Jonathan Salem Baskin

Prescient Crises

Today, a crash could have been a warning.

At the opening bell of the New York Stock Exchange on this day in 1929, the market lost 11% of its value. The trading floor was panicked, as investors, many of them individuals, sent word to their brokers to cash out. A meeting of the largest banks was convened, their interest being that they’d loaned the money to speculators to buy the stocks and drive up prices, often allowing small investors to borrow more and 2/3 of the face value of the stocks they wanted to purchase. This meant that there was more money out on loan than there was currency circulating in the entire country. The bankers put in huge “buy orders” on blue chip stocks at prices above the fire sale numbers they were commanding, suggesting their confidence in the market. Panicked selling subsided.

The problem was that it was a Friday — known in history as Black Friday — which allowed for a weekend’s worth of newspaper accounts, telegraph messages, phone calls, and endless chatter at pubs, clubs, and dinner tables before the market opened again. When it did, it cratered another 13%, and then 12% the next day. It would seesaw after that, but generally slide for another few years, and it would take a quarter century before it regained its former peak. Everyone has a theory or belief about what caused it, or what it means for us today, from conservative accusations that the gyrations and fall were prompted by fears of protectionist trade legislation then in Congress (Smoot-Hawley), to progressive allegations that economic bubbles are mechanisms for transferring wealth from workers (or small investors) to big ones (i.e. capitalists).

I say stock markets are social media, and their meaning is defined by the intentions and foibles of its participants.