1929

Before the 1920s, taking on personal debt was widely considered a moral failing. This cultural taboo dissolved when corporations like General Motors and Sears introduced installment plans to help ordinary consumers purchase automobiles and appliances. The destigmatization of borrowing quickly spread to Wall Street, where brokerages began offering retail investors the ability to buy stocks on margin.
By putting down as little as ten percent of a stock's purchase price and borrowing the rest, amateur investors flooded the market with highly leveraged capital. This explosive influx of borrowed money drove stock prices completely untethered from their underlying economic fundamentals.

The speculative fervor of the era was heavily amplified by the emergence of groundbreaking technologies like the radio. Companies such as the Radio Corporation of America captured the public imagination in a manner identical to modern artificial intelligence firms. Investors treated these technological pioneers as guaranteed avenues to wealth.
This concentrated excitement masked severe vulnerabilities in the broader economy. The massive boom in specific innovation sectors convinced the public that the stock market had reached a permanently high plateau. Ordinary individuals ignored standard risk assessments and poured their savings into the market with irrational exuberance.

Wealthy insiders exploited the influx of amateur investors by organizing highly coordinated stock pools. Speculators would combine their capital to purchase large blocks of shares in a target company. The group would then rapidly trade these shares among themselves to paint the tape, creating a false illusion of upward momentum and high demand.
Unsuspecting retail investors would witness this manufactured price climb and rush to buy the inflated shares. Once the stock price peaked, the pool operators would dump their holdings for massive profits. This predatory behavior remained entirely legal at the time and continuously siphoned wealth from the general public into the hands of a few elites.

Major financial institutions constructed elaborate mechanisms to preserve their power and influence political actors. The House of Morgan routinely utilized preferred lists to offer discounted shares of new ventures to highly connected individuals. Former presidents, sitting politicians, and powerful executives were granted the opportunity to purchase stock at prices far below the public market rate.
These discounted offerings functioned as legalized bribery, ensuring that the financial elite remained immune from government oversight. Bankers operated with near total autonomy and vehemently resisted any attempts by Washington to regulate their highly profitable, closed door operations.

When the market began to violently contract in late October 1929, the technological infrastructure of the New York Stock Exchange failed completely. The unprecedented volume of sell orders overwhelmed the trading floor, causing the stock ticker to fall up to five hours behind actual market prices.
This severe information vacuum transformed orderly selling into a blind panic. Investors had no accurate method of determining the current value of their portfolios or the extent of their margin calls. The inability to access real time data forced traders to sell their assets indiscriminately to escape the collapsing market.

As the crash accelerated, financial leaders took extreme and highly irregular actions to protect their institutions. Charles Mitchell, the head of National City Bank, discovered that his own trading unit had purchased seventy one thousand shares of the bank's stock to artificially prop up its price. This unauthorized $32 million purchase threatened to bankrupt the institution because banking laws strictly prohibited using a bank's own stock as loan collateral.
To hide this toxic asset and prevent a catastrophic bank run, Mitchell personally borrowed $12 million to buy the shares directly from his own bank. He risked his entire personal fortune to maintain a facade of institutional solvency, demonstrating the extreme lengths to which executives would go to conceal systemic rot.

The Federal Reserve exacerbated the financial collapse through its strict adherence to the flawed Real Bills Doctrine. This economic philosophy dictated that bank credit should only be tied to the production of physical goods, leading policymakers to view any lending for stock market speculation as a vice that had to be eradicated.
Instead of injecting liquidity into the failing banking system, the Federal Reserve initiated a direct pressure campaign to restrict credit and punish speculators. This policy choice permitted the national money supply to contract by roughly one third between 1929 and 1933. The deliberate starvation of capital turned a severe financial panic into a decade long economic depression.

The governmental response to the crash highlighted a massive shift in political philosophy regarding crisis management. President Herbert Hoover viewed the collapse as a psychological phenomenon and relied on voluntary cooperation from business leaders, vehemently resisting direct federal intervention. His passive, technocratic approach failed to inspire public confidence or halt the economic unraveling.
In stark contrast, Franklin D. Roosevelt utilized bold executive action and direct public communication to alter the country's trajectory. By immediately declaring a national bank holiday and addressing the public through radio broadcasts, Roosevelt successfully stabilized the banking panic. His administration decisively shifted the national framework from self regulated private finance to a system defined by federal oversight and public trust.

Public fury over the economic devastation eventually forced a monumental congressional reckoning. The Pecora hearings relentlessly investigated Wall Street elites, exposing widespread tax avoidance, massive executive bonuses, and the deeply unethical mechanics of preferred lists and stock pools.
This public humiliation shattered the myth that bankers were responsible stewards of the national interest. The resulting legislative overhaul completely transformed the American financial system. Congress passed the Glass Steagall Act to separate commercial banking from investment banking and created the Securities and Exchange Commission to permanently outlaw the deceptive practices that caused the crash.