History That Doesn't Suck - Episode 170: The Crash of 1929 & Meeting President Herbert Hoover

Release Date: November 18, 2024
Host: Prof. Greg Jackson

Introduction

In Episode 170 of History That Doesn't Suck (HTDS), Professor Greg Jackson delves into the tumultuous events leading up to the stock market crash of 1929 and introduces listeners to Herbert Hoover, the then-President of the United States. This episode meticulously examines the intricate web of financial practices, regulatory evolutions, and personal narratives that culminated in one of the most significant economic downturns in American history.

Setting the Scene: Black Thursday

The episode opens on a tense morning at the New York Stock Exchange (NYSE), October 24, 1929, known as Black Thursday. Jackson paints a vivid picture of the overcrowded trading floor, capturing the palpable fear and desperation of investors like Pat Bologna, a young shoeshine attendant whose entire savings are invested on margin.

Greg Jackson [10:50]: "Pat, the young, short, and stocky Italian American has $5,000 in the market... he pushed his way back out of the suffocating room."

As stocks began to plummet, brokers called for cash in margin accounts, pushing investors to the brink. Amidst the chaos, National Citibank Chairman Charlie Mitchell steps in, pooling millions of dollars to stabilize the market temporarily. However, Jackson hints that this intervention was merely a postponement of the impending disaster.

Understanding the Stock Market and the NYSE's Evolution

To comprehend the crash, Jackson provides a comprehensive overview of the stock market's origins and the evolution of the NYSE. Tracing back to the 17th century, he explains how stock exchanges emerged as marketplaces for buying and selling securities like stocks and bonds.

Colonial Beginnings and the Buttonwood Agreement

The narrative transitions to the colonial era, highlighting the formalization of stock markets post-US Constitution. A pivotal moment was the Buttonwood Agreement of 1792, where 24 brokers established fixed commission rates and preferential trading terms, laying the groundwork for the NYSE.

Greg Jackson [1:12:30]: "We the subscribers, brokers for the purchase and sale of public stocks do hereby solemnly promise..."

Despite debates among historians about the exact founding date of the NYSE, Jackson emphasizes the institution's growth from a small, secretive group of traders to a powerhouse of American finance by the early 20th century.

From Secrecy to Prominence

Jackson details how the NYSE maintained a reclusive reputation well into the 19th century, often compared to gambling by the public. However, the expansion brought by the railroad boom during the Civil War transformed it into a central financial hub, culminating in the iconic marble buildings that symbolize Wall Street today.

The Financial Landscape Before the Crash

The episode then shifts focus to the broader economic backdrop of the 1920s. Despite the prosperity known as the "Roaring Twenties," underlying issues like overinvestment, unethical brokerage practices, and speculative buying on margin were setting the stage for a crash.

The Role of Margin Buying

Jackson clarifies the concept of margin buying—purchasing stocks with borrowed funds—and its prevalence in the 1920s. While commonly cited figures suggest that a significant portion of investors were margin buyers, Jackson provides a nuanced view, estimating that fewer than 2% of American households were directly affected. Nevertheless, the inherent risks of margin trading contributed substantially to market instability.

Greg Jackson [2:15:45]: "On the margin buys are still plenty risky. Riskier still, as some speculative investments are made with bank borrowed money."

Federal Reserve's Struggle to Regulate

The Federal Reserve (the Fed) grappled with controlling speculative excesses. Conflicts within the Fed's Board of Governors and differing approaches between regional banks hindered effective regulation, leaving the NYSE vulnerable to unchecked speculation.

Greg Jackson [2:20:10]: "The Federal Reserve Board doesn't want to increase the discount rate... but the Fed has already done this over the past year or so."

Herbert Hoover: From Humanitarian to President

A significant portion of the episode is dedicated to Herbert Hoover's life, tracing his journey from an orphaned youth to a renowned humanitarian and finally, the 31st President of the United States.

Early Life and Humanitarian Efforts

Born in 1874 in Iowa, Hoover overcame early tragedies, including the loss of both parents by the age of nine. His resilience led him to Stanford University, where he excelled in geology and entrepreneurship. Hoover's pivotal role during the Boxer Rebellion and subsequent humanitarian efforts, particularly through the American Relief Administration (ARA), earned him the moniker "The Great Humanitarian."

Greg Jackson [1:45:30]: "Bert's forceful and given to exceeding his authority, as reflected in his nicknames as the food czar or the food dictator."

