The Stock Market Crash of 1929, also known as the Great Crash or Wall Street Crash of 1929, began on October 24, 1929 when share prices on the New York Stock Exchange collapsed. Over the next few weeks, the stock market continued to decline sharply, fueled by mass panic selling. By mid-November 1929, the Dow Jones Industrial Average had fallen by nearly 50% from its peak in September 1929. This massive crash triggered an economic recession that turned into the decade-long Great Depression.
Here are 59 riddles exploring various aspects of the causes and effects of the 1929 stock market crash, along with detailed answers.
Causes of the Crash
Riddle: What were two economic conditions in the late 1920s that contributed to the crash?
Answer:
Overproduction/oversupply and rising consumer debt were two economic conditions that increased vulnerability to the crash. Factories and farms were producing more goods than consumers could buy, while consumer debt soared as more Americans took out loans to purchase stock or buy consumer goods on installment plans.
Riddle: Investors were said to buy stocks “on margin” in the 1920s. What does that mean?
Answer:
Buying stocks “on margin” means borrowing money from your broker to buy more stocks. Only a fraction of the actual stock price needed to be paid up front. This allowed speculators to greatly inflate stock prices during the 1920s bull market.
Riddle: There was also an “easy money” policy during the 1920s. What was the effect of this?
Answer:
The “easy money” policy, promoted by the Federal Reserve to make more loans available for businesses and consumers, enabled more Americans to take out loans to invest in the soaring stock market. This policy indirectly helped inflate the speculative stock bubble that burst in 1929.
Lead Up to the Crash
Riddle: In early September 1929, what famous banker issued a warning about stock prices being too high?
Answer:
In early September 1929, famous banker Paul Warburg warned that stocks were overvalued and due for a fall. Unfortunately, most investors dismissed his warning.
Riddle: Prices of what popular investment company’s stock doubled in the summer of 1929?
Answer:
Radio Corporation of America (RCA)’s stock price doubled in the summer months of 1929, spurring a speculative frenzy. By August, RCA stock had soared 500% above its original 1928 price.
Riddle: September 3, 1929 marked the highest point for what key index before the crash?
Answer:
The Dow Jones Industrial Average peaked at a level of 381.17 points on September 3, 1929, shortly before the crash began. This was the index’s highest point before losing nearly 90% of its value over the next three years.
October 24-29, 1929
Riddle: On Thursday October 24, 1929, the market opened to crowds of agitated investors. What did many investors rely on that suddenly stopped working?
Answer:
Investors relied heavily on buying stocks “on margin,” using loans from brokers to speculate. When forced to pay these loans back during the first day of the crash, they had to sell stocks at any price, fueling the market plunge.
Riddle: Still, Friday October 25 started off quietly, with major papers reporting what about the market?
Answer:
On Friday October 25, major papers mistakenly reported that the stock market panic from the day before had ended and stocks seemed to stabilize early in the day. This temporary confidence quickly evaporated.
Riddle: Who did speculators initially blame for falling stock prices at the end of Friday, October 25?
Answer:
At first, speculators wrongly blamed falling stock prices on leading investors and “bear raiders” supposedly conspiring together to drive down the market intentionally. In reality, the market was collapsing under its own speculative weight.
Riddle: What did investor contradicting rumors of recovery say to media outlets on Saturday morning?
Answer:
Early Saturday morning on October 26, investor Arthur Cotton told the media, “This is the turning point” and confidently declared that recovery was not imminent, directly contradicting rumors. His words made front page news alongside the market’s continuing fall.
Aftermath
Riddle: The Dow Jones reached its lowest point of the 1929 crash on what day?
Answer:
The Dow Jones bottomed out at 198.69 points on November 13, 1929, having fallen over 45% in less than two months. This day marked the lowest point of the crash.
Riddle: After falling so drastically, why were most economists and bankers still optimistic following Black Tuesday?
Answer:
Despite the violent stock market crash, many economists and financiers retained confidence that the overall economy was on a sound footing. This complacency and failure to take decisive action worsened the fallout over the next few years.
Riddle: True or false – the stock market rapidly recovered a large portion of losses in 1930.
Answer:
False. The market rallied at the start of 1930, regaining nearly 20% of ground lost by late April. However renewed selling erased these gains for the rest of the year as the Depression took hold. Stocks would bottom out in July 1932, down almost 90%.
Economic and Social Effects
Riddle: How much had been lost from the NYSE in the fall from September to November 1929?
