Briefing on the 1929 Stock Market Crash and Its Aftermath
Executive Summary
This document synthesizes an in-depth narrative of the 1929 stock market crash, its causes, and its profound consequences for American finance and society. The analysis reveals that the crash was not merely a technical market event but a deeply human drama driven by the ambitions, flaws, and rivalries of a handful of powerful figures on Wall Street and in Washington. The central theme is the corrosive power of debt and the fragility of economic confidence. The Roaring Twenties saw the birth of a modern consumer economy fueled by unprecedented access to credit, which extended into the stock market through “on margin” buying, creating a speculative bubble.
Key figures like Charles “Sunshine Charlie” Mitchell of National City Bank championed this new era of democratized investment, while others, such as Jesse Livermore and William C. Durant, became celebrity speculators. The Federal Reserve, a relatively new institution, struggled to contain the bubble, leading to a direct confrontation in March 1929 when Mitchell defied the Fed to avert a credit crisis, a move that made him a temporary hero but a long-term political target. The crash itself, unfolding over a series of catastrophic days in late October 1929, wiped out fortunes, exposed the systemic risks of leveraged speculation, and revealed the inability of Wall Street’s titans, including Thomas Lamont of J.P. Morgan & Co., to control the panic as they had in the past.
The aftermath saw the nation slide into the Great Depression, a relentless unraveling marked by mass unemployment and thousands of bank failures. The search for accountability led to the celebrated Pecora Hearings, which exposed the ethically dubious, though often legal, practices of Wall Street’s elite, including tax avoidance schemes by Mitchell and preferential stock offerings by the House of Morgan. This public excoriation paved the way for landmark reforms under the Roosevelt administration, most notably the Glass-Steagall Act of 1933, which fundamentally reshaped the American banking system by separating commercial and investment banking. The narrative concludes by chronicling the dramatic falls from grace of the era’s titans, illustrating that the ultimate lesson of 1929 is the cyclical nature of human folly, the dangers of collective delusion, and the need for humility in the face of market forces.
Principal Actors and Institutions
The narrative of the 1929 crash is driven by a cast of powerful and complex individuals whose decisions shaped the era.
Wall Street Titans
Name
Role & Significance
Charles E. Mitchell
Chairman & CEO of National City Bank. A primary architect of the “democratized” stock market, aggressively promoting margin loans to small investors. He was dubbed “Sunshine Charlie” for his optimism. His defiance of the Federal Reserve in March 1929 made him a hero to Wall Street but a primary target for investigators after the crash, leading to his indictment for tax evasion.
Thomas W. Lamont
Senior partner at J.P. Morgan & Co. An influential “ambassador of American affluence,” he was a central figure in international finance, including the German war reparations negotiations. He organized the bankers’ pool in an attempt to halt the October 1929 panic, emulating J.P. Morgan Sr.’s actions in 1907.
J.P. “Jack” Morgan Jr.
Head of J.P. Morgan & Co. and son of the legendary founder. A more private and less domineering figure than his father, he relied heavily on partners like Lamont. The Pecora hearings exposed his and his partners’ non-payment of income taxes, tarnishing the firm’s reputation.
Richard Whitney
Vice President of the New York Stock Exchange (NYSE) and broker for J.P. Morgan & Co. Hailed as the “White Knight of Wall Street” for his dramatic bid to buy U.S. Steel on Black Thursday. He later became NYSE President and a fierce defender of Wall Street practices, but was ultimately imprisoned for embezzlement.
William C. Durant
Co-founder of General Motors and one of the nation’s most famous speculators. A vocal critic of the Federal Reserve, he worked with Mitchell to oppose its credit-tightening policies. He lost his entire fortune in the crash and its aftermath, eventually declaring bankruptcy.
Jesse Livermore
A legendary speculator known as the “Boy Plunger” and a notorious short seller. He made and lost several fortunes, including an estimated $100 million by betting against the market during the 1929 crash. He later lost this fortune and died by suicide in 1940.
John J. Raskob
Executive at DuPont and General Motors and Chairman of the Democratic National Committee. A major market player who promoted the idea that “Everybody Ought to Be Rich” through stock investment. He was the primary force behind the construction of the Empire State Building.
Albert H. Wiggin
Chairman of Chase National Bank. He was rumored to be the only man to have ever turned down a Morgan partnership and was a key recipient of preferential stock offerings.
