CRACK 1929, LA MAYOR QUIEBRA DEL MERCADO BURSÁTIL DE LA HISTORIA (documental)

The Great Depression: A Financial Catastrophe

The Prelude to Disaster

• In 1929, a period of declining prosperity culminated in the largest stock market crash in history, leaving investors shocked and devastated.

• Following the crash, thousands of banks failed, resulting in widespread poverty and loss for millions; this marked the beginning of a decade-long depression that foreshadowed World War II.

The Stock Market Crash

• On October 23, 1929, without warning, stock prices plummeted on the New York Stock Exchange, shocking investors who had only seen rising markets for five years.

• The following day saw continued declines as panic set in; sellers outnumbered buyers drastically leading to rapid price drops—$2, $4, or even $10 per share.

• As stocks fell sharply by 10 to 30 points at a time, chaos erupted on Wall Street with cries of disbelief from traders and an anxious crowd gathering outside the exchange.

Public Reaction and Awareness

• Approximately 10,000 people gathered outside the stock exchange seeking information about the unfolding crisis; many were unaware of the impending financial disaster.

• Few among the crowd understood that over the next five days a financial catastrophe would dismantle America's economic foundations.

Historical Context: Economic Optimism

• To understand the causes behind this collapse, one must look back a decade when American confidence soared post World War I victory in 1919.

• The U.S. economy thrived while European nations struggled financially; Americans believed they were entering an era of unprecedented prosperity characterized by consumer culture.

Rise of Consumerism and Investment Culture

• The 1920s saw significant changes with electrification transforming daily life; new technologies emerged alongside mass production making luxury items accessible to many.

• Innovations like installment buying encouraged consumers to purchase expensive goods on credit—a shift towards immediate gratification became prevalent during this era.

• This new consumer ideology emphasized living for today rather than worrying about future consequences—a reflection of changing societal values regarding wealth and success.

Investment Opportunities Emerge

• With affordable credit available and increased disposable income post-war, Americans sought ways to grow their wealth through investments.

• Liberty Bonds sold during WWI introduced many citizens to investing; these bonds created a culture where ordinary people began trading stocks for profit.

This markdown file captures key moments leading up to and including the initial stages of the Great Depression as discussed in the transcript. Each bullet point is linked directly to its corresponding timestamp for easy reference.

The Rise of Stock Market Investment in the 1920s

Charles Michel's Vision for Investment

• Charles Michel, president of National City Bank, identified a lucrative gap in the market post-World War I, noting that investors had previously bought government bonds and could now be marketed corporate bonds and stocks as safe investments.

Changing Perceptions of Stocks

• Michel was an ambitious salesman who believed that if people were willing to buy government bonds, they would also invest in private company stocks for profit. This led to a gradual shift where ordinary individuals began investing in stocks.

• Historically viewed as risky, stocks gained respectability during the 1920s; investing became seen as not only safe but also respectable and reliable among the general public.

Expansion of Brokerage Services

• To capitalize on this new market trend, Michel opened brokerage offices nationwide, allowing those with money but lacking investment knowledge to speculate in the stock market.

• Ordinary people across America began investing at unprecedented rates—not just in New York but also in small towns—fueled by technological advancements that made stock prices accessible almost instantly.

Cultural Fascination with the Stock Market

• The stock market became a pervasive part of American culture during the 1920s; it was discussed widely and integrated into daily life through various venues like nightclubs and beauty salons.

• Speculation surged around various sectors including film, aviation, and automotive industries. Investors started associating products they used with potential stock purchases.

Public Engagement with Investments

• By mid-1920s, approximately three million Americans owned stocks. Wall Street captivated public imagination with stories of overnight fortunes amidst a booming bull market.

• Popular media celebrated successful investors like Charlie Chaplin and Groucho Marx, further enticing everyday citizens to participate in stock trading.

Celebrity Investors and Their Influence

• Prominent speculators such as Joseph Kennedy became celebrities themselves; their rapid success inspired many ordinary people to believe they too could achieve wealth through investment.

• Stories circulated about anyone—from shoeshiners to barbers—making easy money on Wall Street. This narrative fueled aspirations among common folk regarding financial success through investments.

Personal Accounts of Investing Culture

• A shoeshiner’s experience illustrates how close interactions with influential figures led him to become knowledgeable about finance despite his humble beginnings.

