REVIEW PART 3: The Day of the Stock Market Crash

This is an overview of the actual day of the big stock market crash, October 24, 1929.

As I mentioned in my last post, people in the times leading up to the Great Depression were using credit heavily, especially in the purchase of credit (also known as margin). By the day of the big stock market crash, the value of stock had already been in decline. The actual day of the stock market crashed saw widespread panic on the trading floor, everybody trying to sell their stock, and the liquidation of accounts.

When prices started going down, stock brokers who had loaned their money to investors needed their investors to put in more cash to compensate for the loss of stock. Because so many investors had bought stock on credit, they couldn’t pay brokers back. Investors’ accounts were then were liquidated.

As margin calls and liquidation happened, people frantically tried to sell their stock in order to get as much money as they could out of the quickly depreciating stock. Some people sold bad stock and got so desperate that they began selling good stock in hopes of balance out the losses of bad stock. On this day, even good stocks lost their value.

So many shares sold that day that the ticket reader was running 4 hours late, meaning people were not getting accurate, up to date information, and didn’t know the most recent status of the market when they were frantically selling stock. This added to the already chaotic scene of the trade floor.   

Richard Whitney, the Vice President of the New York Stock Exchange at the time, met with banks and marched onto trading floor to and bought 20 million dollars worth of stock in a matter of minutes. Though it seems like he was trying to save the market, this was not the case. Instead, he was trying to fool the market by tricking people into cease selling stock and stop the crash, so that banks get out with as much money as possible. This, though initially positive, led to an even greater crash. This bigger crash would continue for 3 years.

Some statistics:

- At its height, General Motors stock was worth $1075 and fell to $45 at the lowest point of the stock market crash.
- The Dow Jones Industrial average fell 89%

- 72 billion dollars worth of stock was wiped out on the day of the great stock market crash

- In 1928, American banks were in debt from issuing too much credit. They had a $200 million inventory, and outstanding loans of $8 billion.

As Mr. Stewart said: “The stock market is like a wolf. Every now and then, it’s going to lick your face, and sometimes it’ll bite your face off.”

Sources: Mr. Stewart Video Documentary