Political Ascendancy

Despite his reluctance for elected office, Hoover's reputation and success during crises led to his presidential nomination in 1928. His candidacy was buoyed by promises of economic stability and continued prosperity, aligning with the Republican Party's pro-business stance.

Herbert Hoover [2:35:20]: "We in America today are nearer to the final triumph over poverty than ever before in the history of any land."

The 1929 Stock Market Crash: A Closer Look

Returning to the central theme, Jackson meticulously outlines the events of the 1929 crash, dissecting the factors that led to the market's collapse.

Mounting Pressures and Initial Signs of Trouble

By late September 1929, cracks had begun to show in the stock market bubble. The NYSE faced declining stock prices, overvalued assets, and regulatory challenges. The arrest of fraudulent investor Clarence Hatchery and the subsequent freezing of his holdings exacerbated the situation, undermining investor confidence.

Greg Jackson [2:05:00]: "We the subscribers, brokers for the purchase and sale of public stocks do hereby solemnly promise..."

Black Thursday and Black Monday

The market entered freefall on Black Thursday, October 24, 1929, followed by Black Monday and Black Tuesday. Despite attempts by bankers like Richard Whitney to stabilize the market through massive buy-ins, the downward spiral continued unabated.

Richard Whitney [00:45]: "10,000 at 205."
(Note: Speaker attribution adjusted based on context)

The Dow Jones Industrial Average saw unprecedented losses, with billions of dollars in securities vanishing overnight. The psychological impact was profound, leading to widespread panic, loss of savings, and even suicides.

Impact on Individuals: The Story of George Mihales

Jackson personalizes the economic catastrophe by sharing the harrowing story of George Mihales, a Greek immigrant and restaurateur who lost everything due to margin calls. George's narrative exemplifies the human cost of the crash, highlighting the devastating effects on everyday Americans.

George Mihales [11:30]: "I considered killing myself because I had nothing left. I found out what a fool I had been."

Causes of the Crash: Analyzing the Factors

In dissecting the crash's causes, Jackson identifies several key contributors:

1. Overinvestment in Emerging Technologies: Excessive investments in burgeoning industries like radio, automobiles, and telecommunications led to inflated stock prices.

2. Unethical Brokerage Practices: Fraudulent activities, such as those by William Dewars and investment trusts manipulating stock values, eroded trust in the market.

3. Margin Buying: Although less prevalent than often portrayed, margin trading still amplified losses as investors were forced to liquidate assets to cover loans.

4. Federal Reserve's Limited Intervention: Internal disagreements within the Fed hindered effective regulation, allowing speculative excesses to persist until it was too late.

Greg Jackson [2:25:30]: "Unsavory trusts, overvalued tech and utility stocks, maybe a Londoner's illegal shenanigans, and of course, those unregulated on the margin stocks."

Conclusion: The Aftermath and Onset of the Great Depression

While the crash itself was a catalyst, Jackson emphasizes that it was not the sole cause of the Great Depression. Structural economic weaknesses, flawed fiscal policies, and global factors played significant roles in the ensuing decade-long economic hardship.

Greg Jackson [2:55:00]: "This crash is neither the singular cause of the Depression, nor does it explain this bleak economic period lasting for over a decade."

As Americans looked to President Hoover for solutions, their faith was tested, setting the stage for future policy responses and the eventual rise of Franklin D. Roosevelt.

Key Takeaways

• Complex Interplay of Factors: The 1929 crash resulted from a combination of overinvestment, unethical practices, speculative margin buying, and regulatory shortcomings.

• Human Impact: Beyond the numbers, the crash had profound effects on individual lives, eroding trust and financial security.

• Herbert Hoover's Role: As President during the crash, Hoover's reputation as a humanitarian was juxtaposed with his leadership during an unprecedented economic crisis.

Notable Quotes

• Pat Bologna [00:10:50]: "He hoped to get some help, but this place is packed with elbowing, consternated people..."

• Herbert Hoover [2:35:20]: "We in America today are nearer to the final triumph over poverty than ever before in the history of any land."

• George Mihales [11:30]: "I considered killing myself because I had nothing left. I found out what a fool I had been."

Further Resources

For a comprehensive bibliography of primary and secondary sources referenced in this episode, listeners are encouraged to visit htdspodcast.com.

Acknowledgments

Special thanks to the Massachusetts State Archives for providing access to historical meeting minutes and to HTDS Premium Members for their unwavering support.

This summary captures the essence and detailed discussions from Episode 170 of History That Doesn't Suck, providing an insightful exploration into the 1929 stock market crash and President Herbert Hoover's role during this pivotal moment in American history.