• The narrator recounting his father's experiences highlights how deeply ingrained stock trading was within families during this era; it was a topic at every meal.

The Shift Towards Speculative Practices

• Many young individuals entered the stock market driven by greed during this bullish phase. They often borrowed money to invest more heavily than they could afford—a practice known as buying on margin or credit.

• This culture of "buy now pay later" permeated into stock trading practices, leading many investors to take significant risks without fully understanding potential consequences.

The Rise of Stock Market Speculation in the 1920s

The Use of Borrowed Money for Investments

• In the late 1920s, approximately 90% of stock purchases were made using borrowed money, with no regulations on borrowing limits. Investors could buy a $100 stock by paying only $25, while brokers lent the remaining $75.

• As stock prices rose—especially notable in the booming market of the late 1920s—investors saw their initial investments grow significantly, sometimes turning $25 into an investment worth $200 or $300.

Impact on Stock Prices and Investor Behavior

• The influx of borrowed money led to increased demand for stocks, driving prices even higher. In 1928 alone, stock prices surged by 50% within just one year.

• With rising stock prices, more investors sought loans to purchase additional shares. An example is Pat Bolonia's father who had $6,000 in liquidity; this amount allowed him to control stocks worth up to $60,000 due to low margin requirements.

Changing Demographics in Investing

• Historically, women played a minimal role in the stock market due to gender biases that deemed them incapable of making sound financial decisions. However, this changed during the 1920s as many women began participating actively in investing.

• The decade marked significant social changes for women; they gained independence and financial resources. Increased university attendance among women also contributed to their interest in investing as a means of financial empowerment.

Personal Stories: Alice's Journey into Investing

• One notable investor was Alice, a pioneering photographer from Staten Island who became interested in Wall Street after her inheritance dwindled at the start of the 1920s.

• After receiving a camera at age eleven and becoming an accomplished photographer with thousands of glass negatives, Alice faced financial challenges that led her to consider investing as a solution.

The Role of Financial Institutions and Political Climate

• During this bullish period on Wall Street under President Calvin Coolidge (who took office in 1923), there was little governmental oversight regarding speculative practices despite rampant speculation occurring across markets.

• Coolidge’s administration maintained close ties with elite bankers and financiers from Wall Street. This relationship fostered an environment where minimal regulation prevailed over speculative activities.

Influence and Power Dynamics on Wall Street

• Small but powerful firms operated discreetly within Wall Street's elite circles. JP Morgan emerged as one such firm that held significant influence over economic policies through its connections with political leaders.

• Thomas Lamont from JP Morgan exemplified this power dynamic; he frequently met with presidents and wielded considerable influence beyond New York City itself.

Regulatory Challenges and Market Manipulation

• Despite some efforts by influential banks like JP Morgan to mitigate extreme market excesses, overall government regulation remained minimal due to strong lobbying from financial elites who benefited from unregulated markets.

• With scant government supervision over trading practices during this era, insider trading flourished unchecked. Many amateur investors lacked understanding about how Wall Street truly functioned amidst rampant manipulation.

The Stock Market of the 1920s: A Manipulated Casino

The Nature of the Stock Market

• The stock market in the 1920s was likened to a casino, manipulated by professional speculators rather than being fair or democratic.

• Investors like Joseph Kennedy profited not from sound investments but by exploiting the naivety of new investors, creating a coordinated buying frenzy that inflated stock prices.

• Major Wall Street investment houses engaged in market manipulation, leaving average investors with losses after selling overvalued stocks.

Political Climate and Economic Skepticism

• President Herbert Hoover reassured Americans about economic prosperity while privately expressing skepticism about Wall Street's activities.

• Despite his concerns regarding rampant speculation, Hoover lacked the political will to regulate the stock market or curb speculative practices.

Warnings Ignored

• Paul Warburg, a respected banker, warned that unchecked speculation could lead to a nationwide economic depression; however, his warnings were dismissed as alarmist.

• The prevailing sentiment among investors was one of optimism and denial; those cautioning against overvaluation were ostracized.

Market Dynamics Leading to Collapse

• Between May and September 1929, over 100 million new shares were introduced on the New York Stock Exchange, further inflating an already precarious bubble.