Washington & Regulatory Figures
Name
Role & Significance
Herbert Hoover
31st U.S. President (1929-1933). An engineer who believed the economy could be managed rationally, he was uneasy with the speculative boom but was unable to prevent the crash or the subsequent Depression. His administration’s response was seen as ineffectual, leading to his landslide defeat in 1932.
Carter Glass
U.S. Senator from Virginia. A primary architect of the Federal Reserve System, he became Wall Street’s fiercest critic. He viewed Mitchell as the “chief offender” for the crash and relentlessly pursued banking reform, culminating in the Glass-Steagall Act of 1933.
Andrew Mellon
Secretary of the Treasury (1921-1932). One of America’s wealthiest men, he was seen as a symbol of the 1920s prosperity. His post-crash advice was to “liquidate labor, liquidate stocks, liquidate the farmers,” believing the downturn would “purge the rottenness out of the system.”
The Federal Reserve
The U.S. central banking system. A young and untested institution, it was politically compromised and failed to effectively curb the speculative bubble. Its attempts at “moral suasion” were ignored, and its internal divisions prevented decisive action.
Investigators and Reformers
Name
Role & Significance
Ferdinand Pecora
Chief Counsel for the Senate Banking Committee. Known as the “Hellhound of Wall Street,” his tenacious interrogation of figures like Mitchell and Morgan during the Pecora Hearings exposed financial abuses to a shocked public and created the political momentum for sweeping reforms.
Franklin Delano Roosevelt
32nd U.S. President (1933-1945). Elected in a landslide in 1932, his administration ushered in the New Deal. He signed the Glass-Steagall Act and established the Securities and Exchange Commission (SEC), fundamentally altering the relationship between government and finance.
Winthrop Aldrich
Chairman of Chase National Bank (after Wiggin). A rival to the House of Morgan, he unexpectedly became a key advocate for reform, pushing for a complete separation of commercial and investment banking that went further than Carter Glass’s initial proposals.
The Pre-Crash Environment: A Culture of Credit and Speculation
The crash did not occur in a vacuum. It was the culmination of a decade of profound social and economic transformation.
• Birth of the Consumer Economy: The 1920s saw millions of Americans move to cities for higher-paying jobs, creating mass markets for new goods like cars, radios, and appliances.
• The “Magic” of Credit: The taboo against personal debt eroded. General Motors began selling cars on credit in 1919, and soon “installment plans” became ubiquitous. The greatest product of the era was credit itself, allowing consumption to be pulled forward from the future.
• Democratization of Stock Ownership: Wall Street applied the “buy now, pay later” model to stocks through margin accounts. Middle-class Americans could buy stock with as little as a 10% down payment. Margin loans grew from $1 billion to nearly $6 billion during the decade. Charles Mitchell of National City was a key proponent, believing he was enabling “the Everyman” to participate in American prosperity.
• The Rise of the Financier-Celebrity: For the first time, businessmen and financiers became household names and media celebrities. Magazines like Time and Forbes featured them on their covers, and their pronouncements were treated “like scripture.” Wealth was equated with brilliance.
• Underlying Imbalances: This prosperity was not universal. As technology made farming more efficient, agricultural workers fell into economic distress, creating a “widening gulf between the urban haves and the rural have-nots.” Government, under the laissez-faire ethos of President Calvin Coolidge, took little notice.
The Road to Collapse: Key Events of 1929
• The Federal Reserve’s Warning: In February 1929, the Federal Reserve Board in Washington, fearing a speculative bubble, issued an advisory discouraging loans for stock speculation. This tactic of “moral suasion” caused a temporary dip but ultimately failed to curb the market’s enthusiasm.
• Mitchell’s Defiance: On March 26, 1929, as the Fed’s policies caused call money rates to spike to 20%, triggering a market plunge, Charles Mitchell stepped in. He announced National City Bank would provide $25 million in loans to stabilize the market, stating this obligation was “paramount to any Federal Reserve warning.” This act of defiance halted the panic and made Mitchell a hero, but it infuriated Senator Carter Glass and marked Mitchell as a future target.
• Speculative Pools: A common practice among insiders was the “stock pool.” A group would covertly buy up a company’s shares, use a specialist on the NYSE floor to trade shares among themselves to create the illusion of activity (“painting the tape”), and drive up the price. Gullible investors would jump in, at which point the pool would “pull the plug” and sell its shares for a massive profit.
