Black Monday: The Stock Market Crash of '29

Monday, October 28, 1929 is a day that will be remembered as “Black Monday”, which was the beginning of what is believed to be the most devastating stock market crash in history. A chain of events started the crash, which had an effect on the lives of millions of people. Businesses stopped operation, people lost jobs and the country was thrown into the Great Depression that would last for many years.

Causes of the 1929 Stock Market Crash

There were several causes for the crash, however there were two major causes of the 1929 crash. First, the economy did slightly dip during these years, and certain international factors, such as the end of the First World War, affected some of the fundamental economic issues of the time. There were completely mundane economic reasons for a downturn in all markets during this era, however, market practices enabled questionable and outright fraudulent behavior to propagate through all levels of the economy and the relatively unregulated stock market suffered greatly because of this.

Did the Market Crash Cause the Depression?

While the affects of the Great Depression are often marked as starting around the time of the 1929 crash it really was a delayed effect. This is similar to the recent housing market bubble where fundamental investors warned for months or years of inflated values and poor regulation. Because of the lack of regulation investment companies were able to portray a variety of investments that lacked fundamental value as opportunities caused a massive influx of new investors and an attitude that fundamentals could be ignored. In many ways the market crash was a result of a real economic depression that had earlier taken fold, rather than a cause for it.

Reaction to the Crash

To keep the market solvent J P Morgan literally wrote a check to keep the stock exchange from becoming insolvent. This prevented bankruptcy, but the lack of regulation had yet to be addressed. Much legislation was passed in the intervening years to address issues of solvency, over lending, and truth in investment literature. Further suitability of certain investors to certain investments was addressed. Investment professionals were forced to record the suitability of investors in any investment they advertise, as well as the investor’s attitude toward risk. Today only real estate, and hedge funds remain outside these regulations, though much attention is dedicated towards deciding whether these too should be more regulated.

Listed below are some additional resources relating to the stock market crash of 1929: