Wall Street Crash, stock market crash in the United States in 1929. In 1927, after having focused on investing abroad and with the US economy growing stronger, the financiers based in New York's Wall Street turned their attention to their home market. As they bought into the stock market, so the prices of securities rose. As they bought more and more, prices went higher and higher, and ordinary investors were attracted to invest by the apparently effortless boom that was created. By the middle of 1929 it was estimated that about nine million Americans (out of a population of 122 million) had capital invested in the stock market. Many invested all their savings, encouraged by incompetent or dishonest advisers. Companies were set up with misleading or even fraudulent prospectuses and, such was the faith in the market's ability to deliver extravagant returns, their shares were quickly snapped up. In March 1929 Herbert Hoover was inaugurated as president, and his predecessor Calvin Coolidge ventured the opinion that share prices were low. But some were beginning to worry that, like all bubbles, this one must burst. The Federal Reserve Bank raised the interest rate, but only by 1 per cent, and it advised banks not to lend clients money for stock market investment—advice later retracted as a result of pressure from one of its directors, who was heavily involved in stock market operations.
In time, some of the professionals decided that there might be more money to be made by switching from being a market bull to a market bare and selling short. The selling of shares gathered momentum. On October 23 more than six million shares were traded at ever decreasing prices. On the following day, “Black Thursday”, more than twice that number was traded. On Monday nine million shares changed hands; $14 billion had been wiped off the value of shares in less than a week. Then, on “Black Tuesday”, everything fell apart; the share price of many big companies including General Electric and Woolworth collapsed. In that one-day more than 16 million shares were traded and another $10 billion was wiped off share values. What happened on Wall Street was mirrored on other stock exchanges in the United States from Chicago to San Francisco.
It was a stark end to a decade that had been marked by optimism, high employment, and prosperity. Not surprisingly, confidence in banks and bankers, the stock market and stockbrokers evaporated. Bankruptcies and destitution were rife. Mortgage foreclosures increased. The middle classes retrenched. Many lost their jobs; unemployment rose by nearly two million within half a year. Although when it began some thought it was merely a welcome correction in the market, the crash marked the start of the worldwide Great Depression and created the conditions for the New Deal introduced by Franklin D. Roosevelt in 1933.
"Wall Street Crash," Microsoft® Encarta® 99 Encyclopedia. © 1993-1998 Microsoft Corporation. All rights reserved.
