Black Thursday marked the beginning of the 1929 stock market crash. On that day, the markets experienced a severe decline of 11%. However, the subsequent Black Monday of 1929, which occurred a few days later, proved to be even more devastating. On Monday, October 28th, stocks plummeted by an additional 13%. The following day, known as Black Tuesday, erased all gains made that year, culminating in what is considered the worst market crash in American history. This series of crashes on Black Thursday, Black Monday, and Black Tuesday eventually led to the Great Depression.
The day before Black Thursday, investors were already anxious, having suffered significant losses as the market declined by 4.6%. The Washington Post’s Thursday morning headline, “Huge Selling Wave Creates Near Panic as Stocks Collapse,” exacerbated the situation. On Thursday morning, the market opened at 305.85 and dropped 11% throughout the day. The losses on Black Thursday were greater than those seen in a typical stock market correction, causing concern among Wall Street bankers, who observed that stocks had already retraced nearly 20% from the record close of 381.2 on September 3, 1929. The trading volume on Black Thursday was three times the daily average, reaching 12.9 million shares, further worsening the situation.
After the three crashes – Black Thursday, Black Monday, and Black Tuesday – the three leading banks attempted to restore market confidence by purchasing stocks. Although this intervention temporarily stabilized the market, it ultimately failed to prevent further declines. The crashes did not directly cause the Great Depression of 1929, but they significantly damaged business investment confidence.
As news of the market’s collapse spread, individuals realized that banks had invested their savings in stocks on Wall Street. This revelation sparked a panic, with people rushing to withdraw their deposits. Banks, unable to meet the sudden surge in demand, closed for the weekend and subsequently disbursed only ten cents for every dollar when they reopened. Many individuals who had never invested in the stock market lost their life savings, and banks that ran out of deposits were forced into bankruptcy. This chain of events had far-reaching consequences, as businesses could no longer access loans, and individuals were unable to purchase homes.
In response to the crisis, Wall Street sought refuge in gold, driving up the prices of the precious metal. At the time, the dollar was on the gold standard, and people began trading in their dollars for gold, dangerously depleting gold reserves. This development compelled the Federal Reserve to increase interest rates to protect the dollar’s threatened value. However, this contractionary monetary policy served to exacerbate the self-destructive economic downward spiral.
The irrational exuberance of the Roaring Twenties, during which stock market investing became a national obsession, led to the black week of 1929. Between 1922 and the crash, stock market values surged by 218%, yielding returns of over 20% per year. The situation deteriorated as people with little cash began buying stocks on margin, putting down as little as 10% or 20%. Banks also began investing their depositors’ money without their knowledge, leading to the run on banks that characterized the Great Depression.
In response to these pervasive and damaging events, President Roosevelt introduced the Federal Deposit Insurance Corporation as part of his New Deal initiative. This measure was designed to restore confidence in the banking system and to safeguard depositors’ money in the future, preventing a recurrence of the widespread financial devastation experienced during the Great Depression.
