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