1929
Andrew Ross Sorkin
GENRE: History
PAGES: 455
COMPLETED: March 23, 2026
RATING: 
Short Summary
The 1929 stock market crash was one of the darkest periods in Wall Street history. In 1929, Andrew Ross Sorkin describes what led to the crash and how it served as a catalyst for the Great Depression.
My Takeaways
1️⃣ A Perfect Storm Caused the 1929 Stock Market Crash
The 1929 stock market crash will always be remembered as one of the darkest stretches in Wall Street history. When the dust finally settled and the crash bottomed out, the Dow Jones Industrial Average had dropped close to 25% in 4.5 days of trading.
For investors, those couple of days in late October 1929 were something out of a nightmare. The panic selloff began on Thursday, October 24, a day known as “Black Thursday.” That chaotic first day of the crash saw a staggering 12.9M shares traded as investors rushed to sell their stocks and preserve their capital. The Dow immediately fell 11% in the morning. Thanks to a group of six massive New York City banks coming together to infuse $250M into the market and stabilize the situation, the Dow finished with just a 2% loss on Black Thursday. But the worst was yet to come.
After relatively calm days of trading on Friday and Saturday (half day), panic returned on “Black Monday.” Another 9M shares were traded as the Dow tumbled another 13%. To finish things off, “Black Tuesday” saw the Dow fall another 11.7% as 16M shares were traded — the single heaviest trading day in New York Stock Exchange history. The New York Times called Black Tuesday, “the most disastrous day in Wall Street history.” Millions of people watched their lifesavings disappear out of thin air.
So, what caused this crash? There’s really not a single event that triggered it. Like any perfect storm, there were a few nasty conditions that conspired to cause major damage — in this case a massive collapse in stock prices.
The first condition was delusion. There was an overwhelming feeling of optimism — bordering on hubris — on Wall Street in 1929. In fact, the 1920s became known as “The Roaring 20s” because of the prosperity in the stock market and general economy. Leading into the 1929 crash, the Dow had experienced seven years of uninterrupted growth. The sizzling stock market created an environment of complacency where most people felt safe. When stocks began falling, very few people were emotionally prepared. Delusion — the belief that the stock market simply wouldn’t fall — was the foundation of the crash.
The second condition was the skyrocketing popularity of credit and debt in the economy. In the 1920s, there was a rapid rise in the use of debt (i.e. loans) to purchase assets like cars, houses, and other goods. Eventually brokers decided to get in on the action by allowing people to borrow money to buy stocks — an innovation they called “margin trading.” Trading on margin allowed investors to borrow money to buy far more shares than they could afford in cash alone. Because the stock market was hot for most of the 1920s, trading on margin created enormous returns on capital for investors who knew what they were doing. The problem was that people eventually became greedy and started abusing margin trading by taking out huge loans to speculate in the stock market. Margin loans grew from $1B at the beginning of the decade to nearly $6B by 1929, and brokers were loaning $137M per day to investors. These margin investors were driving up the buying in the market, inflating it into what became a dangerous bubble.
The third condition was the enormous number of new investors flooding into the stock market. Many Americans worried about missing out on the enormous wealth that stocks were creating in the 1920s. They had to jump in. To help more people participate in the stock market, investment pools/trusts were made popular in the 1920s. These vehicles bundled together baskets of stocks selected by professional managers, making it easier than ever for everyday people to invest. Unfortunately, many of these investment pools and trusts were highly leveraged and speculative. Some managers took enormous risks, and many new investors were inexperienced. When prices began to fall, panic spread quickly.
The fourth condition was lack of regulation. Compared to today, Wall Street in the 1920s was like the Wild West. There was no Securities and Exchange Commission (SEC) to oversee things, and many of the rules governing today’s markets had not yet been created. The result was rampant market manipulation, speculation, and insider trading, primary performed by ultra rich people and prominent players inside the banking and finance industry. With very few regulations in place, the constant stock price manipulation created enormous gains for these shady characters, driving the market higher and higher. The rampant speculation created a false impression of limitless returns, which persuaded more and more everyday Americans to invest in the stock market.
The Federal Reserve watched as these conditions brewed. It sensed there was a big bubble in the stock market that was close to popping. The Fed’s initial reaction was to raise interest rates. It believed this would slow the speculators (and the market) by making it more expensive to borrow money from banks for things like margin trading. Many of the major Wall Street players adamantly opposed the Fed’s ideas. They were making huge gains in the stock market; the last thing they wanted was for the Fed to cool it off. One of those big players — Charles Mitchell of National City Bank — the largest bank in the world at the time — decided to undermine the Fed and every other bank by lending money to investors at discounted interest rates. This helped keep the market sizzling, and on September 3, 1929, the Dow reached an all-time high.
