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Last Updated: Wednesday, 27 October, 2004, 16:54 GMT 17:54 UK
Wall Street Crash: 75 years on
BY James Arnold
BBC News Online business reporter

Crowds outside the New York Stock Exchange, October 1929
The "national mania" hit the buffers exactly 75 years ago

Markets may rise and markets may fall, but there was only ever one Wall Street Crash.

Seventy-five years ago this week, US shares dived into the worst bear market in history

"There was hardly a man or woman in the country whose attitude toward life had not been affected by it in some degree and was not now affected by the sudden and brutal shattering of hope," wrote Frederick Lewis Allen in his seminal 1931 memoir, Only Yesterday.

"An era had ended."

The temptation to explore parallels with today - another period of economic uncertainty and post-boom gloom - is strong.

In fact, the fit between 1929 and 2004 is seductive, but far from exact.

Booms, bubbles and busts

One apparently uncanny similarity between the busts of 1929-32 and 2000-02 lies in the booms that preceded them.

The second half of the 1920s was a time of remarkable economic achievement, as America reaped the twin dividends of post-war recovery and technological development.

Wall Street Journal
Stocks have reached what looks like a permanently high plateau

Between 1919 and 1929, the number of cars on US roads more than trebled; sales of radio sets rose from $60m in 1922 to $843m seven years later. America, President Calvin Coolidge said at his inauguration in 1925, was "in a state of contentment seldom before seen".

Chris Castanese, of the Museum of American Financial History in New York, insists this growth had nothing of the bubble about it.

Instead, he says, industries helped each other create genuine economic development: soaring automobile sales boosted rubber producers, road builders and metalworkers; radio ownership stimulated the advertising industry, media and the dissemination of consumer goods.

Betrayal of trusts

The counter-argument points out the sheer level of sleaze - or at least carelessness - in financial circles during the roaring 1920s.

Thousands speculated - and won, too - without the slightest knowledge of the nature of the company upon whose fortunes they were relying
Frederick Lewis Allen, Only Yesterday
The fourfold increase of the Dow Jones Industrial Average index after 1924 was fuelled in part by an extraordinary proliferation of investment trusts - companies created to invest in shares, financed by borrowed money.

Some of these trusts were honest and well-administered; many were not, and the sheer complexity of the business quickly outpaced the knowledge of the investing public.

"There was a rush to sponsor investment trusts which would sponsor investment trusts, which would, in turn, sponsor investment trusts," wrote economist JK Galbraith in The Great Crash.

On the eve of the crash, some 500 such trusts were in operation, with combined assets then worth $8bn, which is as a proportion of national wealth is the equivalent of $850bn in today's money.

Surprisingly few culprits were brought to book. Richard Whitney, who parlayed a small Wall Street firm to market dominance through reckless borrowing and persistent theft, and who was president of the New York Stock Exchange during the crash, ended his career in disgrace and bankruptcy - but almost a decade later.

'A national mania'

In another way, 1929 was a highly modern crash.

Until the 1920s, the markets were a game for professionals; as the boom took off, share ownership broadened dramatically. By the summer of 1929, it is estimated that more than a million Americans had borrowed money to buy shares.

Dow Jones Industrial Average

As Frederick Lewis Allen wrote:

"The rich man's chauffeur drove with his ear laid back to catch the news of an impending move in Bethlehem Steel... The window-cleaner at the broker's office paused to watch the ticker... An ex-actress in New York fitted up her Park Avenue apartment as an office and surrounded herself with charts, graphs, and financial reports... Thousands speculated - and won, too - without the slightest knowledge of the nature of the company upon whose fortunes they were relying... The Big Bull Market had become a national mania."

Who's in charge here?

Far less modern was the bumbling among regulators.

Wall Street sign

These days, an earthquake on Wall Street is felt - often just as keenly - from Sao Paulo to Seoul. When US markets turned sour four years ago, the great fear was that the global financial system might be infected in every limb.

When the markets crashed in 1907, John Pierpont Morgan and a handful of other magnates bailed out the system. By the 1920s, faceless regulators - in particular, the relatively new Federal Reserve - were supposed to provide more disinterested assurance.

"Thoughtful people began to feel that the speculative movement was going too far and travelling too fast; and the Federal Reserve Bank Board were persuaded that something should be done to check it," wrote the London Times in a stern editorial on 28 October, 1929.

"But ... the board, which in composition is more political than technical, were disinclined to provoke public hostility by taking any really effective steps."

The Fed raised interest rates in August 1929, but otherwise stayed its hand.

After the great crash of October 1987, the biggest single day drop in Wall Street history, the market took less than two years to recover the lost ground. After 1929, the Dow did not claw its way back for another 35 years.

Wall Street sneezes, Europe eases

What really makes 1929 look old-fashioned is the lack of that modern market bugbear, contagion.

In 1929, communication problems made investing in overseas markets tricky - not impossible, certainly, but beyond the reach of the small investor.

As a result, the trauma in New York had little impact even in London, where markets remained dreary for most of 1929. Indeed, many European commentators hoped for a boost after October, if capital shifted out of US shares sought a home on the other side of the Atlantic.

In terms of global severity, then, the crash of 1929 - as opposed to the depression that followed it - had less of a worldwide impact than less glamorous bouts of unrest, like the oil-drought slump of 1973-74, or the emerging-market panic of 1997-98.

Superficially, 1929 may have felt like the first modern market crash, but any resemblance to today's turmoils is only skin-deep.

Wall Street Crash 1929: Timeline
27 Oct 04 |  Business

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