Wall Street and The Great Depression

Wall Street and The Great Depression

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Wall Street and The Great Depression


“You could talk about Prohibition, or Hemingway, or air conditioning, or music, or horses, but in the end you had to talk about the stock market, and that was when the conversation became serious.”

[From John Brooks’s Once in Golconda]

Wall Street has a long and varied 200-plus years of history, full of colorful vignettes and wheeling-dealing. Almost from the moment that the market was organized out-of-doors in the 18th century, it has been a symbol of the best and worst finance has had to offer. It has been known for its scandals, avarice, and greed on the one hand and ingenuity and even patriotism on the other. At times, it is impossible to live with, while at others, impossible to live without. And lurking just below the surface, are events and personalities that have shaped American history.

Wall Street and The History of the Stock Market

In March of 1792, twenty-four of New York City’s leading merchants met secretly to discuss ways to bring order to the securities business and to wrest it from their competitors, the auctioneers. Two months later, on May 17, 1792, these merchants signed the Buttonwood Agreement, calling for the signers to trade securities only among themselves, to set trading fees, and not to participate in other auctions of securities. These men had founded what was to become the New York Stock Exchange.

The New York Stock Exchange rented a room on Wall Street and every morning the president, Anthony Stockholm, read the stocks to be traded. The exchange was an exclusive organization, new members were required to be voted in, and a candidate could be black-balled by three negative votes. In 1817 a seat on the exchange cost $25, in 1827 it increased to $100, and in 1848 the price was $400.

By 1929, the Wall Street con game had convinced millions of Americans that the country was riding on an upward spiraling wave of financial glory and both rich and poor had put their money into stocks and bonds. Stock prices were pushed up beyond any relationship with the actual worth of the companies.

But, as history shows, what goes up, must come down:

ü October 24, 1929 “Black Thursday”: A record 12.9 million shares changed hands on Black Thursday (a new record – 4 million shares was considered a busy day back then) and the ticker tape fell behind by one and a half hours.

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ü October 28, 1929 “Black Monday”: Volume levels around 9.25 million shares and the stock market suffered a record one-day loss of around 13%.

ü October 29, 1929 “Black Tuesday”: A new record of 16.4 million shares were traded, the ticker tape fell behind by two and a half hours, and the market suffered a loss of about 12%.

In just two months, September and October, the stock market had lost 40 percent of its value and by the end of November, investors had lost $100 billion in assets. Black Tuesday usually marks the point where the Roaring 20’s ended and the Great Depression started.

A decade tucked in between the Roaring Twenties and World War II, nobody could tell exactly when it began and nobody could predict when it would end. At the outset, they didn’t even call it a depression. At worst it was a recession, a brief slump, a “correction” in the market, a glitch in the rising curve of prosperity. Only when the full import of those heartbreaking years sank in did it become the Great Depression – Great because there had been no other remotely like it and there would never be anything like it again. In retrospect, it is perhaps the most devastating and significant ten years in American history, a watershed era that scarred and transformed the nation.

The Great Depression

The Great Depression was supposedly precipitated by “The Great Stock Market Crash” and is unprecedented in its length and in the wholesale poverty and tragedy it inflicted on society. There were countless consequences of the Great Depression:



ü As interest rates increased, there was an uncontrollable growth in unpaid loans, ultimately leading to bankruptcy.

ü With supply exceeding demand, prices started to fall until deflation took hold of the economy.

ü 85,000 businesses went bankrupt. Their losses amounted to 4.5 billion.

ü Unemployment shot up to over 30%.

ü Suicide and murder rates reach record levels.

ü Millions of farmers lost their lands and were forced to migrate to the cities, aggravating the poverty.

ü Racism and xenophobia spread and borders were closed to all new immigration.

ü The Depression favored political extremes around the world. In Germany the far right (Hitler) and in the USSR the far left (Stalin).

ü The political crisis that began with the depression cost the Republicans the Presidency and Congress which they were unable to recover for nearly a generation.

ü At the depth (1932-33) of the depression, there were 16 million unemployed - about one third of the available labor force.

ü The gross national product declined from the 1929 figure of $103,828,000,000 to $55,760,000,000 in 1933.


References

Websites

“America’s Great Depression”

http://www.amatecon.com/greatdepression.html

A work in progress about the Great Depression. Just a few of this website’s features include: an overview, timeline, facts and figures, photos, and a glossary.

“Modern World History: The Wall Street Crash” http://www.bbc.co.uk/education/modern/crash/crashfla.htm

This website tells the history of the Stock Market Crash of 1929. It presents information on the causes and effects as well as America’s reactions for a resolution and the effect it had on other countries.

“Stock Market Crash”

http://www.pbs.org/fmc/timeline/estockmktcrash.htm

This website gives a brief summary of the causes of the stock market crash.

“Timeline of The Great Depression”

http://www.pbs.org/wgbh/amex/rails/timeline/index.html

This website presents a detailed timeline of events of the Great Depression from the years 1929 to 1940.

Books

Brooks, John. Once in Golconda: A True Drama of Wall Street 1920-1938. New York: Harper and Row, 1969.

Himmelberg, Robert F. The Great Depression and the New Deal. Westport: Greenwood Press, 2001.

McElvaine, Robert S. The Great Depression: America, 1929-1941. New York: Times Books, 1994.

Werner, Walter and Steven T. Smith. Wall Street. New York: Columbia University Press, 1991.
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