All of these events set the stage for a downturn. At first, it started slowly. Between Labor Day and October 2, the market dropped 10%. It fell another 8% during the week of October 19. Black Thursday (October 24) was when the actual crash began, and it was caused by the final condition: pure panic. At that point, a vicious cycle took over. Inexperienced investors — many of whom had borrowed heavily to buy stocks on margin — became so worried about losing all their money that they rushed to sell their stocks. As prices fell hard, brokers issued margin calls and liquidated accounts by selling stock collateral to recover as much money as possible. This forced-selling pushed prices even lower, created more panic, and caused even more margin account liquidations. Seeing blood in the water, short sellers began shorting stocks, driving the market even lower. Making matters worse, the New York Stock Exchange was overwhelmed — the humans running it couldn’t keep up with the avalanche of orders, so the ticker tape was always way behind real-time prices. This added to the confusion, fear, and chaos.
If it weren’t for the six large NYC banks coming together to infuse $250M into the market, things would have been much worse on Black Thursday. As it turned out, Black Monday and Black Tuesday essentially negated this infusion of cash as the damage continued. In just two months, the market had fallen in half, wiping out $50B — half of the U.S. gross national product. The market continued to slide in November and December, helping to usher the Great Depression.
2️⃣ The 1929 Crash Triggered the Great Depression
If the stock market crash of 1929 didn’t directly cause the ensuing Great Depression, it was certainly a triggering event that contributed greatly to so many of the era’s economic problems. Following the chaos of October 1929, stock prices continued to fall. By 1932, the market had dropped 80% from its 1929 highs and the United States fell into a crippling decade-long economic depression. Millions of people lost their savings, their home, their jobs, and so much more.
One of the first major problems triggered by the crash was widespread bank failures. Even before the crash, the national banking system was weak, made up of thousands of small, undercapitalized institutions scattered across rural areas that were struggling. Countless banks were technically insolvent, barely able to stay a half step ahead of depositors. When the crash happened, they didn’t stand a chance.
After losing money in the crash, many people rushed to their bank to withdraw their savings. Banks, which only hold a fraction of their deposits in cash, were unable to cover the sudden swarm of withdrawal requests. This led to a massive number of bank runs, as people completely lost confidence in banks to protect their money. Unable to cover deposits, thousands of banks eventually failed. The failure of The Bank of United States in 1930 was a huge one — it was largest bank failure in history at the time. The failure of The Bank of Pittsburgh was another startling development. By 1932, nearly 11,000 banks had failed, wiping out the savings of millions of Americans.
With confidence in banks at an all-time low, people became scared of debt — nobody wanted to borrow money. Likewise, banks were hesitant to issue loans because thousands of homeowners were defaulting on their mortgage, unable to make their payments. This led to a mindset of hoarding and saving. People were scared and didn’t know who they could trust with their cash. They simply did not want to spend their money or save their money in a bank. Many folks resorted to stuffing money into their mattress!
With the public unable, or unwilling, to spend money, businesses began to suffer. This led to another ugly feature of the Great Depression: mass unemployment. Looking to cut costs, thousands of businesses slashed jobs. Compounding the issue, it also became nearly impossible to get a new job. By February 1932, 13 million Americans were jobless, and the unemployment rate skyrocketed to a whopping 23%. The social consequences were severe. Many families lost their homes and became homeless. Breadlines stretched for blocks. Makeshift shantytowns — often called “Hoovervilles” — popped up around the country. Steel production declined sharply, which further decimated the economy. In Detroit, auto production collapsed. It was a massive mess.
What did the government do to address the crisis? The short answer: not a ton, at least not right away. President Herbert Hoover initially wanted the government to stay out of things and allow the economy to correct itself. In 1930, however, he made things worse by signing the Smoot-Hawley Act, which raised tariffs on imported goods by 60%. Other countries retaliated with tariffs of their own, causing global trade to collapse. This further fueled the economic downturn.
As things became worse, Hoover passed a few bills that provided emergency loans to small banks to help keep them afloat and address the growing bank failure crisis. For example, the Glass-Steagall Act of 1932 — the first of two Glass-Steagall Acts led by Senator Carter Glass and U.S. Representative Henry Steagall — allowed the Federal Reserve to lend more freely to small banks that were failing rapidly across the U.S. He also created the Reconstruction Finance Corporation to provide emergency loans to banks, railroads, and other major institutions. Meanwhile, the continued decline of the stock market was blamed on short sellers. Hoover wanted to ban short selling but didn’t have the authority to do so. Instead, he attempted to discourage the practice by publicly identifying short sellers in hopes that public pressure would stop them.
In the end, though, all of it was too little, too late for Hoover. Most of the nation blamed him for the Great Depression, causing him to lose the 1932 presidential election to Democrat Franklin D. Roosevelt, the governor of New York. In the end, the public needed a reason to believe that things could be turned around. FDR and his “New Deal” provided that hope.
