. I don't think we learned anything from it. I have found that people's memories are very short. They make the same type of leverage commitments where they don't look at the downside risk. You have a lot of cheap credit in the 1920s. Now we've had cheap credit and people have speculated in houses and now the housing bubble has collapsed. You have a heavily leveraged American consumer. He's in debt up to his eyeballs and he can't sustain that debt. The subprime mortgage crisis is a symptom of that. In the 80s and 90s, faith in the free market had revived, and as optimism returned, many of the financial regulations which Roosevelt had introduced were felt to be outdated and were slowly dismantled. Yet again, a lightly regulated market allowed speculation to grow unchecked. We are now reaping the whirlwind of that deregulation. And in that sense, we're in exactly the same position as people were in 1929 when the government turned a blind eye to what was going on in the financial world. What I do hope, and I do... think is that the government has learned its lessons and is trying to take steps that are much more active and much more aggressive than what was taken in in the 30s to try and stem the pain and stem the decline The hope is that such steps will work, but the lessons from the crash of 1929 are that history repeats itself, that human folly and greed are much stronger forces in financial affairs than reason and restraint.

It is impossible to underestimate the shock, a sense of stunned disbelief. First-time investors borrowed huge amounts of money to speculate on the market. The market broke very sharply and a lot of people were wiped out with it.

It was very painful. Later, thousands of banks failed. Millions lost everything. The poverty was really all around us. It was really, really pitiful.

The crash was followed by a depression that spread across the world, lasted for a decade, and was a prelude to war. This is the story of a financial disaster that we hoped would never happen again. Wednesday 23rd of October 1929. Without warning, share prices are plummeting on the New York Stock Exchange.

Investors are stunned. For the last five years, the market has only gone up. In the space of an hour, a staggering two and a half million shares are sold. The next day, the downward spiral continues.

As people came in to trade stocks on October 24th, there was a sense that maybe something had changed, that there was something different. All of a sudden, there just weren't buyers. People were willing to sell, but there weren't buyers coming forth to buy the stocks.

And prices began to fall. two dollars four dollars ten dollars a share the support for fine that morning they were drops on the stock exchange it was so sharp and so dire stocks suddenly dropping ten twenty thirty points at the time It's said that there were shrieks and gasps in the gallery of the New York Stock Exchange. People are stunned by what is happening and terrified. Thousands of people begin to gather outside the stock market. 10,000 people.

They fill the streets from Broadway to the East River. People wanted to know what was going on. They went there.

These huge crowds gathered around the stock exchange, around the statues and on the stairs, waiting to get any kind of news they could as people came out of the exchange. They could hear voices. They could actually hear the shouting and yelling as people were buying and selling.

But they didn't know what was going on, and so they gathered and they stayed there to find out. Few of the thousands waiting in the crowd appreciated the scale of the disaster that was about to unfold. Nor could they imagine that over the next five days, a financial catastrophe would sweep away the foundations of America's prosperity.

But to understand what brought about the crash, we need to go back a decade. To a time when American confidence grew so high that it seemed the good times would last forever. In 1919, the U.S. had emerged victorious from World War I. A mood of optimism was in the air.

Britain and its European allies were exhausted financially from the war. But the U.S. economy was thriving, and the world danced to the American tune. The uncertainties were over. There seemed little doubt about what was going to happen. America was going on the greatest, goddiest spree in history.

and there was going to be plenty to tell about it. In the 1920s, everyday life was changing. Electrification transformed America. Towns were hooked up. to the grid.

New technologies emerged. Aeroplanes, radios, domestic goods that had started life as luxuries now became necessities. The car industry also boomed as people flocked to buy one of the new Ford or Chrysler automobiles.

An era of boundless prosperity seemed to have begun. This is the flowering of consumer culture and mass consumption on a scale that is not never before seen. There is also heavy installment buying to encourage people to buy big-ticket consumer items so that they can buy those items on credit. This type of consumer credit was another innovation of the 1920s. For the first time, the idea of buy now, pay later hit the mainstream.

And there's a kind of play culture that develops alongside this consumerism which says... We believe now in instant gratification. Take care of the now. Don't worry about the future.

Live for the moment. It was a whole ideology that we were in a new economic era, that it was the birthright of every self-respecting American to be rich. With easy credit and more disposable income, Americans were now looking for new...

ways to get even richer. Since World War I the US government had sold bonds known as Liberty Bonds to pay for the war. This was a way to borrow money from the public who in turn would receive interest payments on the bonds value.

