Click above, for articles
in this issue.
The 1929 Stock
Market Crash; its lessons for today
Three quarters of a century, this month,
marks the beginning of one of the darkest chapters in American history; the 1929
stock market crash that led to the Great Depression of the
1930's. The depression followed a period of great wealth and
exuberance during the 1920's, and instead brought large scale unemployment
and great economic depravity.
The crash was the harbinger of the
turmoil to come and it took effect on Thursday, October
24th, 1929, "black Thursday", bringing the roaring twenties to a screeching
halt, as people committed suicide after learning that their entire 'net worth'
had been virtually wiped out. The market which had been overvalued, had
created a 'bubble' of artificial wealth. Profits on overvalued
stocks led to enormous (by standards of the day) paper profits. The
impetus was fed by journalists, who prior to the crash, had quoted leading
economists as saying that the market surge would continue, which in turn, led to
a market frenzy, of feverish buying sprees.
The upsurge in the market had been made
possible as a consequence of several factors. During the 1920's wages had
greatly increased, consumer spending was at an all time high driving the economy
ever forward. So stock values were pushed continually higher; many
investors caught in the dynamism mortgaged their homes cashed in other
investments in order to increase their stock portfolios. By late October
however, investors began to sense the market to be unstable and began to
sell. On October 24th, as selling increased, prices began to drop,
and by the end of the day the NYSE had lost $4 billion, and by
yearend, $15 billion had 'evaporated'. Thousands were ruined.
Bankers, who had heavily invested in the
market, were unable to meet their depositors' requests for withdrawals and as a
consequence, one third of the nation's banks were forced to close, leaving
many depositors without their life's savings. Factory and
business closures soon followed and the great depression had begun.
Echoes Today !
Just like the 1920's, the 1980's and
1990's saw an explosive growth in the economy. The NASDAQ Stock Market until
1990, never exceeded 500, but by the spring of 2000, it rang the 4000
mark. Today's opening bell, established the NASDAQ at 1955,
demonstrating a continuing pattern of loss of value. A massive sell
off earlier this year, wiped out gains, and brought the NASDAQ to 2014, (
still higher than where it stands today ).
Like the 1920's, many individuals and
institutions are heavily invested in the Stock Market. Approximately
50% of U.S. households have some sort of stock portfolio.
Many retirement funds have migrated from Treasury notes to stocks, along with
many investors' life savings that previously were on deposit in
savings bank accounts. As interest rates dropped to an all time low
in the last two years, garnering many savings accounts less than 1 percent per
annum, many individuals have opted to invest heavily in stocks that were
bringing in 7 or 8 percent per year on average-- thus the heavy migration
Like the 1920's, consumers, have
driven our economy through their purchasing power, however the consumers of
today have done so by borrowing on credit, by virtue of low interest
rates. Consumers have also heavily mortgaged their homes in order to
purchase large ticket items, like boats, expensive cars, capital
improvements, second homes and lavish vacations. We should remember that
the stock market crash of 1929 happened as the consequence of overvalued stocks,
while many consumers were heavily indebted. Today, some economists
are warning that the market is once again, over valued and overdue for a major
Just like 1929, most American
households are overextended and heavily invested in the market. Savings
accounts, retirement accounts have largely migrated to the market and the U.S. government has accumulated massive debt and may be ill
prepared to fund extensive bank failings if that were to occur. As of
June 30th 2004, according to the FDIC, the Federal Deposit
Insurance Corporation, the total percent of insured bank deposits
stands at 64.74 percent, as opposed to; 72.66
percent three years ago; 80.29 percent as of
December 31, 1995; and 81.61 percent as of December 31st
1992. The total number of insured bank
accounts covered by the federal government is decreasing. Given
current statistics, 36 percent of bank depositors would lose
their deposits should a massive bank failure occur.
Of concern also, is that today's
banking environment has fewer and fewer banks, as a consequence of
bank 'merger-mania'. Since the mid 1980's, according to the FDIC, 50 percent of U.S. Savings Banks, and
Commercial Banks have either been purchased by larger banks or have ceased
Of the approximately 7,500 banks that closed; 2262
were mandated to cease operations due to unsafe practices or as a result of
The primary reason often cited for bank
mergers by management has been the drive for greater efficiency and for greater
profit margins, however the statistics (Economic Review-Atlanta) reflecting
previous bank mergers tell a different story and cast a shadow of doubt on such
reasoning. The resulting institutions arrived at by mergers and acquisitions,
tend to be neither more efficient nor more profitable, just much bigger,
politically more powerful and in terms of society-- pose a far greater
risk, should they fail.
Posted October 5,
You are here: HOME page-OLDER ISSUES-OCTOBER 2004 -Looking Back
Previous : Eye on Human Rights Next : Recommended Reading