Looking Back at the Crash of '29: Then, as Now, a New Era
Looking Back at the Crash of '29: Then, as Now, a New Era
Corbis/ Bettman-UPI
Thousands of brokers and investors gathered outside of the exchange trying to find out about a drop in the market.
Any look back now at the great stock market boom of the 1920's must inevitably be colored by the boom of the 1990's. Then, as now, leverage helped push prices up. Then anyone could buy stocks by putting up 10 percent of the purchase price. Now, the margin rules call for 50 percent, but that rule is easily evaded by those who wish to do so. Then, as now, there was talk that an exciting new technology had rendered the old economic laws irrelevant. Then, as now, stock connected to that technology zoomed skyward, but even companies that had nothing to do with the technology saw their stock prices benefit.
That technology was radio. Like the Internet, it led to widely publicized new ways to trade stocks. Suddenly, investors and speculators could be closer than ever before to the action. Millions of dollars of stocks were traded from brokerage house offices set up on cruise ships crossing the Atlantic.
Corbis/Bettman-UPI
Stock brokers and their clerks catching up on their sleep in a downtown Manhattan gym after they worked until early Oct. 30.
•Click on Image to See Larger Version
Also like the 1990's, the rise in stock prices sparked warnings of excess from skeptics long before the actual top. Alexander D. Noyes, The Times' financial editor and probably the most respected financial journalist of the era, wrote a long and persuasive article comparing the 1920's ``speculative mania'' to previous manias and casting a skeptical eye on the ability of stock prices to continue rising. It was published on Nov. 15, 1925, nearly four years before the crash.
By 1929, such cautionary voices had been discredited, and the stock market had become a force unto itself, propelled by dreams -- and the reality -- of quick wealth. ``Playing the stock market has become a major American pastime,'' reported The Times in a magazine article published on March 24, 1929. The article noted that the number of brokerage accounts had doubled in the past two years, and added, ``It is quite true that the people who know the least about the stock market have made the most money out of it in the last few months. Fools who rushed in where wise men feared to tread ran up high gains.''
That article was written after the Fed had made its principle stand against stock market speculation, by warning banks not to borrow from the Fed's discount window and then lend the money to stock market speculators. That led to a credit crunch, with interest rates on margin loans rising. The Dow Jones industrial average fell 4 percent the week of March 18-23. Then prices really cracked on Monday March 25 and continued falling until late in the day on Tuesday, when a rally arrived. Before that rally started, the Dow had fallen about 8 percent over less than two days _ the equivalent of around 800 points now.
The Associated Press
A detail of policemen on horseback were brought in to keep crowds moving past the New York Stock Exchange during the most severe decline in prices on Black Tuesday. Many of the passersby were wiped out when all trading records were broken. The ticker was 2 1/2 hours behind at closing.
•Click on Image to See Larger Version
``Responsible bankers agree,'' The Times quoted an unnamed broker as saying that day, after the recovery began, ``that stocks should now be supported, having reached a level that makes them attractive.''
The responsible banker in question, it turned out, was Charles Mitchell, the president of National City Bank, a predecessor of today's Citibank. He defied the Fed, and lent out all the money the speculators wanted. Soon prices were back on their upward course. By the August peak, the Dow was 35 percent above the low reached during the March sell-off. There was a furor in Washington, but the public and the politicians thought that rising stock prices were good, and the Fed did nothing about Mitchell's defiance.
When the crash arrived in October, it took several days to unfold. The first break came on Thursday, Oct. 24, but there was an afternoon rally that reduced the losses and a decent rise on Friday. But prices were weak on Saturday. (The market traded six days a week in those days.)
Then the floor fell out. On Monday, Oct. 28, the Dow fell 12.8 percent. The next day, thereafter known as Black Tuesday, it lost another 11.7 percent. There would be rallies, but from then on the direction was down. By the time the bottom arrived, in 1932, the Dow was down 89 percent from its 1929 peak.
Archive Photos
The floor of the New York Stock Exchange, the day after the collapse.
•Click on Image to See Larger Version
In rereading The Times' coverage of that crash, some things stand out. The paper wanted to cover the news thoroughly and honestly, but it also wanted to be careful not to be alarmist. Each day's headline found something positive to include, such as promises by bankers to aid the market.
Nonetheless, the reporters knew they were witnessing something they had never seen before, as was reflected in two paragraphs below, taken from the lead story on Oct. 30, reporting on Black Tuesday:
``Yesterday's market crash was one which largely affected rich men, institutions, investment trusts and others who participate in the market on a broad and intelligent scale. It was not the margin traders who were caught in the rush to sell, but the rich men of the country who are able to swing blocks of 5,000, 10,000, up to 100,000 shares of high-priced stocks. They went overboard with no more consideration than the little trader who was swept out on the first day of the market's upheaval, whose prices, even at their lowest of last Thursday, now look high by comparison.''
Brown Brothers
Throngs of people gathered in front of the sub-Treasury building across from the New York Stock Exchange during the 1929 stock market crash.
•Click on Image to See Larger Version
``Wall Street was a street of vanished hopes, of curiously silent apprehension and of a sort of paralyzed hypnosis yesterday. Men and women crowded the brokerage offices, even those who have been long since wiped out, and followed the figures on the tape. Little groups gathered here and there to discuss the falling prices in hushed and awed tones. They were participating in the making of financial history. It was the consensus of bankers and brokers alike that no such scenes ever again will be witnessed by this generation. To most of those who have been in the market it is all the more awe-inspiring because their financial history is limited to bull markets.''
They were right. Never since has something quite like that been seen. Those who are confident that the Fed will assure that a similar event today would not bring economic disaster might do well to remember that people 70 years ago had faith in the same institution.
