The 1929 Stock Market Crash - Black Thursday - Extra History

Extra History
25 Apr 202009:15
EducationalLearning
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TLDRHerbert Hoover's 1929 inauguration speech promised prosperity and security, yet six months later, Black Thursday marked the beginning of the Great Depression. The script details the economic boom of the 1920s, fueled by easy loans and margin buying, which led to a market crash when panic selling ensued. Despite efforts to stabilize the market, the Dow Jones plummeted, signaling the start of a decade of hardships.

Takeaways
  • 😀 Herbert Hoover's presidency began with an optimistic outlook, boasting a high level of comfort, security, and individual freedom in America.
  • 🚗 Hoover's campaign promised prosperity, with a local flier famously claiming 'a chicken in every pot and a car in the backyard', despite Hoover not personally approving it.
  • 📈 The Dow Jones Industrial Average hit an all-time high of 381 in March 1929, indicating a seemingly robust economy with a relentless upward trend.
  • 📊 The stock market's climb over the previous nine years had increased six-fold, leading to widespread investment, including by non-traditional investors like factory workers and small business owners.
  • 💸 The practice of 'buying on the margin' allowed investors to purchase stocks with only a 10% down payment, leading to a widespread belief that investing was a sure path to wealth.
  • 🏠 People mortgaged their homes and businesses to invest in the stock market, assuming the upward trend would continue indefinitely.
  • 📉 The possibility of a 'margin call' loomed, where a drop in stock value could force investors to repay their loans or sell their stocks at a loss.
  • 🌾 The agricultural sector was also heavily leveraged, with farmers borrowing to mechanize and expand production, leading to an oversupply and difficulty in making profits.
  • 🏦 The Federal Reserve Bank of New York raised lending rates to discourage borrowing, which inadvertently triggered a recession in Europe and contributed to market uncertainty.
  • 📉 'Black Thursday' on October 24, 1929, marked the beginning of the stock market crash, with panic selling leading to an 11% loss in market value within minutes.
  • 🤝 Banking titans attempted to stabilize the market by making large investments in major companies, temporarily calming the market but not preventing the eventual crash.
Q & A

  • Who was inaugurated as the 31st president of the United States on March 4th, 1929?

    -Herbert Hoover was inaugurated as the 31st president of the United States on March 4th, 1929.

  • What economic promises were made during Hoover's campaign?

    -During Hoover's campaign, promises were made of prosperity, with a local campaign flier stating that Republican policies had put a chicken in every pot and a car in every backyard, symbolizing widespread comfort and security.

  • What was the Dow Jones Industrial Average at the time of Hoover's inauguration?

    -At the time of Hoover's inauguration, the Dow Jones Industrial Average was at an all-time high of 381.

  • What was the practice of 'buying on the margin'?

    -Buying on the margin was a practice where investors could purchase stocks by putting down only 10% of the stock's worth and taking out a loan from their broker for the remaining 90%, with the stock itself serving as collateral for the loan.

  • Why did the Federal Reserve Bank of New York raise the lending rate in 1929?

    -The Federal Reserve Bank of New York raised the lending rate in 1929 to discourage borrowing, as they were worried about the risky practice of buying on the margin and the potential for a market crash.

  • What event is referred to as 'Black Thursday'?

    -'Black Thursday' refers to October 24th, 1929, when the stock market lost 11% of its value within minutes of the trading day opening, marking the beginning of a severe financial crisis.

  • What actions did the banking titans take to try to halt the chaos during the stock market crash of 1929?

    -The banking titans, including the heads of Chase National Bank, Morgan Bank, and National City Bank of New York, gathered a large sum of money and used it to make significant purchases of US Steel and other major companies' stocks at high prices, showing their faith in the market to try to stabilize it.

  • What was the impact of the stock market crash on the American economy?

    -The stock market crash shook consumer confidence, wiped out the savings of small investors, and led to a decrease in purchases of items like cars, which in turn affected industries like auto manufacturing, contributing to the onset of the Great Depression.

  • How did the crash of 1929 affect the unemployment rate in Detroit?

    -The crash of 1929 led to a halt in Ford's assembly line, which in turn caused the unemployment rate in Detroit to soar to 34%.

  • What is the difference between the stock market crash of 1929 and the Great Depression?

    -The stock market crash of 1929 was a significant financial event that symbolized the start of hard times, but the Great Depression itself did not hit until months later, characterized by bank failures, rising unemployment, and a general economic downturn.

  • How did the practice of buying on the margin contribute to the severity of the stock market crash?

    -The practice of buying on the margin allowed many investors to buy stocks with borrowed money. When the market began to fall, these investors faced margin calls, forcing them to sell their stocks to repay loans, which exacerbated the market's decline.

Outlines
00:00
🇺🇸 Hoover's Inauguration and the Illusion of Prosperity

On March 4th, 1929, Herbert Hoover was inaugurated as the 31st President of the United States, proclaiming unprecedented comfort and security. He highlighted the nation's advancements and the liberation from widespread poverty, emphasizing prosperity. Despite a campaign focus on economic success, underlying issues in the stock market signaled trouble ahead. The Dow Jones hit an all-time high of 381, with widespread investments from various societal sectors. However, the practice of buying on margin and extensive borrowing created a precarious financial situation. The Federal Reserve raised lending rates, inadvertently triggering economic instability both domestically and internationally, setting the stage for the imminent market crash.

