On October 3, 1929 The Dow Jones started to drop from a recent high of 381. The average of the Dow Jones then kept dropping throughout the week of October 14. The night of Monday October 21,1929, margin calls were heavy, and numerous Dutch and German sell calls came in overnight for the Tuesday morning opening. On Tuesday morning, out-of-town banks and corporations called in $150 million of call loans, and Wall Street was in a panic before the New York Stock Exchange opened.
On October 24, 1929, people began selling their stocks as fast as they could. Sell orders flooded market exchanges. On a normal day, only 750-800 members of the New York Stock Exchange started the Exchange. However, there were 1100 members on the floor for the morning opening. The Exchange then directed all employees to be on the floor since there were numerous margin calls and sell orders placed overnight and extra telephone staff was arranged at the members’ boxes around the floor. The Dow Jones Industrial Index closed at 299 that day.
October 29 was the beginning of the Crash. Within the first few hours the stock market was open, prices fell so far as to wipe out all the gains that had been made in the previous year. The Dow Jones Industrial Index closed at 230. Since the stock market was viewed as the chief indicator of the American economy, public confidence was shattered. Between October 29 and November 13 over $30 billion disappeared from the American economy. It took nearly twenty-five years for many stocks to recover.
The causes of the stock market crash were overpriced stocks, margin buying, federal reserve policy, and public officials repeated statements. Many people believe the stock shares were priced too high and the crash brought it down back to a normal level. The new President of the Federal Reserve Board Adolph Miller tightened the monetary policy and set out to lower the stock prices since he perceived that speculation led stocks to be overpriced, causing damage to the economy. Also, starting from the beginning of 1929, the interest rate charged on broker loans rose tremendously.
This policy reduced the amount of broker loans that originated from banks and lowered the liquidity of non-financial and other corporation that financed brokers and dealers. Also Herbert Hoover publicly stated that stocks were overvalued and that speculation hurt the economy. Hoover’s statement suggested to the public the lengths he was willing to go to control the stock market. These kinds of statements encouraged investors to believe that the market would continue to be strong, which could be one of the causes of the Crash.
After the stock market crash, production fell by nearly 50 percent from the business cycle peak in August 1929 to the trough in March 1933. At the same time, the overall price level dropped by about one-third. Since the Great Depression happened after the 1929 stock market crash, many people blamed it for the economic collapse. Some held President Hoover responsible; others targeted the brokers, bankers, and businessmen. After this terrible crash we were able to slowly recover and learn from what has happened on Black Thursday.