The collapse on Wall Street. 1929

The statement that the U.S. economy is overheating, scares many investors. And perhaps the lessons of the collapse of the grand market of securities, which occurred just over 70 years ago in the United States can be very useful today.

Family Moses and Walter Annenbergov is one of the most successful combination of "father-son" who has ever met in American business. But good luck good luck, and the consequences of the collapse of 1929, they were directly opposite. His father, who correctly assessed the state of the market, sold all its shares in four working days before the defeat. Son purchased shares until the very last minute and was ransacked.


Seventy years ago, in October 1929, failed the New York Stock Exchange. This event was caused by a combination of different circumstances. We will start from the beginning and try to gradually get to the bottom.

Stock market boom fueled first sales of shares of automobile companies, and companies involved in electricity, but after the first flight was carried out across the Atlantic, stocks have become popular airlines. We can confidently state that the twenties in America were born a decade the automotive industry. And if in 1920 the number of cars produced in the United States was little more than 8 million, by the end of 1929 this figure had exceeded 23 million. In 1929 the automotive industry has become very important in the United States, creating 4 million jobs.

Experienced a boom and electricity. If in 1914, supplies electricity to only 30 percent of American businesses by the end of 1929, this figure rose to 70 percent. Mass production of vacuum cleaners, elektroplit, refrigerators and myriad other household appliances giant steps type your speed.

Each product requires a buyer. And to support economic growth, there is a need in the advertising industry persuades people to buy. Lack of cash was more than covered by the credit boom, which began with the purchase in installments. Most Americans, it was just convenient to believe their president. The motto of the decade have become the ultimate promise of victory over poverty, Republican Herbert Hoover, who had gained a brilliant victory in the presidential election of 1928.

But in the end twenties do not have anything good. Particularly difficult in the beginning had to farmers. The drop in prices of grains does not allow them to cover payments on loans taken from banks against collateral of their own land. In turn, in a difficult situation were the banks, which mainly served agriculture and could not now expect to return their money. The lack of strict regulation of the banking system of the Federal Reserve has resulted in numerous bankruptcy. Subsided went textiles.

In fact, the downturn on Wall Street began in February 1928. Just a strong growth of industry has caused a steady increase in stock prices, which is virtually unchecked over the next 18 months. By the end of 1928 the stock market in the United States was at the level of popularity throughout the country. By playing on the stock exchange podtyanulis millions of ordinary Americans. Many brokers artificially warm speculative boom by offering loans to buyers of shares at preferential terms is absurd. It was a time of low interest rates, it is facilitating a game to market. Ability to purchase the shares at the expense of the money borrowed from brokers, allows people with limited means to make significant market investments.

It is easy to understand prevailing at the time, way of thinking. Stocks appeared to be the only way to quick and easy wealth. Even banks are not able to resist the significant market investments, allowing them to offset the large debts in other areas.

In the early 20's, as the securities market, people invest money in shares, which would ensure they continue to receive good dividends every year. With speculation rising stock prices have been steadily rising, and the conditions on which dividends are paid, are unchanged. Individual shares rose in price by more than 400 per cent, despite the fact that never yielded dividends.

Dow Jones, which includes shares of leading industrial countries, has doubled from May 1928 to September 1929, the average value of shares increased by 40 percent. Sales soared from 3 million shares per day to more than 12 million. Speculative fever has become increasingly fierce. In the state of euphoria before tens of thousands of people.

A typical representative of that time was the youngest, Walter Annenberg, the son of the rich and famous publisher Moses Annenberga. And father and son played on the Stock Exchange. Moses Annenberg was the owner of a brokerage company called "Annenberg, Stein and Company", which allowed his son to hold the stock exchange speculation in the $ 4 million and be a guarantor to obtain the relevant credits. A 21-year-old son and his 53-year-old father had different approaches to investing. Annenberg senior invest in shares of first-class companies, such as "General Electric", "Pullman" and "General Motors". He invested in companies that have good governance. His son followed the same model, but it led to more risky equities, such as "Chrysler" and "RCA". He started to play the market, still studying in school, and over the last year of school earned $ 17,000.