3️⃣ Securities and Exchange Act, Gold Standard Removal, and Glass-Steagall Act Restored Confidence in the Financial System During the Great Depression
Almost immediately after assuming the presidency in 1933, Franklin D. Roosevelt took decisive measures to help slow the growing economic crisis. A combination of his bold short-term actions and strategic long-term policies helped stabilize the economy, and his leadership is widely recognized for helping us out of the Great Depression.
He wasted no time. Just two days after taking office, FDR declared a national bank holiday and shut down the nation’s banks. It was the first time in history that the national banking system came to a complete halt. The move was designed to stop the incredible wave of withdrawals and subsequent bank runs/failures that had been sweeping across the country. The New York Stock Exchange was also closed. A few days later, the Exchange and banks that were deemed to be financially sound reopened, with stock prices surging 15%. He also signed a flurry of bills in his first 100 days in office to provide further short-term support.
FDR was willing to try things and take risks to escape the Great Depression. It’s one of the many reasons his leadership is so highly regarded. Just a few months into his presidency, he took the U.S. off the Gold Standard, a shocking move that many people disagreed with. Getting off the Gold Standard gave the government more flexibility to combat massive deflation and increase the money supply, which was badly needed to address the incredible number of bank runs and bank failures. With so many people rushing to their bank to withdraw money, more dollars were needed in circulation to help the banks cover customer deposits.
FDR also recognized that America was ready for banking reform. At the time, many Americans, understandably, believed bankers were practically criminals. To address some of the banking problems that led to the stock market crash, FDR championed the second Glass-Steagall Act (also known as the Banking Act of 1933), led by Senator Carter Glass and U.S. Representative Henry Steagall. Congress passed it in June 1933, and FDR quickly signed it into law. The bill did a few important things:
- Separation of Banks — The law forced banks to separate their investment banking operations (underwriting and trading stocks) from their commercial banking activities (taking deposits and issuing loans to customers) by splitting them into individual companies. This was designed to reduce speculation and prevent the kind of shady, risky behavior that contributed to the 1929 stock market crash.
- FDIC Coverage — The public was deathly scared of bank runs and losing their savings in financial institutions. To restore confidence in banks, Steagall advocated for a government-backed guarantee of money deposited into banks. The bill established the FDIC (Federal Deposit Insurance Corporation) to protect bank depositors. It is funded by the nation’s banks themselves. They collectively pay into the program via insurance premiums. The premiums protected a customer’s first $2,500 of bank deposits in the event of a bank run or failure. Today, coverage with FDIC-insured banks is $250,000 per depositor.
Finally, one of the most significant long-term moves FDR made during the Great Depression was to put Wall Street under Washington’s thumb. Lack of federal regulation on Wall Street was among the biggest drivers of the speculative trading activity that led to the 1929 stock market crash. FDR decided to get the federal government involved in overseeing the stock market. In 1934, Congress passed, and FDR signed into law, the Securities Exchange Act of 1934, which established the Securities and Exchange Commission (SEC) to regulate financial institutions and prevent the speculation, market manipulation, and insider trading that had contributed to the crash. The SEC, an agent of the federal government, continues to keep the stock market in line today.
All of these moves were a small part of FDR’s overarching “New Deal,” which was a series of domestic programs, public work projects, and financial reforms that provided immediate relief and recovery during the Great Depression. The New Deal was quite expansive and included the creation of Social Security and a collection of other laws that helped stabilize the economy, create jobs, and provide security for people. The initiatives outlined in this takeaway were part of the financial and banking reform aspect of the New Deal — together, they helped restore confidence in the financial industry following the 1929 stock market crash.
4️⃣ The Empire State Building Was Born in the Great Depression
Ironically, as the economy plunged during the early years of the Great Depression, what would soon become the tallest building in the world was rising into the sky. Adding to the irony, behind the project — providing much of the financial backing — was one of Wall Street’s most powerful figures: John Raskob.
Raskob was the brainchild of the Empire State Building. He was also largely responsible for popularizing the investment pools and trusts — many of which were speculative and risky — that drove more everyday Americans participate in the stock market in the 1920s. Raskob became a titan of Wall Street by rising through the ranks at dominant companies like General Motors and later became one of the wealthiest businessmen of his era, partly through speculative tactics such as hedging and short selling. Buried in money, he was fascinated by the idea of building the world’s tallest skyscraper, and he envisioned a tower that would symbolize American ambition — even as the economy collapsed. He partnered with former New York governor Al Smith and assembled investors to fund what would become the Empire State Building.
Construction began in 1930 and moved at a breakneck pace, eventually costing about $41 million, which was an enormous sum at the time. Incredibly, the 102-story building was completed in just one year and forty-five days. When it officially opened on May 1, 1931, it stood 1,250 feet tall and immediately became the tallest building in the world.