The Great Depression has always fascinated me.
The time of history referred to as The Great Depression is a topic that many of us aren’t familiar with these days. Unless you happen to be a history-buff (my excuse) or you are blessed enough to have elderly grandparents to share their stories and wisdom, The Great Depression doesn’t seem significant and further, you may feel that it has no bearing on your life today.
You couldn’t be more wrong.
The Great Depression of the 1930′s was the longest and by far the hardest disaster this country has ever experienced. For those of you who might benefit from a quick review, The Great Depression was caused by many factors. Allow me to set the stage for you in this longer than usual post.
The end of World War I heralded a new era in the United States. It was an era of enthusiasm, confidence, and optimism. A time when inventions such as the airplane and radio made anything seem possible. A time when 19th century morals were set aside and flappers became the model of the new woman… It is in such times of optimism that people take their savings out from under their mattresses and out of banks and invest it. In the 1920s, many invested in the stock market. (Source)
While the stock market was and is a risky place to invest, suddenly people began to see it as a place for the “common Joe”.
As more people invested in the stock market, stock prices began to rise. The market bobbed up and down between 1925-1926 and held the interest of the small investor. The stock market began a strong upward trend by 1927, enticing even more people to invest their hard-earned money in the market. People began to believe that they could become rich in the stock market.
As newspapers reported stories of ordinary people – like chauffeurs, maids, and teachers – making millions off the stock market, the fervor to buy stocks grew exponentially. (Source)
This “bull market” was so attractive, that even folks who didn’t have the money began to look for ways to get into the market. ”Buying on Margin”.
When someone did not have the money to pay the full price of stocks, they could buy stocks “on margin.” Buying stocks on margin means that the buyer would put down some of his own money, but the rest he would borrow from a broker. In the 1920s, the buyer only had to put down 10 to 20 percent of his own money and thus borrowed 80 to 90 percent of the cost of the stock. (NEVER a good idea)
Buying on margin could be very risky. If the price of stock fell lower than the loan amount, the broker would likely issue a “margin call,” which means that the buyer must come up with the cash to pay back his loan immediately.(Source)
While there was a mini-crash on March 25, 1929, few paid attention.
“Margin Call” movie 2011
Black Thursday – October 24, 1929
On the morning of Thursday, October 24, 1929, stock prices plummeted. Vast numbers of people were selling their stocks. Margin calls were sent out. People across the country watched the ticker as the numbers it spit out spelled their doom. The ticker was so overwhelmed that it quickly fell behind. A crowd gathered outside of the New York Stock Exchange on Wall Street, stunned at the downturn. Rumors circulated of people committing suicide.
To the great relief of many, the panic subsided in the afternoon. When a group of bankers pooled their money and invested a large sum back into the stock market, their willingness to invest their own money in the stock market convinced others to stop selling.(Bailouts are nothing new)
The morning had been shocking, but the recovery was amazing. By the end of the day, many people were again buying stocks at what they thought were bargain prices.
On “Black Thursday,” 12.9 million shares were sold – double the previous record.
Four days later, the stock market fell again.
Black Monday – October 28, 1929
Although the market had closed on an upswing on Black Thursday, the low numbers of the ticker that day had shocked many speculators. Hoping to get out of the stock market before they lost everything (as they thought they had on Thursday morning), they decided to sell.
This time, as the stock prices plummeted, no one came in to save it.
Black Tuesday – October 29, 1929
October 29, 1929, “Black Tuesday,” is known as the worst day in stock market history. There were so many orders to sell that the ticker quickly fell behind. (By the end of close, it had lagged to 2 1/2 hours behind.) People were in a panic; they couldn’t get rid of their stocks fast enough. Since everyone was selling and nearly no one was buying, stock prices collapsed.
Rather than the bankers rallying investors by buying more stocks, rumors circulated that they were selling. Panic hit the country. Over 16.4 million shares of stock were sold – a new record.
The Drop Continues
Not sure how to stem the panic, the decision was made to close the stock market on Friday, November 1 for few days. When it reopened on Monday, November 4 for limited hours, stocks dropped again. The slump continued until November 23, 1929, when prices seemed to stabilize. However, this was not the end. Over the next two years, the stock market continued to drop. It reached its low point on July 8, 1932 when the Dow Jones Industrial Average closed at 41.22.
Does any of this seem synonymous with today’s headlines? The real estate bubble? The Crash of 2008? Bank failures? Bailouts? High unemployment? Skyrocketing food and fuel prices? Yeah.
Today in 2012, we find ourselves in what has been referred to as The Great Recession, although there is great controversy as to whether or not we are truly in another Depression. While my purpose isn’t to debate the status of our economy, I do feel a responsibility to educate and encourage.
How did people make it during The Great Depression? How did mothers and children survive? I’ve often pondered this question and I will be un-packing this topic all week.
This series is written for those of us who have been affected by this Great Recession (or whatever you want to call it), to bring folks who are making it happen everyday some hope and strength for these unprecedented times.
Because there is hope….there is strength. We are all much stronger and more capable than we give ourselves credit for.