The 1929 Stock Market Crash - Black Thursday - Extra History — Transcript

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1. 0:00March 4th, 1929
2. 0:02Washington D.C. The inauguration of Herbert Hoover.
3. 0:06"We have reached a higher degree of comfort and security than ever existed before in the history of the world"
4. 0:11--says America's 31st president--
5. 0:13"Through liberation from widespread poverty,
6. 0:15"we have reached a higher degree of individual freedom than ever before".
7. 0:20Hoover's campaign had focused on prosperity.
8. 0:22Though he had not personally approved it, a local campaign flier had stated that
9. 0:26republican policies had put a chicken in every pot, and a car in the backyard.
10. 0:31"In no nation are the institutions of progress more advanced.
11. 0:34"In no nation are the fruits of accomplishments more secure."
12. 0:38"In no nation is the government more worthy of respect, No country more loved by its people."
13. 0:43"I have an abiding faith in their capacity, integrity and high purpose."
14. 0:48" I have no fears for the future of our country. It is bright with hope."
15. 0:52Black Thursday is six months away
16. 0:56Intro music [Birth of the People]
17. 1:02The month of Hoover's inauguration, one number is on the lips of every trader on Wall Street:
18. 1:07381
19. 1:09An all-time high for the Dow Jones Industrial Average.
20. 1:12From the outside, the economy looks strong but there are worrying signs.
21. 1:16For nine years, the stock market has climbed, increasing six-fold from its level in1921.
22. 1:21And the relentless upward trend makes investments look like a sure thing and throughout the second half of the 1920s,
23. 1:27more people buy into the market than ever before
24. 1:30And not just stock brokers or captains of industry;
25. 1:32Factory workers, restaurant owners and even shoeshine boys are all putting money in.
26. 1:37One market analyst says the Dow has reached a permanently high plateau
27. 1:41Steady gains make investing seem like easy cash.
28. 1:43Especially because you don't even need money to get into the market,
29. 1:47because stockbrokers at the bank offer loans for investors to buy stock,
30. 1:51a practice called "buying on the margin."
31. 1:53And the beauty is everybody makes money, with the upward climb of the market,
32. 1:57you can put down 10% of a stock's worth,
33. 1:59take out a loan from your broker for the rest, and then sell the stock when the value goes up high enough to pay off
34. 2:05The loan and net yourself a profit.
35. 2:06People mortgage their homes, even their businesses to buy stock, sinking all their savings into it.
36. 2:11And why not? It's a sure thing...
37. 2:14Unless, there's a margin call, because the stock is actually the collateral for the loan,
38. 2:19so if a value of a stock drops, the down payment the investor has provided has essentially shrunk.
39. 2:24In that case, the broker who lend the money can ask the investor
40. 2:28to immediately provide more money to repay a minimum amount of the loan,
41. 2:31and if they can't, the investor then has to sell the stock to cover the loan
42. 2:35But investors aren't the only ones borrowing money.
43. 2:38Easy loans and installment buying have fueled the economic boom of the 1920s
44. 2:42Businesses take out loans to expand,
45. 2:44families buy new household goods and home improvements,
46. 2:47and Henry Ford offers the Model T in installments,
47. 2:50creating a massive boom in Auto Sales,
48. 2:51that in turn fuels the American steel glass, petroleum and rubber industries.
49. 2:56And most crucially, farms borrow money to mechanize.
50. 2:59Pushed to surge crop production during World War One,
51. 3:02farmers borrow money to both expand their acreage and by tractors, harvesters and other equipment.
52. 3:07The problem is, this new production capacity floods the market with cheap agricultural goods,
53. 3:12making it now more difficult for the leveraged farms to make money.
54. 3:15In other words, America is stuffed with bad loans.
55. 3:19In fact by 1929,
56. 3:20the Federal Reserve Bank of New York is so worried about buying on the margin, that they raise the lending rate to discourage borrowing.
57. 3:27But this, unfortunately, has a knock-on effect.
58. 3:29Central banks in Europe now feel they have to match the new rate,
59. 3:33sending many of those nations, still recovering from World War I, into recession.
60. 3:37This sudden uncertainty, along with a well-respected analyst saying
61. 3:41that they believe the market is overvalued and might crash,
62. 3:44trigger a few market shocks in October, but the Dow always recovers its value before the end of the day.
63. 3:49Until-
64. 3:50October 24th, 1929-
65. 3:53Black Thursday.
66. 3:54The shouting starts right after the opening bell...
67. 3:58(Sell, sell, sell)
68. 4:00A Feeding frenzy.
69. 4:01No one knows what's happening,
70. 4:02but investors sentiment has soured and the panic is infectious.
71. 4:06Minutes into the trading day, the market loses 11% of its value.
72. 4:10Floor traders shove, scream. So many trades happen so fast,
73. 4:13the stock ticker that brings the market real-time to traders across the country can't record the wild fluctuation in price,
74. 4:20meaning stock brokers in Chicago and California are trading based on prices that are four hours old.
75. 4:25People begin gathering outside on the street, sensing the chaos.