By mid 1929, the portfolio Annenberga, Jr., was worth nearly $ 3 million - about $ 30 million today. Huge money. I think many would have failed the bar and went to rest. But the money was not the money until they varilis in the overall stock pot fever. All this wealth has been achieved solely through the "loan transactions." And many of Walter Annenbergov were absolutely the same. All of America was covered madness of exchange trade in shares. Brokerage offices were opened in the lobbies of hotels, grocery stores, at train stations. Later, Walter Annenberg admitted that he felt invincible when he was a wise father advised him to be careful and warned of possible consequences. Shares of one of the favorite companies Annenberga Jr. - "RCAI" rose from 85 cents in 1928 to $ 5.49 in 1929.

Many did not notice the clouds, gathering on the horizon. Corporation continued to expand its production capacity, the economy was booming. It happened that was to happen. Non recovery led to pereizbytku food production. By mid 1929, some industries have begun to feel the fall in demand. Developing the industry, using less labor intensive technology, have allowed themselves to reduce the number of people employed in manufacturing employment. Unemployment began to rise, and money was not enough.

The second sign of the impending danger of a fall in demand for American goods from the Europeans. The situation of America, playing the role of the leading international trader, shaken. If the twenties exports was one of the main income economy, the end of the decade about him was simply forgotten. The reasons were several. The main can be described as significant progress in its own production that has taken place in Europe after the First World War, and more time to the financial difficulties most European countries do not allow them to import American products.

Some economists warned that the stock market boom not last long, but the Americans refused to listen. Dow Jones, on the basis of ten years increased by 255 per cent and by the summer of 1929 the stock market Gudele of this news.

The market collapsed a few days.

Friday, Oct. 18. Some traders and professional traders fear that prices in the market reached its peak and start to sell shares.

Monday, Oct. 21. The fall in equity prices is becoming concern.

Thursday, 24 October. After a slight revitalization began the collapse, and on Friday, sensible investors withdrew from the game. Among them was Moses Annenberg and sold in one day all of their shares and leave the market. His son would not follow the example of his father, believing that the situation is temporary. He saw in the fall is only the opportunity to buy cheap shares. Who knows, perhaps in the day son bought some shares sold by his father.

The cause of the collapse of the family of Walter and Moses Annenbergov was the October collapse on Wall Street in 1929. Moses Annenberg sold all its shares four days before the collapse. His 21-year-old son Walter had lost $ 3.4 million (now about $ 32 million), as well as continued to buy shares until the end. Most private investors to destroy America, and only those few who understand the time that happens, it was possible to stand up. Car stoivshie $ 1000 per week dropped the price to $ 100.

Some large banks have tried to strengthen public confidence and prevent the inevitable by acquiring shares. Even Rockefeller made his first few years of a public statement, claiming that he believes economic fundamentals strong enough and that he is buying shares. Walter Annenberg bought shares before the very last moment, naively believing in the success of your business.

Tuesday, October 29, the market collapsed. All attempts to keep him have failed. On this day, marked by "Black Tuesday" in the market place is the real mass panic. For sale was billed on 16 million shares, making the index of industrial shares in the companies' New York Times fell 43 points - the largest at that time in the history of a single drop in one day. Dow Jones fell 30.57 points. $ 30 billion ($ 300 billion by today's money) just disappeared from the economy and stock market speculators brokerage accounts. The huge mass of stock value. Many companies were left without a cent and had been forced to undertake a massive lay-off. The decline in the market continued in the coming weeks, bringing only the month of October damages totaling $ 46 billion.

Requirement to deposit money, or call margin, caused the sale of shares of all market participants, thereby further lowering the prices on the market. Started a chain reaction. Walter Annenberg did not differ from the rest. All had to sell his shares to meet its obligations. His portfolio trehmillionny disappeared, instead it has a debt of $ 350000. He went bankrupt, seven months after his twenty-first birthday. Fortunately, his father, with a network of businesses valued at $ 8 million, was able to gain from his troubles. If it were not so lame young Annenberg could well join the stag, which discharges from the windows. So great was the extent of their financial ruin.

Unlike other breakdown of the securities markets, this has had a devastating effect on the instant American industries. Shares staleproizvodyaschih companies and car manufacturers fell to a tenth of its original value, and half of the workforce in both sectors was dismissed. All new office skyscrapers built in expectation of the continuation of the boom, were deserted. Their tenants were left without a cent in his pocket and had to leave the expensive apartments.

This is so simple and dramatic, just a week collapsed economy one of the biggest industrial empires of the world. And despite the occasional signs of recovery, the market remained in a deep stagnation for more than four years and could not finally come to a further ten years.

Vladimir Minaev
Source: EuroBusiness