Let's talk about the days when Wall Street's crash of 1929 led to Black Thursday and the Great Depression. The daily routine had begun as usual at this stock exchange building, which is the world's largest money market on Wall Street in New York. But stockbrokers were frustrated. Over the past few weeks, both the prices and the general mood fluctuated between optimism and fear. Here is the history of the Great Depression.
Investment by borrowing
Throughout the 1920s, Americans were carelessly spending on both securities and stocks. Credit was unlimited for a wide range of purchases. The frenzy of playing with stocks was largely supported by the debts given by intermediaries, because everyone believed heartily that the constant rising of the values would secure their investments.
However, as it was nearing the end of the decade, it became clear that a heavy price would be paid. By mid-October 1929, prices suddenly dropped so that thousands of stockholders, whose wealth was only on paper, had to sell all their investments.
The selling craze launched by panicked investors that would go down in history as "Black Thursday", has shaken the foundations of the US stock market. On Thursday, October 24, at 11 o'clock, that is, exactly one hour after the opening time, the stock market was alarmed. Investors, who bought shares from various companies that are said to have risen, gave sales orders to their brokers; no matter how much, sometimes even at the expense of nothing…
The New York Times reported excitedly: fear struck… People threw their stocks away regardless of what they yield. In the morning of the bubble burst, investors who had a fortune on paper, were wiped out. Everyone was fighting wildly on the stock market to sell what they own. The stockbrokers were completely white from horror. As fear and uncertainty increased some of them were running around like crazed. The officers closed the visitor hall due to the state of turmoil which was unordinary compared to the usual restrained appearance of the New York Stock Exchange.
Rescue operation for the collapsing stock market
At noon, the worst moments of panic seemed to be overcome, and a rescue operation was about to begin. A community of leading bankers and investors were willing to collect $20–30 million in a pool to purchase stocks and valuable papers. In a statement to the press, they mentioned how "there was some tension in sales," and so they decided to fix the imbalance to support the market now.
An hour later, Vice President of the New York Stock Exchange, Richard Whitney, appeared. By finding his way through the crowd confidently, he reached the center where US steel shares were sold. He ordered 10,000 shares for a price higher than asked. Then he stopped by 20 different points and bought a large number of shares. In a few minutes, he spent about 20 million dollars of bankers' money.
But the effect was short-lived. The stock tickers were still unable to reach the speed of trading. Even though the market had recovered somewhat in response to this hard attempt, the bad news continued to come: the stocks were continuing to be sold wildly. Immersed in sales orders and ticker tapes to their knees, stockbrokers were watching hopelessly how much money their customers were losing per minute. The stock market closed at three in the afternoon as usual, but even hours later, the lights were still on in the office windows as the dealers were trying to cope with the transactions. The restaurants around Wall Street remained open all night and the hotels were full.
The clerk in New York hotels asks the guests: "Do you want a room to sleep or to jump? You had to stand in line to get a window to jump out of."Will Rogers, American humorist
The Great Depression and "Terrifying Tuesday"
12,894,650 shares were sold as a result of the falling prices that day. The daily average of the previous month was 4 million. Prices fell non-stop on Friday and Saturday. On Sunday, newspapers reported that the worst moments of the crash were overcome and things would improve the following week. However, shares began to fall again on Monday, and it became clear on Tuesday that the worst had not yet happened. On 29 October 1929 "Terrifying Tuesday", about 16.5 million shares were sold. There were no shares left to sell, and in a single day, $14 million was gone from earnings on paper.
A young man who used to run an errand here ordered and bought one block of shares for 1 dollar, that were valued $100,000 six days ago. Despite the dominant despair, those who reassured were still absent. John D. Rockefeller, an oil multi-millionaire, proudly stated that he and his family bought the trustworthy bills. On the other hand, the comedian Eddie Cantor who had lost everything with the crash, could not stand what Rockefeller told, and said: "Sure, who else had any money left?"
Causes and consequences of the Great Depression
The growth in the twenties was out of control and the Americans were in a spending spree. On Thursday, October 24, 1929, the New York Stock Exchange collapsed and the game was over. That would go down in history as Black Thursday.
As the news of the economic collapse spread in New York's financial circles, businessmen panicked and rushed into the stock exchange building. After the collapse, the brokers, the people playing the stock market, and the ones who could not find the power to face the possibility of bankruptcy were suicidal, and very painful events occurred. News cameras were there. An investor woman jumped off the 40th floor of the Equitable building. Two men with a joint bank account held hands and jumped out of the 10th-floor window of a hotel. Meanwhile, as the telegraphers tapped the news of the collapse, many people had a heart attack.
Why did the New York Stock Exchange crash?
In the months preceding the collapse of Wall Street on Black Thursday, the US was already in a frenzy of buying stocks. The offices of stock brokerage firms were filled with men and women thirst for profit every day all over the country. The system of purchasing shares by depositing allowance allowed ordinary people to buy shares by credit. The purchaser was investing only a small amount, for example, 10 percent of the original value, and that was the allowance. The rest of the value was borrowed from the broker holding the stocks as assurance. When the value of the shares rose, the owner was selling them, paying the broker his money, and pocketing the profit.