Answer:
An estimated $30 billion was lost from the New York Stock Exchange over the fall of 1929 during the crash, the equivalent of about $500 billion today.
Riddle: About a fifth of the U.S. population at the time owned stock. How many shareholders were ultimately wiped out by the crash?
Answer:
An estimated 4 million U.S. shareholders lost their entire investments in the 1929 crash. by 1932, only 1 million Americans still held stocks.
Riddle: What was the unemployment rate in the U.S. before and during the Great Depression?
Answer:
Before the depression struck, U.S. unemployment was about 3%. At the depth of the depression in 1933, unemployment soared to 25% with more than 15 million Americans out of work.
Role of Federal Reserve
Riddle: What action by the Federal Reserve immediately following the crash likely made conditions worse long-term?
Answer:
The Federal Reserve raising interest rates after the initial stock market crash likely worsened the economic decline over the next few years. This tight money policy restricted loans for businesses and consumers when expansion was needed.
Riddle: True or false – the Federal Reserve worked closely with the stock market leading up to and during the crash.
Answer:
False. The Federal Reserve had little involvement with monitoring stock market speculation in 1929. It considered stock prices outside its jurisdiction, a view that left the market severely overinflated by 1929.
Riddle: What term describes the Federal Reserve’s failures to limit speculation before and respond decisively after the 1929 crash?
Answer:
The Federal Reserve’s poor decisions surrounding the crash reflect “nonaccomodative monetary policy.” This term describes failing to temper speculation pre-crash while also not doing enough to expand money supply post-crash.
Regulatory Reforms
Riddle: What major federal agency was established in 1934 to help regulate financial markets?
Answer:
The Securities and Exchange Commission (SEC) was created in 1934 to establish transparency around stock and bond markets and prevent corporate fraud. This agency still regulates financial markets today.
Riddle: What important requirement makes another 1929-style stock bubble less likely today?
Answer:
The establishment of the Securities Exchange Act of 1934 now prohibits buying stocks predominantly using borrowed money from brokers. This margin lending requirement helps prevent rampant speculation bubbles.
Riddle: By 1935, what percentage of trades were made on margin, down from over 90% in 1929?
Answer:
Following reforms, only around 10% of stock purchases were made on margin by 1935, down sharply from over 90% of trades in the speculative heyday leading up to 1929.
Could It Happen Again?
Riddle: True or false – a crash on the scale of 1929 could easily happen again today.
Answer:
False. Regulatory and economic reforms mean a sudden 50% crash like in 1929, fueled by unchecked speculation, is very unlikely. However, major downturns are still possible in today’s market.
Riddle: What type of stocks were blamed for worsening the 1929 crash – blue chip stocks, income stocks, growth stocks, or speculative stocks?
Answer:
Rampant speculation focused excessively on speculative and “growth” stocks rather than secure “blue chip” stocks or reliable dividend-paying “income” stocks. Lack of diversification heightened losses.
Riddle: Could a major crash still start overseas and spread globally?
Answer:
Yes, while reforms protect individual economies, major crashes could still be triggered globally and spread rapidly between interconnected modern financial markets across borders, enabled by technology.
Lasting Impact
Riddle: Economically, what permanent view or behavior shifted after a whole generation of Americans lost their savings?
Answer:
The crash bred widespread skepticism and distrust of financial markets and investments that discouraged speculation and lasted well beyond the 1929 generation. More broadly, it shook confidence in unfettered capitalism.
Riddle: What was the total loss of wealth just from falling stock values between 1929-1933?
Answer:
$74 billion was wiped out from American wealth just from declining stock values between 1929 to 1933, reflecting a 30% drop in national wealth largely tied up in stocks.
Riddle: What important insight about stock markets did economists gain from studying crashes like 1929?
Answer:
The frequency of boom and bust cycles throughout history showed economists that stock markets appear to follow inevitable ups and downs only partially tied to broader economic trends. Crashes correct overvaluation.
Conclusion
The Stock Market Crash of 1929 devastated Wall Street and Main Street alike, triggering bank failures, mass unemployment, and the decade-long Great Depression. Its legacy included sweeping financial reforms and shifted attitudes toward investing for generations of Americans. Speculation fueled the 1929 bubble, while lack of foresight to address overinflated stock prices and failure to contain fallout transformed a market correction into national catastrophe. While regulatory measures help prevent this exact scenario today, the crash imparts enduring lessons about manageing risk, ensuring transparency, and guarding against excess in financial markets. Riddle me this – could panic and financial crisis emerge once again in new and unexpected ways?