Celebrities such as Charlie Chaplin and Douglas Fairbanks had been recruited to promote them at huge rallies. Liberty bonds caused many people to become investors in securities for the first time. For the first time in their lives, They got interest payments every six months, and the security was something they could trade on the market so they could look in the newspaper and see what the price of my bond is today.

Liberty Bonds created an investing culture. Most people had never purchased securities before, and it got ordinary people accustomed to buying securities. Now there was another group of people who thought they could take advantage of this new investing culture.

The bankers of Wall Street. For years, Wall Street, the center of American finance, was made up of a small elite group of bankers doing business with each other in a society closed off to the general public. But one man saw an opportunity that would change the face of the financial world.

Charles Mitchell, president of National City Bank, spotted a lucrative gap in the market. Mitchell saw that investors had purchased... a lot of government bonds during World War I. And so he said, now we have an investing public there, all we need to do is market other products like corporate bonds, common stocks, and just tell people these are respectable investments.

Mitchell was a natural salesman with a big ambition. If people were willing to buy bonds to raise capital for the government, surely they could be tempted to buy stocks and shares to raise capital for private companies listed on the New York Stock Exchange. exchange and they could make a profit for themselves in the process. Gradually people who never dreamed that they would invest in stocks were doing so and stocks lost a lot of this stigma. Historically stocks had been considered much too risky for ordinary people whereas in the 1920s there was a sense that investing in stocks was not only safe but reliable and respectable.

The idea took off. And to exploit this lucrative new market, Mitchell opened brokerage offices all across the country, where people who had the money but not the investment know-how could speculate in stocks and shares. This speculative frenzy embraced all kinds of people, not just professionals.

Ordinary people began participating as well in unprecedented numbers. All across the country, not just New York City, but in cities, in small towns, all across America, people were in love with the stock market. Technology made it all possible. The latest share prices flashed from Wall Street could be printed out within minutes across America. Using telegraphic ticker tape machines.

You could find ticker tape in nightclubs, in railroad depots, in beauty parlors, on ocean liners. The market became a pervasive part of America's play culture in the 1920s. I eat, sleep, dream, talk stocks.

The only way I believe to make money. It's exciting. I love it. $17,000 profit on $3,500 capital.

Not bad. There were wild speculations in all kinds of securities. Movie company stocks, aeronautical stocks, all the auto company stocks. One of the hot stocks of the 1920s was Radio Corporation of America.

It was a lot like today's Google. You know, it was cutting-edge technology. They had this idea that you could put radios in cars.

Imagine that. The American investing public began to connect the products they were using that were coming from corporate America with the notion that, hey, I might own a share of the company that makes that product that I like. Why not what he can do?

Cause I'm in the mall Get for you All sweet mid-feudal By the mid-twenties, around three million Americans were in the market, and Wall Street gripped the public imagination. With tales of fortunes being made overnight, the idea of a great bull market, where shares only seemed to go up, took hold. Every popular magazine, every newspaper, every radio station was fascinated by what was going on in the stock market.

People charted the activities of celebrities like Charlie Chaplin or Groucho Marx and were fascinated by what stocks they happened to be speculating in. The young comic actor Groucho Marx invested all his savings into the market and was so pleased with his profits on paper that he persuaded his brothers to invest too. What an easy racket.

RCA went up seven points since this morning. I just made myself $7,000. But it wasn't just celebrities becoming speculators. The big Wall Street speculators were... becoming celebrities themselves.

They were thought of as creative, entrepreneurial, and bringing wealth to America. Joseph Kennedy, father of the future President Kennedy, was one of this new breed of shrewd financial superstar. People were fascinated because some of these men, like Joseph Kennedy, were ordinary folks. They were men from nowhere, and their rapid rise on the market was a kind of inspiration.

to ordinary folk that that might even be possible for them someday. Stories circulated that anyone from bellboys to barbers could make easy money on the market. A shoeshine boy on Wall Street, Pat Bologna was one of those inspired by these tales of rags to riches. Everyone was going to make a fortune.

If you lived in New York, the stock market was king. My father was probably about 17 or 18. On a daily basis, he would shine the shoes of literally of the great men of America, people like Joseph Kennedy, executives like Mitchell. He would converse with them and became somewhat of an expert on things like the Federal Reserve and things that you wouldn't think that a shoeshine would be expert on. But he was talking to the great minds of Wall Street every day, all day. And so my father began to invest in the stock market.

If the truth be told, I learned how to read, reading the stock pages. Because that was what my father did. I mean, we grew up with the stock market. There was the stock market for breakfast, there was the stock market for dinner when he came home.

