The Biggest Stock Market Events of the Past Century

Wed, Jul 15, 2015

Financial News

The United States has grown to be the single largest economy in the world over the past few centuries. The value of everything produced in the country just last year stood at an astounding $16.77 trillion.

Compare that to the second largest economy, China, and it’s easy to understand why the nation has such a major impact on the global economic climate.

But this monumental growth over the years has not come without a fair dose of colossally major struggles. Economists love to point out that growth can never come in a straight line, and this is especially true for America. Not only has the country gone through two World Wars, but it’s also experienced countless stock market upheavals in just the last century.

Here are a few of the biggest events that shook the markets in the past 100 years.

The Panic of 1907

It was a young country with an even younger stock market back in 1907. But this was no ordinary year of growth – instead the index had declined over 25% since the start.

But things were about to get a lot worse. Brothers Otto and Augustus Heinz partnered with wealthy business magnate, Charles W. Morse to corner the market in copper. Since the stocks in United Copper were falling, they bought up as much as they could.  But their plan failed spectacularly and all their trusts companies were forced to declare bankruptcy.

This jolted the system and there were runs on the bank as people panicked and tried to get their money out. The panic caused a chain reaction which resulted in more and more companies going out of business.

It was only stopped by a 70-year-old financier named J. P. Morgan, who came up with $25 million from 50 trust companies and saved the day. The legacy of these events can still be seen today:  J. P. Morgan is still one of the biggest names on Wall Street and the government decided to instate a Federal Reserve to make sure they never have to depend on a single man again.

The Crash of 1929

Technology was rapidly developing and the only World War the world had experienced at the time was over, so people in the nation felt somewhat optimistic. They bought stocks like never before and this caused a speculative bubble. Some even borrowed money to put into the market.

The crash came in an extended three day drop. The first day the market experienced selling volumes that were three times the average. The second day saw another 13% drop, that was soon followed by yet another 12% the very next day.

Altogether, the market lost over $30 billion. This may seem like a tiny amount today, but back then it was ten times the annual budget of the government and much more than what was spent in World War I. The market wouldn’t recover for another 25 years.

The Great Depression

The crash of ‘29 led directly to the Great Depression. The era saw business cut back on jobs due to the losses in value since the crash, and this led to extremely high joblessness. Because of record high unemployment, people began defaulting on their loans and banks stopped giving out new loans. Within a decade, over 9,000 banks would fail.

This was possibly the worst economic time in U.S. history. People were known to wander the streets looking for jobs, enter restaurants and cobble together a meal out of free ketchup, hot water and crackers; and sleep with an old sheets of newspaper as blankets. Franklin D. Roosevelt would improve the economy substantially in later years, but it would not fully recover till the Second World War.

Subprime Mortgage Crisis

Flipping houses was so popular for a time that there were TV shows around the topic. Then there were banks giving out NINJA loans (No Income, No Job, no Assets) at an alarming rate. All this uncontrolled lending led to reckless securitization that put the whole system at risk and created the biggest bubble since 1929, and an equally bad crash.

The 2008 Financial Crisis saw the forced foreclosure of over 1.3 million homes, the biggest drop in global equity prices in a generation and a deep worldwide recession. The Government has since launched a massive Quantitative Easing program that has only been wound down in the past year or so.

Economic tragedies are always just around the corner and the boom-bust cycle is something most experienced players expect when they put money on the table. But there are very few who can actually predict a market crash.

Even after a century, many economists still don’t agree about what exactly caused the Great Depression or the 2001 tech bubble. So the best an investor can often do is to limit risk as much as possible and expect the worst.

About the Author:  Andrew May is a Chicago hedge fund attorney and the founding member of May Law, a firm that specializes in commercial and finance law.  Andrew is also a frequent guest blogger who enjoys sharing his passion and expertise with readers.  Click here for more info.  


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