76. 4:28Rumors fly around Wall Street, that stockbrokers are committing suicide , leaping from the windows of their buildings.
77. 4:34But these reports are false, fed by the death of a German chemist who had really-- though accidentally-- fallen out of a hotel window.
78. 4:41However in the panic, the public takes these rumors as gospel.
79. 4:45In a back room, several titans of banking meet to try to halt the chaos.
80. 4:49There's the head of chase National Bank,
81. 4:50the head of Morgan Bank,
82. 4:52and the head of National City Bank of New York.
83. 4:54These men remembered the last financial Crisis.
84. 4:57The panic of 1907, where the market had lost half of its value within three weeks.
85. 5:01And the market only steadied when JP Morgan had gathered a consortium of banking friends
86. 5:06to make big investments in both the stock market and the banks.
87. 5:09They decide to do the same.
88. 5:12Between them, they gather a pot of money and hand it to Richard Whitney,
89. 5:14vice-president of the New York Stock Exchange
90. 5:17He walks onto the trading floor, attracting everyone's attention,
91. 5:20and it makes a huge buy of US Steel, offering a price well above what it's currently trading at.
92. 5:26Then, he does the same for other major companies, showing his faith in the market.
93. 5:30It has the desired effect - the market begins to climb, and at the closing bell,
94. 5:34it's only lost six point three eight points, but it isn't over.
95. 5:38Though the market has temporarily calmed, that big drop has shaken traders' faith.
96. 5:43The margin calls start going out.
97. 5:46And all over America: dinner cooks, busboys and farmers,
98. 5:50pick up their phone to find out they suddenly owe their brokers money, due immediately.
99. 5:54Some amounts are massive; $500, $1,000.
100. 5:58Sums that, in 1929, you might not even be able to cover by selling a car or a house,
101. 6:03even if you could sell a car or a house that fast.
102. 6:06But people most certainly try.
103. 6:09October 28th,
104. 6:10Black Monday:
105. 6:11The opening bell signals pandemonium.
106. 6:13Floor traders shout and shove - everyone wants to get out of the market;
107. 6:17well, some don't want to, they have to.
108. 6:19Selling stocks to repay loans because their clients couldn't pony up enough for the margin call.
109. 6:24And everyone wants out, fast.
110. 6:27Values are tanking so quickly, that the difference between selling now and selling 30 minutes from now
111. 6:31could mean another 10 percent of value loss.
112. 6:33And there's such trading volume, that some trades are never even recorded,
113. 6:37and by the end of this day, the Dow has lost another 12.82% of its value,
114. 6:42and the panic continues.
115. 6:44October 29th, Black Tuesday.
116. 6:47The market won't stop bleeding.
117. 6:49People are getting into fistfights on the trading floor.
118. 6:51The problem is that even though everyone is selling,
119. 6:54no one's buying.
120. 6:55It keeps going down, down, down
121. 6:58Shell-shocked floor traders look at each other, trading slips spilling out of their pockets.
122. 7:02Some are now so worthless, they leave them on the floor.
123. 7:05The market has dropped 23% in two days, and would keep dropping.
124. 7:10Another emergency stock purchase by banking consortiums would lead to a one-day boost,
125. 7:14and it would even rally the next month.
126. 7:16But the Dow entered a steady descent that would not hit bottom until mid 1932, in the depth of the Great Depression.
127. 7:23But it's important to remember that the crash and the depression are not the same thing.
128. 7:27Historians still argue about how connected they were.
129. 7:29In fact the depression proper would not hit until months later,
130. 7:33when banks started to fail from bad loans and unemployment rose.
131. 7:36Then, as today, it's important to remember that the stock market isn't the same thing as the economy.
132. 7:41The Dow Jones recovered faster than the country as a whole.
133. 7:44But the crash shook consumer confidence and wiped out the savings of small investors,
134. 7:49leading to fewer purchases of items like cars at a time when auto manufacturing was a large part of the American economy.
135. 7:55Whether responsible for the depression or not,
136. 7:57the 1929 crash would symbolize the start of very hard times.
137. 8:02Within a few short years Ford's assembly line ground to a halt, sending unemployment in Detroit to 34%.
138. 8:08Half of construction workers were without work.
139. 8:10The country watched the US Army deploy tanks and tear gas against a World War one veteran's protests,
140. 8:16and great dust storms tore across the plains making its snow red in New England.
141. 8:21A decade of disasters: ecological, financial, and deeply personal, all heralded by The Wall Street Crash.
142. 8:27And while I'm sure we'll cover the depression in more detail someday,
143. 8:31for now, it is good to remember that as hard as those times were, we got through them.
144. 8:36It took perseverance and cooperation,
145. 8:38but we did recover, even when things looked dark, we came back.
146. 8:42Until next time stay safe everyone
147. 8:45Legendary thanks to Ahmed Zayat Turk, Alicia Bramble, Casey Mishka, Dominic Valenciana Gunnar Clovis, Kayo Murgatroyd
148. 8:52EL Manaoune Cherkaoui and Orels1