Today in 1929, on a day now known as Black Tuesday, the stock market crashed, losing $14 billion.
How could this have happened?
The Roaring Twenties were defined by dynamism and excess. Skirts were cut shorter. Hair was bobbed. Music was jazzy. And people bought stocks. Lots of them. The stock market expanded, reaching its peak in August 1929. Because of the bull market (a market in which share prices are rising, thus encouraging more people to buy shares), people were really feeling good about the stock market. Economist Irving Fisher even stated:
Stock prices have reached what looks like a permanently high plateau.
Obviously with retrospect we know that this was probably the grossest economic misstatement ever, but the point is that people were feeling extremely confident about the stock market. With that said, there were some economic red flags. For example, many people who wanted to buy stocks had to borrow money to buy them. At the time of the crash, more money was out on loan than the amount of currency circulating in the United States! There were many other factors that contributed to the stock market crash, but people buying stocks with money they didn’t have was definitely an important one.
Share prices began to fall in September and reached panic-inducing lows starting October 24, or Black Thursday. On October 29, stock prices collapsed and over 16 million shares were traded. So many people traded their stocks in desperation that the stock tickers ran hours behind, using 15,000 miles of ticker tape.
The stock market crash of 1929 is credited as one of the major causes of the Great Depression.