| While the Dow soars above historic highs, oil | | | | and interest and more. When prices began to |
| and housing prices are falling. Are these | | | | drop, people realized they would not only |
| sectoral adjustments or indications of a | | | | fail to make money but they might not be able |
| radical shift in the economy? Could we see | | | | to cover the debt either and so panicked. |
| another stock market crash like The Wall | | | | Banks had lent heavily to fund this |
| Street Crash Of 1929? Why are investors | | | | share-buying spree and when the market |
| getting jittery?The Wall Street Crash, and | | | | collapsed they found themselves saddled with |
| the subsequent Great Depression of the 1930s, | | | | debt, which caused many banks to fail. |
| are well known phrases but few people know | | | | Millions of people lost their savings and, |
| what really happened and understand the | | | | disastrously for the economy, businesses lost |
| dynamics that led to the crash. | | | | their credit lines and were forced to close, |
| | | | which caused massive unemployment. The middle |
| The Wall Street Crash, also called the | | | | class now found themselves without savings |
| 'Great Crash,' was a stock-market price | | | | and, in many cases, work. |
| collapse that started on October 24 ("Black | | | | |
| Thursday") and continued through October 29, | | | | The over-reaction of the Hoover |
| 1929 ("Black Tuesday"), when share prices on | | | | administration to the Wall Street Crash |
| the New York Stock Exchange (NYSE) | | | | probably exacerbated the situation and the |
| collapsed.The Dow Jones Industrial Average, | | | | passage of the Smoot-Hawley Tariff Act caused |
| recovered early in 1930 only to decline until | | | | more harm than the crash itself.Could it |
| finally bottoming out in the bear market in | | | | happen again?Investors are continually told |
| 1932. The market did not surpass pre-1929 | | | | "no" and that there are things are in place |
| levels until 1955. | | | | to stop the sort of crash that happened in |
| | | | 1929. But evidence seems to imply |
| The Dow had reached a high of 381.17 on | | | | otherwise.To prevent panics such as 1929, |
| September 3, 1929. Three days later, on Black | | | | buying on speculation was made illegal. Stock |
| Thursday, the stock market suffered its first | | | | markets instituted measures to temporarily |
| crash. A then-record 13 million shares were | | | | suspend trading in the event of rapid |
| traded that day. More investors were involved | | | | declines.The US Glass-Steagall Act of 1933, |
| in the stock market than ever before and many | | | | mandated a separation between commercial |
| had borrowed money to invest and those | | | | banks, which take deposits and extend loans, |
| over-leveraged investors were jittery. The | | | | and investment banks, which underwrite, |
| crash began on the Thursday when those | | | | issue, and distribute stocks, bonds, and |
| investors panicked and rushed to sell their | | | | other securities.For decades, these rules |
| shares.At 1:00pm on Black Thursday, several | | | | seemed to protect the markets and no more |
| leading Wall Street bankers met to find a | | | | collapses occurred. Invested slowly came back |
| solution to the panic and chaos that was | | | | to the market. But when the Regan |
| unfolding on the trading floor. The group | | | | administration relaxed some of the |
| included the heads of Morgan, Chase National | | | | regulations managing brokerages in the early |
| and National City Banks and they bid on large | | | | 1980s, the stock market began to pick up.The |
| blocks of "blue-chip" stocks to show | | | | crash of Monday, October 19, 1987 was even |
| confidence in the market. The tactic | | | | more severe than the Crash of 1929. On Black |
| succeeded in halting the slide that day and | | | | Monday of 1987, the Dow Jones Industrial |
| the panic abated. The markets were calmer on | | | | Average fell 22.6%. While it was the largest |
| the Friday.Over the weekend, however, | | | | single day drop in history, it did not |
| newspapers published dire and sensational | | | | precipitate a recession or depression. Other |
| stories about the fragility of the market. | | | | economic indicators were on the upswing and |
| By Monday, agitated investors panicked by the | | | | the crash seemed to only affect the larger |
| press, were champing at the bit to liquidate. | | | | investors.The late 1990s also saw a period of |
| When the markets opened on Monday morning, | | | | "irrational exuberance" as billions were |
| investors decided to get out of the market en | | | | invested in speculative 'dot-com' businesses. |
| mass and the slide resumed with a record 13% | | | | The 'dot-com boom' will be remembered for the |
| loss in the Dow for the day. Many wealthy | | | | founding spectacular failures of new |
| tycoons joined with members of the | | | | Internet-based companies that eshewed |
| Rockefeller family and other financial giants | | | | standard business models, and focused on |
| to buy large quantities of stocks in order to | | | | increasing market share at the expense of the |
| demonstrate confidence in the market on the | | | | bottom line and launched IPOs based on ideas |
| Monday but this time the tactic failed. | | | | rather than demonstrated businesses. Most |
| Tuesday saw more the same another 15 million | | | | major investors such as Warren Buffett had |
| shares were traded and the market bottomed | | | | not jumped on the band wagon and when the |
| out.So why did the crash happen and what can | | | | collapse came in 2000 were not affected. The |
| today's investors learn?One of the great | | | | same can not be said for the majority of |
| myths about the great crash was that it | | | | passive investors who saw the value of their |
| precipitated the Great Depression. Financial | | | | mutual funds plummet. |
| analysts and historians disagree on how much | | | | |
| effect the crash had on the looming Great | | | | That crash followed by drastic US deficits |
| Depression of the 30s.The economy was already | | | | implemented by President George W Bush, a |
| collapsing prior to the Wall Street disaster | | | | collapse in Asian real estate markets and the |
| and poor people, who would be the most | | | | September 11 attacks marked the beginning |
| affected by the Depression, were not | | | | rather lengthy recession in Western |
| investing in the stock market. For them, poor | | | | nations.So what of today? Even more mutual |
| farming conditions and the great dust bowl | | | | funds pumping their value on speculative |
| would be far more significant to their | | | | stocks, an overpriced bubble market with |
| plight. The image of the Wall Street tycoon | | | | millions of people involved, many of whom are |
| leaping through their skyscraper windows is a | | | | seeing their other investment, their houses, |
| myth. Most survived the crash with their | | | | sinking in value, and all with access to |
| mansions intact. They lost large amounts of | | | | computers and brokerages that can sell their |
| paper wealth but they had sufficient funds to | | | | stocks quickly makes for a very volatile |
| survive and then prosper in the low | | | | situation. The next crash will probably |
| market.For the middle class it was a | | | | indicate more than any other whether |
| different story. Throughout the 1920s the | | | | investors are more sophisticated today and |
| market had been doing so well that many | | | | will avoid repeating 1929 style panic |
| ordinary Americans were investing. More | | | | collapse or will precipitate a much larger, |
| people were investing although many could not | | | | quicker and significant exit from the |
| afford to do so. People were investing on | | | | market.Jay Northco is the Editor of the |
| speculation-borrowing from banks, buying | | | | website that pits Wall Street Guru Jim Cramer |
| stocks with an eye to selling them in the | | | | against a stock picking monkey to see who can |
| future for a profit that would cover the debt | | | | make the better stock picks. |