The stock market was the world. I started in 1928 because like many young people I wanted to go to the place where everybody was making all this money. My first job was to be a messenger boy on the floor of the exchange.

It took only a week or two to find out that most of the time people agreed. People had so much faith in the bull market that they borrowed increasing sums of money to speculate on rising share prices. This way of buying shares was known as buying on margin.

The investor was required to put down only part of the money with their broker funding the rest. The culture of buy now, pay later had spread to the stock market. Buying stocks on margin means essentially that you're buying them with borrowed money.

By the late 1920s, 90% of the purchase price of the stock is being made with borrowed money. There were no rules about how much you could borrow, and people borrowed enormous sums of money to buy stocks. You could buy a $100 stock for $25, and then the brokerage firm would loan you the other $75.

And if the stock went up, and in the late 20s everything seemed to go up and up, then that $25 could turn into investment that was worth $200 or $300. So it became a huge part of the U.S. economy to loan money for the stock market. In the late 1920s, nearly 40 cents of every dollar loaned was for stocks.

This vast influx of borrowed money into the stock market created more demand for shares, pushing prices ever upwards. In 1928, the market went up by almost 50% in just 12 months. And as stocks continued to rise, more and more investors borrowed money to get a piece of the action. One of them...

with shoeshine boy pat bologna my father didn't have a lot of money in the stock market he told me at the time he had about six thousand dollars in cash but remember six thousand dollars in cash translated into a lot of stock because in those years you only had to put ten percent down for margin so at six thousand dollars you could have sixty thousand dollars worth of stock Wall Street was hungry for new punters. There was one group of would-be investors that the street had always ignored, but whose money it now wanted. Up until the 1920s, women had played a very small role in the stock market. Part of this was simply gender prejudice. They were considered incapable of the kind of cool sang-froid that was necessary if you speculated in the market.

But in the 20s, part of the popularization of the stock market included huge numbers of women. Well, the 20s were a big time for women anyway. They really stepped out on their own. They began to take control of their own money. They went to college, actually, in record numbers in the 1920s.

And as they did that, they also got interested in the stock market and in its way for them to build their own wealth. One such investor was a pioneering New York photographer called Alice Austin. She lived in Staten Island, just across the water from Wall Street.

She had moved into this house when she was a couple of months old. She was bright, she was adventurous. By the time she was 11, she had received a camera, which was a new invention by the time, and she immediately took to it. Over the years, she took some 8,000 glass plate negatives, making her one of America's earliest and most prolific photographers.

Alice's inheritance from her grandfather had funded a comfortable lifestyle, but it had dwindled by the 1920s, and she was tempted by Wall Street's promise of a quick buck. So Alice Austin discovers that she's running a little low, and the question then becomes what to do. Her friends urged her to be conservative, cut some spending, maybe not go to Europe, maybe not buy a car. Instead, Alice found a broker who advised her no.

Buy stocks, become rich quick. And you know what? You can borrow money so you can buy even more stocks, buying on margin.

And Alice Austin thought that, hey, sounds like a good idea to me. Throughout the soaring market of the 1920s, the Republican Party stayed in power on the back of America's increasing prosperity. Calvin Coolidge became president in 1923. An investor himself, he was notably silent in the speculative mania gripping Wall Street.

Calvin Coolidge typifies the laissez-faire, devil-may-care recklessness of the 1920s. He's famous for saying that the business of America is business. It was a prosperous period.

Business was making money. Wall Street was making money. The politicians, I think, just said, well, everything's fine. The economy's growing.

The market takes care of things pretty well, and the government's job is to get out of the way. During the Coolidge presidency, Wall Street's power continued to grow unchecked. His administration had close links with an elite group of bankers and financiers, Wall Street's inner circle. Their wealth and connections gave them immense influence over the government's financial policy.

There were small elite private partnerships. This was really the royalty of Wall Street. These were very mysterious and discreet places.

They were small firms with limited capital, but they exercised really an outsized power. The most prestigious of these elite firms was the J.P. Morgan Bank.

Strategically located directly opposite the stock exchange, it would play a key role in events to come. As senior partner at J.P. Morgan, Thomas Lamont was the most powerful man on Wall Street. His influence extended well beyond New York. Lamont and the other J.P.

Morgan partners spoke regularly with successive presidents. Grandfather was a very, very busy man. He didn't have time, as some grandfathers might do, take his grandson to the baseball game or go fishing and do things like that. Grandfather's lifestyle was certainly a very handsome lifestyle, there's no question about it.

