Saturday, 1 September 2012

7 Biggest Crashes of All Time, II.

As promised in our earlier posts, now we present the story of the biggest financial crash of the 20th century, with political and economic consequeces which have an impact on our lives to this day. Behold the 1929 crash - the events leading up to and following Black Thursday.

Image from Wikipedia

6.
The Black Thursday (The 1929 crash)

Date: October 24th 1929 - November 14th 1929
Location: USA

Causes: burst of the 1920's speculative bubble
Duration of panic: 22 days
Biggest percentage change of market index: -44% (DJIA)
Length of recession: 4 years, 7 months
Results: worldwide economic and political destabilisation leading to WWII

Background


The biggest financial crash of all time has been preceded by the "Roaring Twenties", a decade of prosperity and economic growth for the Western world – and not only for the winners of the first World War. The volatile Weimar Republic, having tamed it's record-high inflation levels, also managed to pay back it's debts and curb it's inflation, and began a decade of intellectual golden age.
The decade of growth also generated it's economic bubble, however – in the United States of America, thousands of households started to take loans in order to buy stocks, generating the country's then-biggest ever speculative bubble.

Immediate causes


By August 1929, brokers were routinely lending their clients more than two-third of their total assets. As opposed to the 1907 crash, there was no single company or organisation forced to declare bankruptcy – but from September 3rd, the markets started to crumble and prices fluctuate, possibly due to the Congress debate of the controversial Tarriff Act which raised import tariffs to record-high levels.

The crash


The slow crumble began to fasten on October 24th. The market lost 11% at the opening bell – a committee of bankers, lead by Richard Whitney, president of the NY Exchange immediately stepped in, and by injecting large amount of money into US Steel, then to blue chips stocks above market prices, they managed to contain the day's losses at only 2.1%. Then the exchange closed for the weekend, but newspapers spread the news all around the country, and on October 28th, next Monday (Black Monday), prices fell by a then-record of 13% - the scheme of Whitney failed.
Then it all came down the next day – Black Tuesday. 16 million shares changed owners, and the market fell by an additional 12% - the scale of that day's trades was not surpassed until the 1987 crash. The prices fell, and fell, and fell unstoppably, until reaching their (temporary) bottom at November 14th. By that time, stock prices fell by 44% - which was still nowhere from the bottom point of the DJIA in the 20th century, which only came in 1932.

Aftermath


The US crash instantly caused similar collapses all around Western stock markets, and it marked the beginning of the decade-long Great Depression. While the actual reasons of the Depression are debated to this day, but it was definitely the prolonged deflation (prices become lower over time) which did most of the damage, discouraging investors from investing and hence crippling the economy for years - the market only reached it's pre-crash levels on 1954. The economic hardships lead to a surge in extremism in many countries – and foremost among them, in the once-liberal Germany, where a totalitarian dictatorship replaced a democracy. In the end, it was Hitler who launched the second World War – but who knows whether he could have ever gained power, if not for the Depression?

Do you think the crash caused the Depression? Or was it a mere symptom of an underlying economic instability, suddenly emerging? Share your thoughts in comments and continue reading us.


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