The 1929 Wall Street Crash: Anatomy of a Bubble

The 1920s had been a decade of rapid industrial growth in the United States, and the stock market reflected that optimism many times over. Share prices had climbed for years, fuelled in part by margin lending that let investors buy stock while putting down only a fraction of the price in cash — often as little as ten percent.

That leverage worked wonderfully on the way up, magnifying gains and drawing in a growing pool of first-time investors. It became just as dangerous on the way down: a modest decline in prices could wipe out an investor's equity entirely and trigger a margin call, forcing a sale that pushed prices lower still.

The unwind began in earnest in October 1929. On what became known as Black Thursday, October 24, panic selling saw roughly 13 million shares change hands, a record at the time, though a group of major banks intervened to buy stock and steady the market that afternoon. The reprieve was short-lived.

The following Monday and Tuesday — Black Monday and Black Tuesday — brought renewed, uncontrolled selling. Over the four trading sessions from October 24 to 29, the market lost roughly a quarter of its value, and the decline continued in waves over the following months and years.

It's a common misconception that the crash alone caused the Great Depression. In reality, it acted as a trigger and an accelerant on top of existing weaknesses: an overextended banking system, weak international trade arrangements, and a Federal Reserve that tightened credit conditions at precisely the wrong moment, deepening the contraction that followed.

The aftermath reshaped American financial regulation for a generation. The Glass-Steagall Act separated commercial and investment banking, and the Securities Act and Securities Exchange Act established disclosure requirements and created the Securities and Exchange Commission, laying the groundwork for the regulatory architecture that still governs U.S. markets today.