WikipediaExtracts:Wall Street Crash of 1929

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The Wall Street crash of 1929, also known as the Great Crash, was a major stock market crash in the United States which began in October 1929 with a sharp decline in prices on the New York Stock Exchange (NYSE). It triggered a rapid erosion of confidence in the U.S. banking system and marked what would later cascade into the worldwide Great Depression that lasted until the United States entered into World War II on December 8th, 1941, making it the most devastating crash in the country's history. It is most associated with October 24, 1929, known as "Black Thursday", when a record 12.9 million shares were traded on the exchange, and October 29, 1929, or "Black Tuesday", when some 16.4 million shares were traded.

The "Roaring Twenties" of the previous decade had been a time of industrial expansion in the U.S., and much of the profit had been invested in speculation, including in stocks. Many members of the public, disappointed by the low interest rates offered on their bank deposits, committed their relatively small sums to stockbrokers. By 1929, the U.S. economy was showing signs of trouble; the agricultural sector was depressed due to overproduction and falling prices, forcing many farmers into debt, and consumer goods manufacturers also had unsellable output due to low wages and thus low purchasing power. Factory owners cut production and fired staff, reducing demand even further. Despite these trends, investors continued buying shares in parts of the economy where output was falling and unemployment was rising, pushing stock prices far above their underlying value.

By September 1929, more experienced shareholders realized that prices could not continue to rise and began to get rid of their holdings, which caused share values to stall and then fall, encouraging more to sell. As investors panicked, the selling became frenzied. After Black Thursday, leading bankers joined forces to purchase stock at prices above market value, a strategy used during the Panic of 1907. This encouraged a brief recovery before Black Tuesday. Further action failed to halt the fall, which continued until July 8, 1932; by then, the stock market had lost some 90% of its pre-crash value.

Congress responded to the events by passing the Banking Act of 1933 (Glass–Steagall Act), which separated commercial and investment banking, and the Securities Act of 1933 and Securities Exchange Act of 1934, which created the U.S. Securities and Exchange Commission, authorized the creation of its disclosure regulations, and prohibited the market manipulation, insider trading, and speculative investing practices that precipitated the crash. Stock exchanges introduced a practice of suspending trading when prices fell rapidly to limit panic selling. Scholars disagree about the crash’s role in the Great Depression. Some argue that the price swings were not, by themselves, severe enough to trigger a major collapse of the financial system. Others contend that the crash, combined with other economic problems in the U.S. in the 1920s, should be understood as one stage of a broader business cycle affecting capitalist economies.