He did have his yacht, the Renet, which was a 72-foot, very handsome yacht, which he often would cruise down from his house in Palisades, commuting by boat, if you will, down the Hudson River to Wall Street and then walk up to the bank. Under Lamont's leadership, J.P. Morgan steered clear of the worst excesses of the stock market. But the close relationship between elite bankers and politicians helped keep government regulation of Wall Street to a minimum. While amateur speculators were transfixed by the soaring value of their investments, they were hopelessly unaware of how Wall Street really worked.

With little government supervision, the market was a law unto itself, and insider dealing was rife. There was a lot of market manipulation going on. It was rampant.

There was no disclosure at all to speak of. And when Wall Street was very small and very self-contained, that was probably okay. But as people...

People like you and me began to put our hard-earned money into the market. Then it really mattered. The stock market of the 1920s was neither fair nor democratic.

It was a big gambling casino, and it was rigged by professional speculators. As smaller investors gambled with their life savings, they failed to realize that the odds were stacked against them. Men like Joseph Kennedy did not make their fortunes by simply picking the right stocks. The truth was that they were cashing in on the naivety of gullible newcomers. A bunch of sharp speculators would get together and in coordinated fashion, they would start quietly but relentlessly buying an individual stock.

What they would do is hype up a particular stock, buy it up themselves, and then dump it on the market so that they took the profits while the average investor in those stocks were left with the losings. Even some of the elite investment houses on Wall Street were engaged in this type of market manipulation. In March of 1929, a new Republican President, Herbert Hoover, was inaugurated.

In his address, he reassured Americans. We have reached a higher degree of comfort and security than ever existed before in the history of the United States. history of the world.

But behind the scenes, he was less confident. Hoover is actually skeptical about what's going on on Wall Street and the economy generally, but he doesn't have the political courage of his convictions. And so when he becomes president, he does nothing to rein in this wild speculative fervor. He doesn't do anything to encourage the Federal Reserve or the Treasury to tighten up margin speculation in the stock market.

In private, Hoover talked of an orgy of speculation. But like his predecessor, Coolidge, he had no appetite for regulation of the marketplace. Yet Hoover was not alone in his fears that the stock market bubble might be about to burst. Days after the inauguration speech, a prominent and highly respected banker, Paul Warburg, broke ranks with the Wall Street aristocracy and issued a bleak warning.

If orgies of unrestrained speculation are permitted to spread too far, the ultimate collapse is certain to bring about a general depression involving the entire country. My great-grandfather issued a warning in March of 1929. He actually used the word, uh, depression. And he was shouted down.

I think he was disregarded. He was, you know, a party pooper. I mean, no, no, everything's fine.

Everybody's making money and having a good time at the party. So when there's a good bull market going on, the person who says this might be getting overvalued, you'd better be careful, he's sort of dismissed. Warburg's prediction fell on deaf ears. And between May and September 1929, 60 new companies were floated in the New York Stock Exchange, adding more than 100 million shares to the marketplace, fueling the investment bubble. You hear the same things in every bubble.

This time is different. It's a different financial world. It's a new financial world. In fact, Raucho Marx went to his broker at some point and said, you know, I just don't understand how these prices just keep going up.

And the broker said to him, well, you just have to understand that it's a global economy now. And this was 1928, 1929. Gee, I think I've heard that sometime since then. Some professional speculators sensed that the market was overheating. The more astute got out during the summer. One day apparently Joe Kennedy, according to Joe Kennedy's later recollections, he said, if the shoeshine guy knows as much as I do about the stock market, maybe it's time for me to get out.

In September, the market became increasingly volatile. Behind closed doors, President Hoover's unease was growing. Herbert Hoover did keep making inquiries among his Wall Street friends, asking if he should be concerned, and he received a memo from Thomas W. Lamont, who was the senior partner of J.P.

Morgan and Company. Grandfather said in that, letter the market will correct itself and it doesn't appear that would not appear to be any need for any kind of government intervention in the market lamond reassured hoover that there was absolutely no cause for concern and the memo ended with the line the future appears brilliant Five days later, the stock market crashed. No one knows what triggered the sudden loss of confidence that happened at the end of Wednesday 23rd of October.

But out of nowhere, a sharp fall in automobile stocks provoked a frantic last hours trading. Millions of shares were suddenly sold. The next day, the great crash of 1929 began. October 24th, 1929, Black Thursday is often considered to be the beginning of the crash.

There was really a tremendous drop which scared a lot of people. It is impossible to underestimate the shock, a sense of stunned disbelief. People panic as the market just drops and drops and drops. Desperate for news, thousands gathered outside the Stock Exchange.