• Some savvy speculators recognized signs of overheating in the market and began selling off their holdings. Joe Kennedy famously remarked that if even a shoeshine boy understood stocks, it was time to sell.

The Crash Begins

• By September 1929, volatility increased significantly. Hoover sought advice from Wall Street friends who assured him there was no cause for concern.

• Just days later, on October 23rd, panic ensued as automotive stocks plummeted unexpectedly leading to massive sell-offs.

The Panic of October 1929: A Historical Moment

Initial Reactions to the Crash

• October 24th is marked as "Black Thursday," signaling widespread panic as stock prices fell dramatically.

• Thousands gathered outside the stock exchange in disbelief as they witnessed their financial security evaporate before their eyes.

Public Sentiment and Response

• An eerie atmosphere enveloped Wall Street; people shared their fears amidst growing uncertainty about their financial futures.

Notable Observations During the Crisis

• Winston Churchill observed calmness within chaos during his visit on this fateful day despite witnessing significant turmoil around him.

The Stock Market Crash: A Crisis of Confidence

The Initial Panic and Loss of Trust

• Gigantic piles of stocks were offered at a third of their former price, indicating the severity of the market crash. Churchill was set to lose a fortune that day as panic spread among the crowd.

• Once the collapse began, the real issue became one of trust; when confidence in the economy is lost, both good and bad assets fall together. Major investors worked hard to restore this trust.

Efforts to Stabilize the Market

• Bankers recognized they needed to act quickly to prevent total financial collapse. A journalist from The Times witnessed increasing chaos as people crowded for news.

• Charles Mitchell, president of National City Bank, attended a crucial meeting at JP Morgan's headquarters with other influential bankers, including Richard Whitney from the New York Stock Exchange.

• The meeting aimed to devise a plan to prevent further decline in stock prices by creating a $250 million fund focused on maintaining essential stock values.

Restoring Investor Confidence

• With significant liquidity injected into the market, Whitney bought 25,000 shares of US Steel at inflated prices in hopes of restoring investor confidence.

• Other financial titans like John D. Rockefeller made similar purchases, leveraging their reputations to reverse market trends successfully.

Media Response and Public Perception

• As news about these meetings leaked out, journalists sought information while bankers maintained calm public appearances despite underlying turmoil.

• Lamont reassured reporters that there were no firms in distress and that margins remained stable; however, he was overly optimistic about the situation's resolution.

Chaos Behind Closed Doors

• Despite initial calm over the weekend following banker interventions, chaos reigned in financial districts as technology struggled under pressure during trading hours on October 24th.

• Many investors had purchased stocks on credit during prosperous times but faced dire consequences as falling prices required them to provide additional collateral or risk losing their investments.

The Impact of the 1929 Stock Market Crash

The Prelude to the Crash

• A warning was issued that accounts needed $600 by noon on Tuesday, or all shares would be sold. This created panic among those lacking liquidity.

• On Monday, the stock market began to plummet faster than it had on Thursday, marking one of the worst sessions in U.S. history.

Personal Memories of the Crash

• The speaker recalls being only seven years old during the crash and describes how news was disseminated through extra editions of newspapers sold for two cents.

• A vivid memory is shared about a friend’s aunt who lost everything, illustrating the emotional toll of financial loss during this period.

Market Collapse and Government Response

• Major companies like US Steel and General Motors saw their stock prices drop significantly as sell orders flooded in without respite.

• By Tuesday afternoon, stocks were valued at 20% less than they had been when markets opened on Monday morning; a staggering loss for many investors.

Economic Philosophy and Inaction

• President Hoover and Treasury Secretary Andrew Mellon believed in minimal government intervention, adhering to pure capitalism which led to little action against the market collapse.

• Their belief that "the market would fix itself" resulted in widespread financial devastation for individuals across America.

Consequences of Financial Ruin

• An estimated $25 billion in citizen wealth vanished within five trading sessions; personal losses were profound with many losing life savings.

• The speaker reflects on their own losses but expresses gratitude for retaining employment despite salary cuts during this tumultuous time.

Broader Social Impacts

• Many individuals who invested heavily faced devastating losses; Groucho Marx is mentioned as an example of someone who lost everything due to risky investments.

• Alice Osten's story illustrates how some continued living lavishly despite financial ruin, leading to further debt and despair.

