On This Day - 24th October

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Wall Street Crash — The 24th of October 1929

Such was the unrealistic peak in share prices reached in 1929, and the drastic crash from that point, that it took a quarter of a century before share prices on Wall Street returned to that level.

Black Thursday was not the start of the financial plunge, which over a few weeks had seen a rapid fall then a brief and partial recovery. But on October 24 1929 there was a massive sell-off, halted only temporarily by major co-ordinated buying of stocks by institutions and magnates.

Consideration of some of the factors involved in the crash and the Great Depression after it makes fascinating reading, and perhaps causes some reflection on recent events: a stock market bubble had occurred over the preceding five or six years, with Price/Earnings ratios eventually topping an unrealistic 30; the bubble had been powered by investors believing the market (like house prices before 2007) was on an ever-upwards curve, and that if they did not invest they would miss out — many borrowed in order to buy shares; and economically-illiterate protectionist politicians in America legislated to hike tariffs on imports, rapidly followed by retaliatory action that devastated America's exports and indeed world trade.

When reality dawned share prices plummeted, and aggressive buying by institutions couldn't affect a sustainable recovery. Bank failures came about because deposit takers had been fuelling the speculative buying of stocks and had been heavily involved in underwriting and issuing them; credit became tight; even those who had not suffered great financial harm pulled their horns in, reducing consumer demand.

The Great Depression lasted more than a decade.

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