Then and Now: The Stock Market Crashes of 1929 and 2008
Downton Abbey and the Inevitable
One of the most popular shows on TV right now is Downton Abbey, the BBC’s historical drama about the residents of a grand manor house in the English countryside from 1912-1924. Since the show first began the family and servants of Downton have been through the sinking of the Titanic, World War I, the Spanish Influenza epidemic, the Irish uprisings, and so many more historical upsets. At the end of each season viewers are left wondering what the poor family will endure next.
Watching historical fiction can really take an emotional toll. With fiction set in modern times you can often imagine a life going forward for the characters that is untouched by hardship, but with historical fiction you know what’s coming. You know that the residents of Downton will be swept into the horrors of World War II, face the new excitement of women’s suffrage, be forced to cope with the rising of the middle class and the downsizing of their serving staff, and encounter the devastating stock market crash of 1929.
The Stock Market Crash of 1929
In the 1920’s Americans lived large. All you have to do is read The Great Gatsby to get an idea of the lavish lifestyle of the era—women with short skirts and short hair, artists living the bohemian life, jazz music and new dance moves, fancy cars, silver screen stars, Art Deco design, and free-flowing (albeit illegal) alcohol. As director Harold Clurman put it, “Pleasure was the color of the time.”But on October 29th, 1929 that all came to a sudden halt. An article on History.com reads:
During the 1920s, the U.S. stock market underwent rapid expansion, reaching its peak in August 1929, after a period of wild speculation. By then, production had already declined and unemployment had risen, leaving stocks in great excess of their real value. Among the other causes of the eventual market collapse were low wages, the proliferation of debt, a struggling agricultural sector and an excess of large bank loans that could not be liquidated.
Stock prices began to decline in September and early October 1929, and on October 18 the fall began. Panic set in, and on October 24, Black Thursday, a record 12,894,650 shares were traded. Investment companies and leading bankers attempted to stabilize the market by buying up great blocks of stock, producing a moderate rally on Friday. On Monday, however, the storm broke anew, and the market went into free fall. Black Monday was followed by Black Tuesday (October 29), in which stock prices collapsed completely and 16,410,030 shares were traded on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of investors, and stock tickers ran hours behind because the machinery could not handle the tremendous volume of trading.
The Great Depression
The unfortunate result of the stock market crash was the Great Depression. We’ve all seen photos of people standing in line at soup kitchens and employment offices or making their way across the plains looking for homes out west. Stories from our parents or grandparents who lived through those times can be downright terrifying.Because of some smart governing and the onset of World War II the US was able to pull itself out of the Great Depression and people became financially stable again. Eventually, the American dream got back on track and the glory days of the 1950’s rolled around.
The Stock Market Crash of 2008
In the year 2008, people weren’t living quite so extravagantly as they did in the Roaring Twenties, but they were still living large. This was the time of mini-mansions, Hummers, and Starbucks.
An article published by The Economist in 2013 put it this way, “With half a decade’s hindsight, it is clear the crisis had multiple causes.” The main source of the problem was that the financial bigwigs said they had found a way to get rid of risk, but in truth they had just lost track of it.
Then there was the housing bubble. “The years before the crisis saw a flood of irresponsible mortgage lending in America. Loans were doled out to ‘subprime’ borrowers with poor credit histories who struggled to repay them.” Blame can also be placed on central bankers and other financial regulators for mishandling the crisis and failing to keep the teeter totter of the economic system balanced.
The House of Representatives drafted The Emergency Economic Stabilization Act of 2008, a $700 billion bailout plan, in hopes of steadying the economy. But with rumors that the bailout plan wouldn’t pass, the market started to take a turn for the worse and on September 28th, 2008 the stock market experienced the biggest single-day crash in its history. A CNN headline the following day announced, “Approximately $1.2 trillion in market value is gone after the House rejects the $700 billion bank bailout plan.”
This is where history doesn’t quite repeat itself. After the crash, jobs disappeared, tons of houses were foreclosed on, folks on the verge of retirement changed their plans, college kids changed their majors, stay-at-home moms went back to work, and people were forced to live lives they hadn’t planned on living. But the amount of people who became homeless or were forced to beg for food was drastically different than in the Great Depression. There was certainly a problem with homelessness and hunger, but it wasn’t as bad as it was in the 1930’s.
Nothing New: Learning from History
As scary as the big stock market crashes are, they are nothing new. In the financial system, as in nature, there is an ebb and flow, and history has a nasty way of repeating itself. As we are still recovering from 2008 it is important to remember that there is always something to be learned from history. We are now 86 years past the crash of 1929 and seven years past the crash of 2008, so what have we learned?
- Living on pure credit is deadly. If you can’t afford it, don’t buy it.
- Every person/family should have about six months of living expenses in savings.
- Buying a house you can’t afford is a really bad idea.
- Live within your means, even if you have to adjust your dreams a little bit along the way.
“Emergency Economic Stabilization Act of 2008.” Wikipedia. Wikimedia Foundation, n.d. Web. 30 Mar. 2015.
Johnson, Chuck. “Tano Capital Reseach: The Crash of 2008 vs 1929: Similarities and Differences.” TANOCAPITAL.COM. Tano Capital, 14 Nov. 2008. Web. 30 Mar. 2015.
Twin, Alexandra. “Stocks Crushed.” CNNMoney. Cable News Network, 29 Sept. 2008. Web. 30 Mar. 2015.