Tremendous crowds standing there, very grimly staring ahead, men who had just been wiped down. City officials are so alarmed by this that they send 400 mounted police, fearing that there's going to be a kind of Bastille-like invasion of the Stock Exchange. And it's said that there was a strange murmur in the air, that there was a very, very strange kind of haunting sound, which must have been the cumulative voices of all of these people sharing their concerns. The popular reaction is one of, uh, this can't be happening.

A visitor from Britain was there that day too. Winston Churchill had invested much of his own money in the US stock market and had decided to pay a visit. I happened to be walking down Wall Street at the worst moment of the panic and a perfect stranger who recognized me invited me to enter the gallery of the stock exchange. I expected to see pandemonium, but the spectacle that met my eyes was a ghost. was one of surprising calm and orderliness.

The 1,200 members of the stock exchange were walking to and fro like a slow-motion picture of a disturbed ant heap, offering each other enormous blocks of securities at a third of their own prices. Churchill was to lose a fortune in the crash that day. Outside, the crowds continued to wait for news.

Rumors were fueling the mounting panic. Once the crash is underway, the real question becomes one of confidence. When you lose all confidence in the economy, good and bad go down together.

And so the chief investment elite is at great pains to try to restore that confidence, to convince people that the economy and the stock market is sound. The bankers knew they had to do something to avert a total financial meltdown. A Times journalist watched events unfold.

The crowd grew thicker and noisier, and then there was an eddy in the middle of it, and a man in shirt sleeves was pushing his way across the street in the direction of the Morgan officers. This was Charles E. Mitchell, chairman of the National City Bank. He pushed his way into the offices of the House of Morgan, and a little later, we learned what he'd gone for.

Charles Mitchell had been summoned to a meeting at the offices of J.P. Morgan. Around the table were four other leading bankers, including Richard Whitney, Vice President of the New York Stock Exchange. These were some of the wealthiest businessmen in America, representing around six billion dollars in assets. Chairman was Thomas Lamont.

I think it was a great shock to Grandfather. He did not foresee that anything like the great crash that took place would happen. Grandfather called a meeting at his office at 23 Wall Street of some of the leading bankers in town. and figured out what they could do to support the stock market, which was plunging.

What they came up with was a plan to put together a pool of $250 million, and those funds would be used to support a key list of stocks. At lunchtime, Richard Whitney marched across the street back to the trading floor of the stock exchange. With a huge injection of the bankers cash, Whitney hoped to get the market moving again. Whitney parades over to the desk where US Steel is being sold and buys 25,000 shares of US Steel at a price well above what it was then selling for.

And then makes a similar promenade to other blue chip stocks and makes a similar purchase. The idea being we will now restore everybody's confidence in the market. And other great financial titans of the time, including John D. Rockefeller, make similar purchases, hoping that this symbolic act will turn the tide.

And it worked. Such was the magical power of the Whitney name and the Morgan name that stocks suddenly turned around and started to go up. By now, news of the meeting had leaked out, and journalists were desperate for information.

Grandfather was meeting with a group of reporters who were assembled on Wall Street outside of his bank office. His style was always to stay calm and never say anything that would cause, that would erode people's confidence in the stock market. Silverhead, Mr. Lamont, received us with a manner so reassuring.

It was like the man who comes on the stage of a burning theater and urges everyone to keep perfectly cool, stating there is no cause for alarm. There has been a little distress selling in the stock exchange, and we have held a meeting to discuss the situation. We have found that there are no houses in difficulty, and margins are being maintained satisfactorily. Grandfather and many others felt that the worst was over, but they were very, very wrong. Over the weekend, the bankers'interventions seemed to have worked.

Trading on Friday and Saturday was calm and uneventful. President Hoover also tried to steady nerves by repeating a mantra that has been used during market crashes many times since. The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis.

But in the offices of the financial district, there was total chaos. One of the things that we forget is how primitive the technology was. So many stocks traded on October 24th that it took four hours for the ticker to print all of the stock trades after the market had closed.

The ticker. hopelessly swamped, fell hours behind the actual trading and became completely meaningless. All night long the lights blazed in the windows of the tall office buildings where margin clerks and bookkeepers struggled with the desperate task of trying to clear one day's business before the next day began. They fainted at their desks. The weary runner fell exhausted on the marble floors of banks and slept.