05:02
📉 The Chaos of Black Thursday and Its Aftermath

October 24th, 1929, known as Black Thursday, marked the beginning of the stock market crash. Panic ensued as the market lost 11% of its value within minutes. Efforts by banking titans to stabilize the market temporarily worked, but the subsequent margin calls caused widespread financial distress. Investors, including ordinary citizens, faced immediate debt repayment demands. The panic continued with Black Monday and Black Tuesday, where the market experienced severe declines. The crash signaled the start of the Great Depression, leading to massive unemployment and economic hardships. Although the stock market and the broader economy were interconnected, the crash itself did not directly cause the depression but symbolized the onset of a challenging era.

Mindmap
Keywords
💡Herbert Hoover
Herbert Hoover was the 31st president of the United States, inaugurated on March 4th, 1929. His presidency is significant in this video script as it marks the beginning of a period of perceived prosperity and comfort, which was followed by the Great Depression. Hoover's optimism about the state of the nation and its institutions is contrasted with the economic collapse that occurred shortly after his inauguration.
💡Prosperity
Prosperity refers to a state of economic success and growth, often characterized by high employment, high incomes, and a high standard of living. In the video script, Hoover's campaign and presidency are associated with the promise of prosperity, which was a key theme of his political messaging. However, the video also hints at the fragility of this prosperity, as it was followed by the stock market crash and the onset of the Great Depression.
💡Black Thursday
Black Thursday, which occurred on October 24th, 1929, was the day when the stock market crash began, marking the start of the Great Depression. The term is used in the script to denote a pivotal moment in economic history when investor confidence collapsed, leading to a massive sell-off of stocks and a significant loss in market value.
💡Dow Jones Industrial Average
The Dow Jones Industrial Average (DJIA) is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States. In the script, the DJIA's all-time high of 381 in the month of Hoover's inauguration is highlighted to illustrate the perceived economic strength of the time. However, the index's subsequent plummet is central to the narrative of the stock market crash.
💡Buying on the Margin
Buying on the margin refers to the practice of borrowing money to purchase securities, with the securities serving as collateral for the loan. In the script, this practice is described as widespread during the 1920s, leading many, from factory workers to shoeshine boys, to invest in the stock market. The script also explains how margin calls can lead to forced sell-offs if the value of the stock drops, contributing to the market's instability.
💡Margin Call
A margin call occurs when the value of the securities in a margin account falls below the broker's required amount, prompting the investor to either deposit more money or sell securities to cover the shortfall. In the video script, margin calls are depicted as a major factor contributing to the panic selling during the stock market crash, as investors scrambled to repay their loans.
💡Great Depression
The Great Depression was a severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States. The video script uses the term to describe the economic downturn that followed the stock market crash of 1929. While the crash and the depression are not the same, the script highlights how the crash symbolized the start of a difficult period characterized by high unemployment, bank failures, and widespread economic hardship.
💡Overvalued Market
An overvalued market refers to a situation where the prices of securities are higher than their intrinsic value, often due to speculation or irrational exuberance. In the script, the concern that the market was overvalued is presented as a precursor to the crash, with analysts warning of a potential market correction.
💡Installment Buying
Installment buying is a method of purchasing goods in which the total cost is paid for in several installments over time. The script mentions that installment buying, along with easy loans, fueled the economic boom of the 1920s, allowing businesses and families to expand and modernize, but also contributing to a buildup of debt that would become problematic during the Depression.
💡Federal Reserve Bank
The Federal Reserve Bank is the central banking system of the United States, responsible for implementing monetary policy and regulating the nation's financial system. In the script, the Federal Reserve Bank of New York is depicted as raising the lending rate to discourage borrowing on margin, which had the unintended consequence of contributing to the economic downturn.
💡Marginal Farming
Marginal farming refers to the practice of farming on land that is not well-suited for agriculture, often requiring significant investment in equipment and chemicals to be productive. In the script, farmers are described as borrowing heavily to mechanize their operations, leading to overproduction and a subsequent drop in agricultural prices, which contributed to the economic instability of the period.
Highlights

Herbert Hoover's inauguration speech emphasized the unprecedented comfort, security, and individual freedom in America.

Hoover's campaign focused on prosperity, with a local flier promising a chicken in every pot and a car in every backyard.

The Dow Jones Industrial Average reached an all-time high of 381 in the month of Hoover's inauguration, indicating a seemingly strong economy.

Stock market climbed six-fold in nine years, attracting investments from various social classes, including factory workers and shoeshine boys.

The practice of 'buying on the margin' allowed investors to buy stocks with only 10% down payment, leading to widespread market participation.

Easy loans and installment buying fueled the economic boom of the 1920s, including auto sales and home improvements.

Farmers borrowed heavily to mechanize and expand production, leading to an oversupply of cheap agricultural goods.

The Federal Reserve Bank raised lending rates in 1929 to discourage borrowing, triggering a recession in Europe.

Black Thursday on October 24, 1929, marked the beginning of the stock market crash with an 11% loss in value within minutes.

Rumors of stockbrokers committing suicide spread, fueled by the death of a German chemist in a hotel window fall.

Banking titans attempted to stabilize the market by making large investments in US Steel and other major companies.

Margin calls led to a wave of selling as investors scrambled to repay loans, causing a further drop in stock values.

Black Monday on October 28, 1929, saw the Dow Jones lose 12.82% of its value as panic selling intensified.

On Black Tuesday, the market continued to plummet with a 23% drop in two days and no buyers in sight.

The stock market crash of 1929 did not immediately cause the Great Depression, which began months later with bank failures and rising unemployment.

The crash symbolized the start of hard times, with high unemployment, economic stagnation, and ecological disasters.

Despite the hardships, perseverance and cooperation eventually led to recovery from the Great Depression.

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Wall StreetCrash 1929Great DepressionHerbert HooverEconomic BoomStock MarketMargin TradingInvestment RiskHistorical EventFinancial Crisis