◦ The RCA Pool: In March 1929, a pool for Radio Corporation of America (RCA) stock, the era’s glamour stock, was organized by specialist Michael Meehan. In just over a week, the pool raised over $12.6 million and generated a net profit of nearly $5 million for participants including William Durant and John Raskob.
• The “Young Plan”: In the summer of 1929, American financiers including Thomas Lamont and Owen Young finalized a plan for German war reparations. This was seen as a major diplomatic achievement for Wall Street, but the complex web of international loans it created left American banks highly exposed to a European downturn.
• Babson vs. Fisher: On September 5, 1929, economist Roger Babson famously warned, “Sooner or later a crash is coming which will take in the leading stocks.” This caused a brief market dip known as the “Babson Break.” However, his warning was widely dismissed, most prominently by Yale economist Irving Fisher, who declared just days later that “Stock prices have reached what looks like a permanently high plateau.”
The Crash of October 1929
The collapse unfolded over a series of days that have become iconic in financial history.
• Black Thursday (October 24): The market opened with a wave of panic selling. Tickers fell hours behind, amplifying the fear. At noon, Thomas Lamont convened a meeting of top bankers at J.P. Morgan & Co. They established a pool of funds (initially $120 million, later rising to $250 million) to support the market. At 1:30 PM, NYSE Vice President Richard Whitney, acting for the pool, strode onto the floor and loudly placed a bid for 10,000 shares of U.S. Steel at a price well above the market. This theatrical gesture temporarily halted the slide, earning Whitney the title “White Knight of Wall Street.” The Dow closed down, but had recovered from its lowest point.
• Black Monday (October 28): The confidence inspired by the bankers’ pool evaporated over the weekend. The market plunged again, with the Dow falling 13%. The bankers’ consortium realized they could not support the entire market and were reduced to plugging “air pockets” (stocks with no buyers at any price).
• Black Tuesday (October 29): The most devastating day in the market’s history. Over 16 million shares were traded as prices collapsed across the board. The Dow fell another 11.7%. Efforts by the bankers were futile; as Lamont acknowledged, “no man nor group of men can buy all the stocks that the American public can sell.”
• Mitchell’s Crisis at National City: During the panic of Black Monday, Charles Mitchell was at the J.P. Morgan offices. He returned to his bank to learn that his stock-trading unit, in a desperate attempt to support the bank’s stock price, had purchased 71,000 shares for $32 million—money the bank did not have. This created a “deadweight” that threatened National City’s solvency. To save the bank, Mitchell personally borrowed $12 million to buy a portion of the stock from the bank’s trading affiliate.
The Aftermath and The Great Depression
The crash was not a singular event but the start of a protracted economic crisis.
• Initial Underestimation: In the immediate aftermath, President Hoover and many business leaders insisted the “fundamental business of the country… is on a sound and prosperous basis.” The Dow closed 1929 down only 17% for the year, leading to false hopes of a quick recovery.
• The “Hoover Market”: In 1930, the market rally failed, and a relentless, grinding decline began, which Wall Street cynically dubbed the “Hoover market.” The crash eviscerated credit markets, leading to mass unemployment (reaching nearly 24% by 1932) and waves of bank failures. The failure of the Bank of United States in December 1930, which held the savings of 400,000 mostly immigrant workers, was a major blow to public confidence.
• Search for Scapegoats: As the Depression deepened, public anger turned toward Wall Street. Julian Sherrod, a former National City bond salesman, wrote a bestselling exposé titled Scapegoats. Senator Carter Glass publicly blamed Mitchell, stating he was the man “more responsible than all others together for the excesses that have resulted in this disaster.”
The Regulatory Reckoning: The Pecora Hearings and Glass-Steagall
The political backlash against Wall Street culminated in a dramatic series of Senate hearings and landmark legislation.
• The Pecora Hearings: The Senate Banking Committee’s investigation into the crash was moribund until it hired Ferdinand Pecora as chief counsel in January 1933. Pecora’s aggressive, theatrical interrogations turned the hearings into a national spectacle.
• The Trial of Charles Mitchell: Pecora’s first major target was Mitchell. Over several days of testimony, Pecora forced Mitchell to admit to:
◦ Receiving over $1 million in bonuses in 1929 while avoiding any income tax.