On Monday, the stock tickers running out of tape, panicking investors desperate for the latest share prices, jammed the telephone lines between New York and other major cities. For the first time, many speculators were discovering the downside of easy credit and buying on margin. A fairly significant number of people who were buying stocks in the 1920s were buying it with borrowed money. And of course the wonder of buying stocks with borrowed money is that the gains are tremendously accelerated and magnified on the way up, and then of course on the way down the entire machinery is thrown into it. reverse and the losses are also magnified.

All these people who had borrowed to buy stock now had to put up more collateral. And this was something that had not happened as the market had gone up and up. You've got $25 down for $100 stock, but now the stock has dropped.

So what happened is the brokerages that had made all these loans got very concerned that the loans wouldn't be paid back. People got calls to bring in more cash or their stocks would be sold. Account needs $600.

Unless this amount received before 1 p.m. Tuesday, we'll sell all securities in your account. Consider this notice to that effect. And that's a difficult thing to do. Some people didn't have additional cash to bring in.

Or they took them some time perhaps to do it, but the brokers were very uneasy. They couldn't wait. And so Monday, the market begins to fall even at a steeper rate than it fell on Thursday. In fact, this would turn out to be one of the very worst days ever in the history of the United States stock market.

1929, when the stock market crashed, I was a very young lady, just seven years old. However, I do remember bits and pieces of that day very clearly in my memory. We didn't have many means of communication, and when something extraordinary happened, the papers would put out an extra, that's what it was called, an extra for two cents, and the little boys in their little pea caps would come running through the streets.

screaming, extra, extra, read all about it. And invariably somebody in the house would go down and buy a daily for two cents and then we would know what happened. And that's how we found out about the crash. At the time, Vera was with a family friend, but news came that the friend's aunt had lost everything.

The little lady was crying quietly. She was crying quietly and wringing her hands and wringing her hands and walking from room to room to room. So that was my actual memory of that day.

On Tuesday morning, some of the most famous names in corporate America saw their share price plummet. U.S. Steel, Radio, General Motors, stocks that had been symbols of the boom years.

On Tuesday, there were tremendous waves of selling that just kept coming. This time the selling was so powerful and so relentless, there was no lunchtime meeting at J.P. Morgan. Clearly, the volume of the sales overwhelmed any possibility of the bankers trying to stem the tide.

By evening Tuesday, all American stocks were worth about 22% less than they were when the market opened in the morning on Monday. 36 hours, you lost 22% of the value of American industry. Hoover was president and he and Andrew Mellon, the Secretary of the Treasury, were way to the right and felt that it was not the government's... job to interfere with this. They believed in pure unfettered capitalism, and so they did very little or nothing to alleviate the crash.

They said it'll solve itself. The market broke very sharply, and a lot of people were wiped out with it. It was very painful. Almost everybody lost money, as has happened now.

Oh, the market's not so good today. Your stocks look kind of sick. In fact, they all drop down a point each time the tickers tick. It's estimated...

By the end of these five days trading, $25 billion worth of personal wealth had simply disappeared. The stock market continues to sag without end. Have orders in to sell everything.

I figure I'll have about 500 left if I'm lucky. A humble ending to a potential profit not four months ago of nearly 100,000. At least, I say to myself, I lost all in the greatest panic in history. I was very lucky. I never lost my job.

I did get a cut in salary. Fortunately, my employers were wealthy people. And when they told me about this, they said, Why are you smiling? I said, I thought you were going to fire me.

Those who could afford to face their losses with black humor. One of the lambs that Wall Street has shorn. When I was a little girl, a patron of art left me a million dollars for my musical education.

But I thought I couldn't live on the income of a million dollars. So I asked all my rich friends for tips. on the market.

They gave them to me and I lost my millions. Now the only thing I have left is this chinchilla coat of mine. From now on my hands are off the ticker and on the piano keys.

But if you're lucky enough to have a million dollars, hold everything and don't play the market. Another performer who had gambled and lost was Groucho Marx. His reckless speculation cost him everything he'd earned.

The fate of Alice Austen, the photographer from Staten Island, was also typical of those who had been lured into the market without realising the risks. Basically, she loses everything. In 2930, her account is wiped out.

And it comes as a shock for Alice Austin. And I don't think she believes it, like a lot of people. You just can't believe it.

And she thinks, all I have to do is to wait a little bit and the market will come back. And she continued living as if she was rich. And, uh...

She mortgaged Alice Olsen, mortgaged her house, not to pay her bills, but because she once again wanted to take a fancy trip to York. My father lost everything. He was losing everything, but he was 22. He took it magnanimously. You know, when you're 22, it isn't as dramatic. The people around him who were established people in their 50s and 60s and were losing their life savings were in an absolute panic.

