When Confidence Failed.

• Author: MCCOLLUM, SEAN

The stock market crash of 1929 helped bring on the Great Depression

It seemed as if everyone was going crazy. On October 29, 1929, brokers on the floor of the New York Stock Exchange received so many orders to "sell at the market price that the ticker tape couldn't keep up. With prices plummeting, no one knew just what their stock was worth -- so they panicked, hurrying to sell it while it still had any value at all. Wrote The New York Times:

Stock prices virtually collapsed ... swept downward with gigantic losses in the most disastrous trading day in the stock market's history. Billions of dollars in open market values were wiped out as prices crumbled under the pressure of liquidation of securities which had to be sold at any price.

The stock market crash of 1929 shocked the country and helped usher in the Great Depression, a decade-long economic slump that left one-fourth of all U.S. workers unemployed and thousands of families homeless and hungry.

In the previous year, stock prices had skyrocketed. Many people had bought shares "on margin," meaning that they had to put up only a small fraction of the purchase price, using the value of the stocks themselves as collateral to borrow the rest. They had built paper fortunes, but when stocks fell they had to sell to pay their debts. And stocks kept falling. By November, one third of the value all stocks had held in September was gone,

But problems in the economy went far beyond the 2.5 percent of Americans who owned securities.

Farms were suffering, the banking system was unstable, and industry was overbuilt. Also, wages hadn't kept up with profits, limiting people's buying power.

An economy depends on confidence -- bank depositors' confidence that if they put a dollar in the bank, they'll be able to withdraw it later; investors' faith that their investments have a chance to grow: and companies' confidence that if they hire workers to make products, there will be consumers to buy them. For millions in the 1930s, those bets were off. Failure triggered failure as the economy acted like a row of falling dominoes.

By 1932, the U.S. gross national Product, the total value of a country's economic output, had fallen 25 percent. In that year, 85,000 companies went out of business. Nine thousand banks went broke by early 1933, taking $2.5 billion of people's money with them--and leading many to shun banks and trot their cash under the mattress.

Unemployment soared to 13 to 15 million. Especially hard...