◦ Arranging a “sham” sale of 18,300 shares of National City stock to his wife, Elizabeth, on December 30, 1929, to realize a $2.8 million tax loss.
◦ His sales force promoting risky foreign bonds, like those of a Brazilian state, despite internal reports warning of their poor quality.
• The Grilling of the House of Morgan: In May 1933, Pecora called Jack Morgan and his partners to testify. The hearings revealed:
◦ Tax Avoidance: Neither Jack Morgan nor any of his 19 partners paid any federal income tax in 1931 or 1932, due to massive capital losses.
◦ “Preferred Lists”: The firm offered shares in new companies like Alleghany Corporation to a “preferred list” of influential individuals at a steep discount to the market price. Recipients included former President Coolidge, Charles Lindbergh, and John J. Raskob. This was widely seen as a form of influence-peddling.
• Passage of the Glass-Steagall Act (1933): The public outrage fueled by the hearings created unstoppable momentum for reform. The final act was a political compromise:
◦ Separation of Banks: It mandated the separation of commercial banking (taking deposits and making loans) from investment banking (underwriting securities). This was aimed at preventing banks from speculating with depositors’ money. J.P. Morgan & Co. was forced to choose, eventually spinning off its investment banking arm into Morgan Stanley.
◦ FDIC Creation: It established the Federal Deposit Insurance Corporation (FDIC) to guarantee bank deposits (initially up to $2,500), a provision championed by Rep. Henry Steagall to stop bank runs, though initially opposed by both Glass and Roosevelt.
The Fates of the Key Figures
The aftermath of the crash brought ruin and disgrace to many of the era’s most prominent figures.
• Charles Mitchell: Indicted for tax evasion. In a stunning verdict, he was acquitted in June 1933 after his lawyer argued he was a “scapegoat for the crash” and had followed legal advice. However, the government pursued him in civil court, bankrupting him. He eventually returned to business with a small investment firm.
• Richard Whitney: The “White Knight” was exposed as an embezzler. Having stolen millions from his clients’ accounts, the NYSE Gratuity Fund, and even the New York Yacht Club to cover his speculative losses, he was sentenced to Sing Sing prison in 1938.
• William Durant: The auto magnate and speculator was wiped out. He declared bankruptcy in 1936 with debts of over $900,000 and assets of just $250 worth of clothing.
• Jesse Livermore: After making $100 million shorting the 1929 crash, he lost it all in subsequent bad trades. Beset by financial troubles and personal turmoil, he died by suicide in a hotel cloakroom in 1940.
• Thomas Lamont: He and the House of Morgan were tainted by the Pecora hearings and the Whitney scandal. Lamont was accused by the SEC of participating in an “unwritten code of silence” by not reporting Richard Whitney’s crimes. The firm was forced to split under Glass-Steagall.
• Carter Glass: His eponymous act became his crowning legislative achievement, though the final version included provisions (universal bank separation and deposit insurance) that he either opposed or was forced to accept. He remained a powerful but curmudgeonly senator until his death.
Core Themes and Conclusions from the Narrative
• The Primacy of Human Nature: The crash is portrayed not as an inevitable economic event but as the result of greed, ambition, ego, and fear among powerful individuals. From Mitchell’s hubris to Lamont’s clubby attempts to control the panic, human decisions were paramount.
• Debt as a Double-Edged Sword: Debt is identified as the “singular through line” of financial crises. It is a “powerfully optimistic force” that pulls future wealth into the present, but when overused, it leads inevitably to panic when the future grows “small and dark.”
• The Illusion of the “New Era”: The belief that “this time is different” is a recurring feature of speculative manias. The 1920s were seen as a “new economic era” where old rules no longer applied, a collective delusion that allowed risk to be dangerously mispriced.
• The Fragility of Confidence: The market boom was built on confidence, described as the “lifeblood of our economy.” It disappeared “gradually, then suddenly,” a process that proved impossible to reverse through reassurances from politicians or bankers.
• The Cyclical Nature of Forgetting: The narrative concludes that the most enduring lesson is “how easily we forget.” Societies recover, but the memory of past follies fades, setting the stage for the next cycle of irrational exuberance and painful correction. The ultimate antidote is not just regulation but “humility.”
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