Today in History
History's Happenings for October 29
It was on October 29, 1929 that the worst financial panic yet seen in the United States began with a precipitous drop in stock prices, bringing in its wake the Great Depression of the 1930's.
After World War I, while Europe writhed in the turmoil wrought by the shifting balance of power and the rise and fall of governments in the defeated nations, Americans enjoyed a greater sense of prosperity than most could remember. Money flowed easily -- along with bootleg liquor -- and inhibitions flowed away. The Roaring Twenties not only saw one continuous party in America, but also a stock market that seemed to have no ceiling.
Having risen a mere 20% in the fifteen years from the turn of the century into the War, the Dow Jones Industrial Average -- only one measure, to be sure, but one familiar to most -- rocketed up a whopping 340% in the decade ending in 1929.
At a time when institutional investing was a mere fraction of what it is today, the stock market attracted small individual investors by the millions. Brokers offered terms that modern investors would consider sure death -- margin requirements as low as 3%, with the balance loaned by the broker. Convinced that the market was a no-lose scenario, ordinary citizens borrowed wherever they could even to make the margin requirement. While the New York Stock Exchange listings totaled just over 400 million shares, investors were holding 300 million shares on margin.
It was a self-fulfilling prophesy, of course. The more money people poured into the market, the more it spurred prices upward.
And then the inevitable happened. Someone doubted. Perhaps someone else whispered a concern. Or, more likely, the astute, the mega-dealers, the market-makers, saw the handwriting on the wall. It was time to cash out. The mass hysteria that followed is oh, so typical of the stock market … once the selling started, it could not be stopped. For two weeks, prices slowly but steadily eroded.
The bubble finally burst on Tuesday, October 29. By the time the selling slowed the following week, the Dow Jones Average had lost over 30% of its value. Investors strung out on margin had received margin calls that not only wiped out their investments, but everything else they owned as well. Some of the wealthier losers are said to have found their way out of upper story windows.
In fact, a loss of this magnitude in a major market index is not unknown -- the overall drop in the October 19, 1987 "crash" was similar, and registered the largest one-day drop in history of 22%, while the 2007 recession pushed the Dow down a whopping 50%. But when the vast majority of the market's value is held on margin by individuals, the personal impact is far, far greater, and recovery much more difficult.
By 1932, the index had lost another fifty percent, settling at a mere 15% of its original value, while all the while President Hoover's Treasury Secretary, Andrew Mellon, assured the populace that business was "fundamentally sound."
Tell that to the folks who were now out of business, or out of jobs.
While the 1987 sell-off recovered its lost ground by the next year, the crash of '29, and the Great Depression following, suppressed recovery so thoroughly that, despite massive government programs and an intervening war, it was 1954 before the Dow was again able to maintain its pre-Crash value.
Today brokers generally require a 50% investment in order to buy on margin. Controls on the stock market theoretically limit the amount that the market as a whole can lose in a single day before trading is suspended. In general, market regulation is much tighter. But there are still many easy ways for an investor to get in over his head.
Money is still easy in the '00s, elective debt is sky-high, the order of the day is fun, fun, fun. Until 2001, one needed look no further than the White House to understand that America is once again one big party. And over the previous decade, the Dow was again up almost 300%.
When the bubble burst in 2001, everyone but those with a sense of history was surprised.
(Stay tuned for a write-up on this event.
The mouthpiece of the Third Reich, one-time poet and scholar Dr. Joseph Goebbels was born on this day in 1897 near Düsseldorf, Germany.
An ardent, even virulent, Nazi, Goebbels joined the fledgling party in 1922, at roughly the same time as his eventual master, Adolf Hitler. Rising through the political ranks, he became a member of the German Reichstag (Parliament) when the Nazis gained a majority and, in 1929, was put in charge of party propaganda.
It was in this last position that Dr. Goebbels made his mark on history. When the Nazis came to power in 1933, Goebbels' Ministry of Propaganda (aka "Information" Ministry) gained total control of virtually every form of public information in the Reich -- radio, newspapers, cinema, education -- all carefully choreographed for the benefit of the party and the Führer. With consummate skill, Goebbels personally managed both the news and the direction of German culture, prompting a contemporary British remark that he was the most dangerous of the Nazis.
True to his fanaticism, as the Third Reich reached its Götterdämmerung, Goebbels followed his Führer into the netherworld, committing suicide with his entire family on May 1, 1945.
The lesson we may take from Dr. Goebbels is exemplified by his early success: that control of education and the media is perhaps the most powerful tool available to any group or government seeking to mesmerize the people.
Goebbels taught us one more thing, his admitted guiding principle: If you tell a big enough lie, and repeat it often enough, eventually it will come to be accepted as the truth.
In the fall of 1940, Europe was in a shambles. Hitler, fresh from victories over Poland, Denmark and Norway, had defeated France during the summer in a fast Blitzkrieg. The British had been pushed off the French beaches at Dunkirk, leaving behind all their heavy equipment. The Battle of Britain was raging in the skies over England.
Across the Atlantic, America was still technically at peace. But she was at serious odds with the Japanese over the latter's aggressive actions in China and Southeast Asia. And she was supporting Britain behind the scenes, even lending her old American destroyers for the Atlantic war.
Peace and American neutrality were fast becoming an illusion. If the typical American still held out hope that we could avoid involvement in these seemingly foreign squabbles, the U.S. military, and President Franklin Roosevelt, certainly had other plans.
The president declared a state of emergency on September 8, 1940, and shortly after created an Office of Production Management to coordinate defense tool-up and to keep supplies flowing to Britain.
On October 29, 1940, the U.S. government instituted the first peacetime military draft in its history, to increase the strength of its military which had been Congressionally limited to 375,000. Names were selected at random from among qualified registrants (the Selective Service registry was not new) and, by mid-November, the first draftees were being inducted into the U.S. Army.
The preparations occurred none too soon. The escalation continued in 1941, the U.S. squeezing the Japanese economically, and dramatically increasing aid to both Britain and the Soviet Union (which Hitler had invaded in June). By mid-year, American neutrality in the European war was a clear sham, and the militant government of Japan had been pushed into a fury.
The play-acting ended on December 7, 1941.
(Stay tuned for a write-up on this event.