Another Panic, Another Market Crash

A victim of the Wall Street crash puts his car up for sale in a desperate bid to raise cash
A victim of the Wall Street crash puts his car up for sale in a desperate bid to raise cash

by Ray Setterfield


October 24, 1929 — A record 12,894,650 shares were sold on this day as panic gripped the Wall Street stock market in New York. It was to be known as Black Thursday, but far worse was to come.

On October 28 the market went into freefall with losses as high as $5billion being reported. The next day – Black Tuesday – prices completely collapsed amid panic selling, triggering losses of between $10-$15billion. Millions of Americans saw their life savings disappear.

Prices continued to drop, leading to losses of a staggering $30billion by mid-November. The market hit rock bottom on November 23 after which prices began to stabilise, meaning that at last the 1929 Wall Street crash was over. But it took 23 years for the market to recover.

It all came about after a huge economic boom enjoyed during the “Roaring Twenties” and the “Jazz Age.” It was a time of “spend, spend, spend” bolstered by easy credit schemes and widespread borrowing by consumers.

It was also a time of “live now, pay later” and the stock market was no exception. Brokers encouraged buying shares “on margin”, which meant using borrowed money.

As a result, Wall Street saw an extended period of rising share prices, known as the Long Bull Market.

Inevitably, the chickens came home to roost as the economy began to contract. Professional investors then started to sell, causing prices slowly to fall. As they saw what was happening smaller investors, concerned about paying off their loans, also began to sell. So prices on the market fell even further, generating rising panic that led to the Wall Street Crash.

In turn, this brought about the Great Depression with numerous bank closures, mass unemployment, homelessness, hunger and despair for millions of Americans. Peaking in 1933, it would last for ten years until the Second World War broke out in 1939.

This was not the first time that Wall Street had been plunged into turmoil. The first crash of the New York Stock Exchange, known as the Panic of 1901, was caused by a fight for control of the Northern Pacific Railroad. As businessmen E.H. Harriman and James J. Hill battled for the firm, stocks in dozens of other rail companies tumbled, eventually dragging down the whole market.

There were further Wall Street crashes in 1907, 1937, 1962, 1987, 1989, 1997, 2000, 2002, 2007, 2008, 2010, 2015 and, of course, the worldwide market slump caused by the coronavirus COVID-19 in 2020.

Long before any of these, the first recorded financial crash came in 1637 when Tulip Mania reached its climax in Holland.

The first tulip bulb was imported into Holland from Turkey in 1593 and after a few years they became a status symbol for the country’s upper classes.

As demand grew, so did the prices and people began to buy and sell tulip bulbs just to make money. As stories spread of huge profits to be made, more and more people jumped on the bandwagon causing the prices to skyrocket.

In 1633, a single bulb of Semper Augustus was selling for an unbelievable 5,500 guilders (about $3,000). By the first month of 1637, this had doubled to 10,000 guilders. Historian Mike Dash in his 1999 book, Tulipomania: The Story of the World’s Most Coveted Flower and the Extraordinary Passions It Aroused, puts this sum in context:

“It was enough to feed, clothe and house a whole Dutch family for half a lifetime, or sufficient to purchase one of the grandest homes on the most fashionable canal in Amsterdam for cash, complete with a coach house and an 80ft (25m) garden – and this at a time when homes in that city were as expensive as property anywhere in the world.”

The buying and selling of bulbs usually took place in taverns but the trading disappeared almost overnight in February, 1637. Most speculators could no longer afford to purchase even the cheapest bulbs and an auction had failed to produce any buyers.

As doubts grew that the prices were sustainable demand disappeared and the bulbs tumbled to a tenth of their former values. Fear and panic spread quickly, causing the bubble to burst in just a few days.

The tulip bulb crash threw the Dutch economy into economic depression that lasted for many years.

Published: March 25, 2020

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