The possibility to make such a quick profit had already mobilized those who were rich, and also those who wanted to take the lion's share. For the ones who want to get the latest financial news, the hotels have installed machines in their lobbies that record the stock market news; In fact, the French ocean liner Ile de France was on his way to Europe with fully equipped stock tickers from New York and a brokerage firm's office. But on September 5, an economist named Roger W. Babson warned everyone. "Sooner or later, a crash is coming."
Starting from this date, the trust started to decrease. As the stock values fell, the buyers who purchased shares by paying allowance did not only see the money in their hand vaporizing but also began to be pressured by brokers who wanted more allowances to protect the money they lent to their customers.
The number of bond sellers has exceeded the number of buyers by too far, and thousands of people whose money had run out had to sell their investments. On Monday, October 21, a huge wave of sales swept Wall Street which paved the way for the next crash three days later.
The role of the US presidents in the Great Depression
The two US presidents, Calvin Coolidge, and replacing Herbert Hoover played a key role in the economic downturn of 1929 and the Great Depression that lasted until the 1930s. A third president, Franklin D. Roosevelt, brought a new order to America. In March 1929, Coolidge was president for six years. Seven months after he left his post, what brought the collapse of Wall Street and Black Thursday was his inability to prevent the stock market speculation and easy borrowing.
This economic collapse happened during Hoover's presidency, which promised the American people "One chicken in every pot and a car in every garage." Instead of realizing this promising, the president found himself facing the Great Depression; Steel and automobile production had been hit hard, freight costs had declined dangerously, and the construction industry almost stopped. Hoover's inability to cope with the great difficulties led Franklin D. Roosevelt to win the 1933 presidential race. Roosevelt brought the revolutionary New Deal plan which carried out an economic policy and a social security program that includes reforms in industry and agriculture.
The effects of the New York Stock Exchange collapse
One of the first countries outside the United States that the Wall Street Exchange crash and the Great Depression shook was the United Kingdom. There was no such an economic boom in the United Kingdom seen in the US in the 1920s and there was already an unemployment problem going on. However, London was still one of the leading business centers and was the major overseas market for US stocks. By the end of 1929, the "unbalanced" economic situation had also turned into a mess there. In 1931, the number of unemployed reached 2.5 million and was still increasing. Growing despair in August led to a split in the Labour Government, and Prime Minister Ramsay McDonald formed a national coalition government to save the political situation.
Abandoning the gold standard—which is the monetary system in which the basic currency unit is equal to a certain amount of gold—the United Kingdom went to the sterling devaluation the following month. This resulted in an international echo. The situation shook up the largest gold producer in the world, South Africa, which then had a solid economy.
Australia's economy was built on overseas borrowing, and as a result of the economic crisis, this borrowing habit suddenly ceased. The economic crisis worsened with the fall of the world wool and wheat prices. However, the versatile farmer economy stayed solid in New Zealand as usual. On the other hand, the economies of Indonesia and Brazil have fallen into a very inadequate situation as the tire and coffee market had almost reset.
In Europe, bank failures followed each other after the Great Depression. The crisis started in Austria, and the country's largest bank, Creditanstalt, reported massive losses in the spring of 1931 and was almost unable to repay its creditors. American and British creditors rushed to the banks to get whatever they could take.
A few weeks later, Germany's powerful Darmstadter Bank and the National Bank went bankrupt. Germany was among the worst affected countries by the stock market crash. It was time for Germany to pay the large debts borrowed from the US to restructure the country after World War I. Unemployment was growing. Some other banks went bankrupt too, and the aircraft maker Willy Messerschmitt was dangerously on the verge of bankruptcy as well.
Large stock exchanges in Belgium and the Netherlands were desperate against the Great Depression. Stocks fell and the balance of payments was badly affected. Economic insufficiency deeply shook the daily life of the people in Spain, laid the ground for a bloody civil war that would begin a few years later. In contrast, the economies of Switzerland, France, and Scandinavia were not much affected by Black Thursday compared to other countries.
Biggest fraud at the American bank
One consequence of the Great Depression and Black Thursday was the discovery of the largest bank fraud known to date in the world. For over a year, 15 employees of the Union Industrial Bank in Flint, Michigan, played on the New York Stock Exchange, from vice-presidents to veterans. But the money they used was the bank's money, not theirs.
By the fall of 1929, Wall Street fraudsters had "borrowed" more than two million dollars from customers' bank money. The tellers were contented with pocketing the cash deposited in the bank and buying stock with it. If the bill rises, part of the profit was used to replace the stolen money and the interest, if there is any. Then the rest was invested in Wall Street again. When a customer wanted to withdraw their money, it was paid from someone else's account. They were mixing the accounts, playing with the books, and the bank inspectors were deceived.
After the stock market crash of 1929, it turned out that 1.5 million dollars were lost from the bank's money solely in September. Criminals were caught, accused of fraud, and convicted. They received sentences from a few months to ten years. This is the story of what happened in the world during the Great Depression, and Black Thursday.