Psychological Toll and Tragic Outcomes

• The narrative highlights that not everyone could cope with their losses; suicides occurred among those who felt hopeless after losing fortunes built over decades.

• The speaker recounts witnessing a tragic suicide linked to financial despair, emphasizing the severe psychological effects of the crash on society.

Economic Fallout Beyond Wall Street

• The repercussions extended beyond stockholders; even those without investments suffered as public trust in banks eroded dramatically post-crash.

• Over 2000 banks failed by 1931 due to diminished confidence in local banking systems, affecting countless lives across America.

The Fragility of the Banking System

Early Banking Practices and Public Distrust

• Many individuals kept their savings in banks, often just a few hundred dollars, without any federal insurance to protect deposits. This lack of infrastructure led to personal losses when banks made poor decisions.

• A cycle of panic ensued as people rushed to withdraw their money from banks they feared were unstable, resulting in the closure of 3,000 banks over two years. The banking system appeared both fragile and ineffective.

• Following this turmoil, public trust in banks diminished significantly; many opted to hide their savings at home instead of using financial institutions.

The Stock Market Crash and Its Consequences

• The stock market crash of 1929 did not directly cause the Great Depression but initiated a series of events that led to it. Banks had been lending money for stock investments, which vanished when the market collapsed.

• Companies faced immediate liquidity crises as they could not secure short-term loans necessary for operations, leading to massive layoffs and factory closures. This created a vicious cycle where decreased consumer spending further harmed businesses.

• The societal impact was profound; many families experienced severe hardship, with widespread unemployment and poverty reminiscent only of the Civil War era in American history. Personal stories illustrate these struggles vividly.

Personal Accounts of Hardship

• An anecdote reveals how one individual's father had to lay off an employee during this crisis, highlighting the emotional toll on families as job losses became commonplace across communities.

• Descriptions depict dire living conditions during the Great Depression: men wearing rags for clothing and makeshift shoes made from newspapers while seeking shelter in Central Park's abandoned areas turned into shantytowns.

Resilience Amidst Adversity

• Photographer Allison struggled financially during the Great Depression but eventually found success when her work was discovered by magazines like Time Life, allowing her to escape poverty through her art.

• Paul Worldburg accurately predicted the stock market crash and managed his bank’s survival by withdrawing from stocks early; however, he personally suffered emotional distress due to witnessing widespread economic failure around him.

Political Changes and Financial Reforms

• Franklin Delano Roosevelt's election marked a significant shift in leadership aimed at restoring public confidence after years under Republican rule that ended with Hoover's presidency amidst economic despair.

• Roosevelt quickly implemented measures such as guaranteeing bank deposits and enforcing stricter regulations on bankers' practices through government oversight following extensive investigations into Wall Street misconduct by Senate committees led by Ferdinand Pecora.

The Impact of Financial Scandals and Economic Crises

Historical Context of Financial Scandals

• The presence of influential figures, including Morgan partners, family members, corporate executives, and politicians in financial scandals highlights the interconnectedness of power and finance.

• In response to public outrage over unethical banking practices, President Roosevelt established the SEC (Securities and Exchange Commission) to restore trust in Wall Street.

• Joe Kennedy was appointed as the first president of the SEC, raising concerns about conflicts of interest due to his previous business dealings.

Global Economic Consequences

• The Great Depression had a worldwide impact; industries collapsed in Britain, leading to massive unemployment.

• Many nations turned towards authoritarian governments as citizens sought economic salvation amidst widespread financial ruin.

Rise of Alternative Political Movements

• The economic turmoil bolstered anti-capitalist movements; communism thrived in Russia while fascism gained traction in Europe with leaders like Mussolini and Hitler rising to power.

• Countries implemented protectionist measures that hindered free trade as they attempted to shield their economies from further decline.

Lessons from History

• There is a prevailing sentiment that society has not learned from past economic crises; similar patterns are observed today with cheap credit leading to speculative behavior reminiscent of the 1920s.

• The deregulation trend seen post-Great Depression has resurfaced, allowing unchecked speculation which could lead to another crisis.

Government Response and Future Outlook

• Current government actions aim for more proactive measures compared to those taken during the 1930s, hoping to mitigate potential economic damage effectively.