The 1929 Stock Market Crash and its Consequences

Introduction

• The Stock Market Crash of 1929 was the greatest crash in New York Stock Exchange history.
• It marked the end of a decade of prosperity and optimism known as the "New Era."
• Financial leaders believed prosperity would continue indefinitely.

The 1920s Economic Optimism

• The era's mood captured by the hit song "Blue Skies" which embodied optimism.
• Many ordinary Americans began investing in stocks for the first time.
• Stock prices had been rising for almost eight years with no perceived upper limit.
• Wealth was amassed by buying and selling stocks, not through traditional industries.

Rise of Stock Market Culture

• People from all walks of life involved in the stock market.
• A small group of financial leaders and speculators dominated Wall Street.
• Charles Mitchell pioneered mass marketing of stocks and bonds to the general public.
• Speculative frenzy: everyone discussing stocks, stock tips, and watching the ticker.

Speculation and Manipulation

• Market manipulation was common, with wealthy investors pooling money to inflate stock prices before selling.
• Example: RCA stock manipulation made insiders very wealthy.

Warning Signs Ignored

• Economist Roger Babson warned of a crash, was ignored and criticized.
• Politicians and financial leaders continued expressing optimism.

The Crash

• October 1929: Stock market crashed, leading to widespread panic and financial ruin.
• Major financial figures and banks attempted to stabilize the market, but could not prevent the crash.
• The crash resulted in significant financial loss for investors.

Aftermath

• Many prominent financial figures suffered financial ruin or lost influence.
• The crash led to the Great Depression with unemployment, bank failures, and bread lines.
• The era of unbridled optimism was replaced by a realization of economic vulnerability.

Notable Figures

• Charles Mitchell: Hounded post-crash but made a comeback.
• William Durant: Filed for bankruptcy post-crash.
• Jesse Livermore: Unable to adapt to new regulations, died by suicide in 1940.
• Herbert Hoover: President during the crash, later reflected on human frailty through fishing.

Conclusion

• The crash was a culmination of speculative excess and unregulated financial practices.
• It served as a reminder of the cyclical nature of financial markets and human behavior in finance.
• The 1929 crash fundamentally changed the American financial landscape and led to stricter regulations.