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Seven decades later, the crash of 1929 is still remembered. A market event that need not have led to economic collapse. This was the year of the great depression and the market crash was the reason. .
It began on Thursday, October 24, 1929. 12,894,650 shares changed on the New York Stock Exchange-A record. To think about how this is, go back to March 12, 1928 when there was at that time a record set for trading activity. On that day, a total of 3,875,910 shares were traded. As you can see, Wall Street was a very, very busy place. A big problem not mentioned so far in all this was communication.
There have been many suggested explanations for the crash. but no one can fully account for it. Here are just some:.
Stocks were overpriced- Many believed that from the overpriced stocks, the crash brought the chare prices back to normal level. Except, studies show using measures of stock value that prices were not too high.
Massive fraud and Illegal activity- Many believed but evidence revealed that there was probably very little insider trading or illegal manipulation.
Margin buying- Another reason but not the main reason for the crash. There was very little margin outstanding relative to the value of the market(margin averaged less then five percent of the market value.
Federal Reserve Policy- The federal reserve president, Adolph Miller, tightened the monetary policy and set out to lower the stock prices. Also in the beginning of 1929 the interest rate charged on broker loans rose.
A word that describes an intense, contagious fear among a large number of people is Panic. It is a phenomenon which social psychologists are fond of studying, yet at the same time they themselves are just as prone to it as the rest of us are. Panic is far more serious than a worry, and it is hard to describe without reference. One week in October 1929, there was a true panic, and many rich people became poor people in one single day.
