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Thursday 29 October 2009

It Was Eighty Years Ago Today

Today is October 29, which, apart from the ever shortening days of autumn, may not suggest anything dramatic, but 80 years ago was Black Tuesday, when the stock market crash of 1929 really took hold.

The market had peaked back in early September of that year, and had been soft in the earlier part of October. The panic set in on October 24, known as Dark Thursday, when there was a sudden rush to sell. This was compounded by the ticker falling behind what was actually happening, so investors were to an extent flying blind. They did know that others were selling, so they too sold. Others could not be contacted by brokers asking them to put up more margin – much of the speculative boom was on the back of borrowed money – so those brokers sold too.

An attempt to steady the market was organised around midday, and Richard Whitney, vice president of the exchange, who was later jailed for embezzlement, went on to the floor of the exchange and bought several million dollars’ worth of stocks. This had a calming effect, but by the following Tuesday, it was rumoured that the stocks bought the previous Thursday were being unloaded. There was again a rush to sell, and again the ticker fell behind the market.

The market fell, with the occasional rally, for around four years, and ultimately by 89% from its peak. The Great Depression followed. Herbert Hoover, who could not, or would not, confront this problem, became a one term President, and Franklin Roosevelt, who had admitted the problem and committed himself to tackling it, was elected in a landslide.

The Hoover Administration, in fact, ran a budget surplus as businesses went to the wall and unemployment rocketed. They did nothing to temper the effects of the crisis. From this came the remedy of Keynes. Perhaps there is a lesson here for anyone advocating balanced budgets and cutting spending in pursuit of that goal.

[For some modern day reflections on 1929, here’s more]

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