Not everyone coped with their losses. Although the number of suicides has been exaggerated, to some, it seemed the only way out. I know that people read about the stories on Wall Street of people opening the windows in their offices and jumping out. That actually happened. That isn't an urban legend.

People did commit suicide. People who had worked 30 and 40 years on Wall Street and had amassed fortunes within a period of days lost everything. I'm sorry I was unable to return the two books until now.

The conditions down in the financial neighborhood have been such as to keep us working. Yesterday, a woman jumped from the roof of our building, 44 floors, right past our window. I saw her body lying in the street, and the sight was so harrowing that I became half-sick.

The effects of the catastrophic crash on Wall Street rippled out across America. Even those who had never owned shares and who had never benefited from the stock market boom became victims too. The crash had undermined Americans'faith in their fragile banking system, made up of thousands of small town banks that lacked the size or reputation to convince customers that their money was safe. As confidence in the economy sank further, a domino effect began. In 1931, over 2,000 banks were destroyed.

Banks failed. After the crash, the banks closed. That, I think, affected us a little more seriously.

Us, meaning us, the people of my stature. Many people had money in the bank. A little bit of money.

A couple of hundred dollars, you know. A thousand dollars, maybe. There was no infrastructure then.

There was no federal deposit insurance corporation to guarantee people's deposits. There was no way to back up the banks. So if the banks had made bad choices, you as a depositor paid for it.

You went to go get your money, it wasn't there. And then people would hear that the bank down the street wasn't good, and they worried about their own bank, and that would cause a run on their bank. And it became a terrible, vicious cycle.

And something like 3,000 banks closed in the following... couple of years after that. The whole financial system then seemed not just unstable, but worthless. After that, when people saved money, they were very leery of banks, and money went under the mattress. The stock market crash in 1929 did not create the Great Depression, but it did start a sequence of events that eventually culminated with the Great Depression.

Well, you know, some of this is going to sounds sort of familiar. The banks were loaning money for the stock market. The companies were loaning money.

The brokerages were loaning money. And when those prices fell, all that money just disappeared. Almost immediately, companies began to feel the pinch. of not having the capital and having lost money and they began to lay off people to let people go to shut down production there were mass bankruptcies there was a liquidity crisis of exactly the same kind we have today that is to say all kinds of businesses could no longer get loans to keep themselves afloat even if those businesses were entirely solvent they couldn't get the kind of short-term commercial credit to pay their workers to buy new inventory to pay their suppliers And so they began going bankrupt.

And as they went bankrupt, they laid people off. And as they laid people off, demand fell. And this is what does traumatic damage to the whole society.

So traumatic that it's second only to the Civil War in American memory as a tragic moment in American history. My father had a modest-sized insurance brokerage agency. One night at dinner, my father said that he had to fire an employee.

And I very cavalierly said, well, he'll be able to get a job, won't he? And my father said, no, he's an older man who isn't very capable, and I don't think he can. And at that point, my father burst into tears. It was the first time I had ever seen my father cry. There was such a change in our lives and all the people around me after the crash.

Many of my girlfriend's fathers lost their jobs and they couldn't pay the rent. They were evicted. The poverty was really all around us.

Men had no clothing. They were in rags, really rags. They used to wrap their feet up in newspaper. and put them in cardboard makeshift shoes to walk around the street and then if you took a walk over to central park you saw this big area a deserted reservoir that had been drained and they made little huts of cardboard boxes and they would sleep there overnight and they called it hooverville because that was the name of our president at the time and of course all this Stock market crash and all this poverty was of course put in his lap.

It was really, really pitiful. Like many others, the photographer Alice Austin struggled to keep up mortgage payments as the Great Depression took hold. A few years into the Depression, Alice Austin runs out of money. There is nothing left. She is out of her house.

They take her to a poor house, and it's a poor house out of a Dickens novel, and she lingers there for a couple of years. Miraculously, her photographs are discovered. A few of her photos are sold to Time and Life magazine, and that earns her enough money to move out of the poorhouse and into a decent retirement home.

In a sense, her photographs come to her rescue and take her out of poverty and into a year or two of decent living. Paul Warburg, who so accurately predicted the crash and the depression, saved the life bank he ran from disaster by getting out of the market in time but it was of little consolation to him my great-grandfather probably never really recovered his own personal equilibrium after the crash To be called the Cassandra of Wall Street, I think was very painful for him. And if we all remember Cassandra, she couldn't just see the future. She was also doomed to be disregarded. And I think it caused him to go into a depression of his own.