Corbis/ Bettman-UPI
Thousands of brokers and investors gathered outside of the exchange trying to find out about a drop in the market.
Any look back now at the great stock market boom of the 1920's must inevitably be colored by the boom of the 1990's. Then, as now, leverage helped push prices up. Then anyone could buy stocks by putting up 10 percent of the purchase price. Now, the margin rules call for 50 percent, but that rule is easily evaded by those who wish to do so. Then, as now, there was talk that an exciting new technology had rendered the old economic laws irrelevant. Then, as now, stock connected to that technology zoomed skyward, but even companies that had nothing to do with the technology saw their stock prices benefit.
That technology was radio. Like the Internet, it led to widely publicized new ways to trade stocks. Suddenly, investors and speculators could be closer than ever before to the action. Millions of dollars of stocks were traded from brokerage house offices set up on cruise ships crossing the Atlantic.
Corbis/Bettman-UPI
Stock brokers and their clerks catching up on their sleep in a downtown Manhattan gym after they worked until early Oct. 30.
•Click on Image to See Larger Version
Also like the 1990's, the rise in stock prices sparked warnings of excess from skeptics long before the actual top. Alexander D. Noyes, The Times' financial editor and probably the most respected financial journalist of the era, wrote a long and persuasive article comparing the 1920's ``speculative mania'' to previous manias and casting a skeptical eye on the ability of stock prices to continue rising. It was published on Nov. 15, 1925, nearly four years before the crash.
By 1929, such cautionary voices had been discredited, and the stock market had become a force unto itself, propelled by dreams -- and the reality -- of quick wealth. ``Playing the stock market has become a major American pastime,'' reported The Times in a magazine article published on March 24, 1929. The article noted that the number of brokerage accounts had doubled in the past two years, and added, ``It is quite true that the people who know the least about the stock market have made the most money out of it in the last few months. Fools who rushed in where wise men feared to tread ran up high gains.''
That article was written after the Fed had made its principle stand against stock market speculation, by warning banks not to borrow from the Fed's discount window and then lend the money to stock market speculators. That led to a credit crunch, with interest rates on margin loans rising. The Dow Jones industrial average fell 4 percent the week of March 18-23. Then prices really cracked on Monday March 25 and continued falling until late in the day on Tuesday, when a rally arrived. Before that rally started, the Dow had fallen about 8 percent over less than two days _ the equivalent of around 800 points now.
The Associated Press
A detail of policemen on horseback were brought in to keep crowds moving past the New York Stock Exchange during the most severe decline in prices on Black Tuesday. Many of the passersby were wiped out when all trading records were broken. The ticker was 2 1/2 hours behind at closing.
•Click on Image to See Larger Version
``Responsible bankers agree,'' The Times quoted an unnamed broker as saying that day, after the recovery began, ``that stocks should now be supported, having reached a level that makes them attractive.''
The responsible banker in question, it turned out, was Charles Mitchell, the president of National City Bank, a predecessor of today's Citibank. He defied the Fed, and lent out all the money the speculators wanted. Soon prices were back on their upward course. By the August peak, the Dow was 35 percent above the low reached during the March sell-off. There was a furor in Washington, but the public and the politicians thought that rising stock prices were good, and the Fed did nothing about Mitchell's defiance.
When the crash arrived in October, it took several days to unfold. The first break came on Thursday, Oct. 24, but there was an afternoon rally that reduced the losses and a decent rise on Friday. But prices were weak on Saturday. (The market traded six days a week in those days.)
Then the floor fell out. On Monday, Oct. 28, the Dow fell 12.8 percent. The next day, thereafter known as Black Tuesday, it lost another 11.7 percent. There would be rallies, but from then on the direction was down. By the time the bottom arrived, in 1932, the Dow was down 89 percent from its 1929 peak.
Archive Photos
The floor of the New York Stock Exchange, the day after the collapse.
•Click on Image to See Larger Version
In rereading The Times' coverage of that crash, some things stand out. The paper wanted to cover the news thoroughly and honestly, but it also wanted to be careful not to be alarmist. Each day's headline found something positive to include, such as promises by bankers to aid the market.
Nonetheless, the reporters knew they were witnessing something they had never seen before, as was reflected in two paragraphs below, taken from the lead story on Oct. 30, reporting on Black Tuesday:
``Yesterday's market crash was one which largely affected rich men, institutions, investment trusts and others who participate in the market on a broad and intelligent scale. It was not the margin traders who were caught in the rush to sell, but the rich men of the country who are able to swing blocks of 5,000, 10,000, up to 100,000 shares of high-priced stocks. They went overboard with no more consideration than the little trader who was swept out on the first day of the market's upheaval, whose prices, even at their lowest of last Thursday, now look high by comparison.''
Brown Brothers
Throngs of people gathered in front of the sub-Treasury building across from the New York Stock Exchange during the 1929 stock market crash.
•Click on Image to See Larger Version
``Wall Street was a street of vanished hopes, of curiously silent apprehension and of a sort of paralyzed hypnosis yesterday. Men and women crowded the brokerage offices, even those who have been long since wiped out, and followed the figures on the tape. Little groups gathered here and there to discuss the falling prices in hushed and awed tones. They were participating in the making of financial history. It was the consensus of bankers and brokers alike that no such scenes ever again will be witnessed by this generation. To most of those who have been in the market it is all the more awe-inspiring because their financial history is limited to bull markets.''
They were right. Never since has something quite like that been seen. Those who are confident that the Fed will assure that a similar event today would not bring economic disaster might do well to remember that people 70 years ago had faith in the same institution.
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