It was ninety years ago today that the US stock market began several days of steep declines that marked the beginning of the Great Depression, an era that defined the lives of a generation, both here and abroad. The market had actually begun to decline in September, but the floor fell on Black Tuesday and reached its worst rate of decline on Thursday. Although more gradual, the market continued to decline until March or 1932.
One certainty though was the suffering that ensued as businesses closed, jobs were lost and millions were left to subsist on whatever they could find to do. My father’s father had been an insurance salesman, only to survive by sharecropping, which left his family so poor that they had to move from shack to shack each year when they couldn’t pay the bank or owner from the sales of crops. Their story is echoed in those of countless family stories still told to this day.
There was no one cause for the crash. Certainly, stock prices were over valued, which was enabled by wide availability of loans with which to buy stocks on margin. Lax banking regulation also played a role and led to waves of widespread bank closings as frightened depositors sought to withdraw their savings. There are creditable experts, however, who say that these causes were merely symptoms of natural cycles in capitalism with periodic booms and busts.
The economic decline that the crash precipitated seemed to be fairly permanent, despite the efforts of the FDR administration’s public jobs programs. Ultimately, it was the government’s massive WW II war efforts that ironically lifted the nation from its depression.
The subprime mortgage bubble that led to the 2008 economic crisis was frighteningly reminiscent of the 1929 crash, with its massively overrated subprime mortgage investments. By most accounts, only the $700 Billion Dollar TARP bailout fund and prompt actions by the Federal Reserve Bank prevented another disaster.
I am tempted to point toward other bubbles currently in our economy that might endanger our financial system, but I’m no economist and even they are as bad at predicting recessions as geologists are at foreseeing earthquakes. I suppose the best one can say is still the maxim, “If it seems too good to be true, it probably is.”