I'm not sure that he ever would have said, I told you so. I think he felt that it was really tragic, that this worldwide depression could have been averted or headed off, or at least it didn't have to crash so hard. And I think it probably led to his early death. When he died, it was the last year of Hoover's presidency, and there was no end in sight.

But in 1932, 12 years of Republican rule came to an end. I, Franklin Delano Roosevelt, do solemnly swear that I will faithfully execute the office of President of the United States. Democrat Franklin Roosevelt was elected President in a landslide victory.

His first task was to restore confidence. The only thing we have to fear is fear itself. Seen as a savior, Roosevelt promised a new deal for the American people and to regulate the financial system. There must be a strict supervision of all banking and credits and investments. There must be an end to speculation with other people's money.

The new president acted quickly. He guaranteed bank deposits and introduced laws forcing bankers to operate under strict government supervision. An investigation into the crash was launched by the Senate Banking Committee.

It would last more than three years, and the 10,000 pages of testimony blackened the reputation of Wall Street. The committee's ambitious lawyer, Ferdinand Pecora, challenged the banking elite to account for their behavior. He calls these bankers to testify. And what does he learn? He learns that Charlie Mitchell of National City Corp. had sold stock to his wife to avoid taxes.

Richard Whitney, who had so boldly bought stock on Black Thursday, lost money of his own and began borrowing from his brother. And then when that didn't work, he began stealing from customers. He ended up in jail doing time.

The most prestigious bank in America, J.P. Morgan, was also found to be far from blameless. The hearings uncovered evidence of a list that offered preferential deals on stocks to friends in high places, including a former president. Not only Morgan partners and Morgan family members, but also prominent corporate executives and even some politicians. Calvin Coolidge was on the preferred stock list, for example. That was a practice that a lot of people felt was wrong.

Ferdinand Pecora had a great quote. He said it was shocking disclosures of low standards in high places, which I love because, you know, you could say the same thing today. In response to public outrage at the banker's dirty dealings, President Roosevelt set up the Securities and Exchange Commission.

Its task? To clean up Wall Street. At its head, he chose a man who knew more about unethical practice than most.

President Roosevelt, when he introduced the Securities and Exchange Commission to regulate Wall Street, named his old friend and supporter Joe Kennedy to be the first chairman. That's putting the fox in the chicken coop. Although Roosevelt restored confidence in the banking system, the Great Depression would last until the outbreak of World War II.

Then, as now, the globalized economy meant that the crash and subsequent depression rippled out across the world. In Britain, there was a slump in manufacturing, and millions lost their jobs. Germany, still suffering from defeat in the First World War, was hit even harder. So many people had their life savings destroyed during the Great Depression that it created in many countries a desire for some authoritarian government that would save them, that would rescue the economy.

No doubt that the crash and the depression strengthened anti-capitalist movements. The communists had taken over in Russia, and there were rising fascist movements. Mussolini was already in power in Italy. and Hitler's political base was growing in Germany. And when American-style free market capitalism suffered from this Wall Street crash followed by a depression, it just strengthened those people who wanted to say there's a better way.

While communism and fascism prospered, many nations put up barriers to prevent free trade and turned inwards in an attempt to save their economies. Economic nationalism led to trade wars and later, world war. Eighty years on, those who remember the bubble of the 20s and the crash that followed feel that they have seen it all before. I don't think we learned anything from it.

I have found that people's memories are very short. They make the same type of leverage commitments where they don't look at the downside risk. You have a lot of cheap credit in the 1920s.

Now we've had cheap credit and people have speculated in houses and now the housing bubble has collapsed. You have a heavily leveraged American consumer. He's in debt up to his eyeballs and he can't sustain that debt.

The subprime mortgage crisis is a symptom of that. In the 80s and 90s, faith in the free market had revived, and as optimism returned, many of the financial regulations which Roosevelt had introduced were felt to be outdated and were slowly dismantled. Yet again, a lightly regulated market allowed speculation to grow unchecked.

We are now reaping the whirlwind of that deregulation. And in that sense, we're in exactly the same position as people were in 1929 when the government turned a blind eye to what was going on in the financial world. What I do hope, and I do... think is that the government has learned its lessons and is trying to take steps that are much more active and much more aggressive than what was taken in in the 30s to try and stem the pain and stem the decline The hope is that such steps will work, but the lessons from the crash of 1929 are that history repeats itself, that human folly and greed are much stronger forces in financial affairs than reason and restraint.

Transcript for:Lessons from the 1929 Stock Market Crash

Transcript for:
Lessons from the 1929 Stock Market Crash