Concept
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In the USA, the early 1920’s was considered a golden age of prosperity. Even while the aftermath of World War I was still taking its toll on the European economies, the American industrialist movement was already in full swing. In the US economy, businesses were prospering, lucrative deals were being struck, and money was fluid.
The prevalence of these economic activities translated into serious economic growth. Between 1925 and 1929 the New York Stock Exchange grew from $27 billion to $87 billion. Had you placed your money in the stock market in 1925, you were likely to have seen a tripling of your initial investment in profits. Under these economic conditions, the US economy had grown to be the largest in the world, and the American people had become highly optimistic.
Then, over the course of a few days, devastation occurred. On October 24th, 1929 – now known as Black Thursday – the New York Stock Exchange saw the most significant stock market crash in US history. Instigated by a sudden panicked sell-off by stockholders, it continued for weeks and reached its lowest point in mid-November. By that time, substantial damage had already been done to the American economy.
Over 40% of the value of stocks had been erased from panic selling within the stock market, and this soon extended to money markets. Banks were among the most affected. Most saw massive withdrawals as people took their savings deposits home out of fear of losing them. As a result, an estimated 744 banks closed over the following 10 months alone.
The stock market crash is considered to have been the starting point of the USA’s 12-year-long Great Depression. During the latter period, more than 11,000 banks closed and 1-in-4 people who had been employed were left jobless, meaning that a vast number of working- and middle-class
citizen had to depend on soup rations to stay alive.
How could something like this have happened? How could the world’s economic super- power fall so far and so quickly? The answer is certainly not as straightforward as a stock market crash. Stock market crashes can be severe, but they do not bring down a nation’s banking systems. Ultimately, it was the faulty regulatory foundations of US financial systems that led to this catastrophe.