Nevertheless, Wall Street moguls were alarmed. The stock market had already fallen nearly 20% since its record high close of 381.2 on September 3, 1929. Even worse, trading volume was 12.9 million shares, or three times the normal amount. The next day, the three leading banks (Morgan Bank, Chase National Bank, and National City Bank of New York) bought stocks to restore confidence in the markets.
At first, it seemed to work. On Friday, the Dow closed higher, at 301.22. But on Monday, it fell on light trading, to 260. This triggered an all-out panic on Black Tuesday, as investors realized that the intervention didn't work. By the end of that day, the Dow had fallen to 230.07, a 11% loss.
What made Black Thursday such a bad day in the history of the New York Stock Exchange was that it signaled the start of the stock market crash of 1929. After the crash, the Dow continued to slide for three more years. It finally bottomed on July 8, 1932, closing at 41.22. All told, it lost nearly 90% of its value since its high on September 3, 1929. In fact, it didn't reach that high again for 25 years, until November 23, 1954. Losses from the stock market crash helped contribute to the Great Depression. (Source: Dow figures taken from Yahoo Finance DJIA Historical Prices.)
What Led to Black Thursday?During the Roaring 20s, investing in the stock market became a national pastime. From 1922 until right before the crash, the stock market value increased by 218%, or nearly 20% a year.
Those who didn't have the cash to invest could borrow from their stockbroker "on margin," meaning they only had to put 10-20% down. The stories of everyone from maids to teachers making millions fueld the feeling of irrational exuberance. Even some banks invested their depositors' savings -- without their even knowing. This misuse of funds created the run on the banks that was a hallmark of the Great Depression. Banks didn't have enough to honor depositors' withdrawals. Many people only got ten cents for every dollar. This was one reason the Federal Deposit Insurance Corporation was later created.
There were some warning signals in the spring of 1929. The Dow dropped in March, but bankers reassured investors and restored confidence. Next, on August 8, the Federal Reserve Bank of New York increased the rediscount rate from 5 to 6%. The Bank of England followed suite on September 26 to slow a loss of its gold reserves as a result of Wall Street investments. Like all other developed countries, England was on the gold standard, and had to honor any payments, if asked, with its value in gold. As interest rates rose, financing for stockbroker margin loans fell.
On September 29, newspapers reported how Clarence Hatry used fraudulent collateral to buy United Steel. His company collapsed, and investors lost billions. This created a slump in the British stock market, which created made U.S. investors even more jittery.
The precipitating factor next occurred on October 3, 1929, when Philip Snowden, England's Chancellor of the Exchequer, described America's stock market as "a perfect orgy of speculation." On October 4, the Wall Street Journaland the New York Times agreed in editorials, and quoted Secretary of the Treasury Mellon who said that investors "acted as if the price of securities would infinitely advance."
Media coverage of significant stock market declines on October 3, 4 and 16 added to the market's instability. On October 19 and 20, the Washington Post focused on a sell-off of utility stocks. On Monday, October 21, the market went down again.On October 22, The New York Times blamed margin sellers, short-selling and the disappearance of foreign investors for a stock market drop the previous day. The next day, the market dropped again. The Times headlines screamed "Prices of Stocks Crash in Heavy Liquidation," while The Washington Post proclaimed "Huge Selling Wave Creates Near-Panic as Stocks Collapse." The stage had been set for Black Thursday. (Source: Harold Bierman, Jr, The 1929 Stock Market Crash)