Crash course in history
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SCOTT JAGOW: For a look back at this week in business history, we open the Marketplace Vault. Oh, this is a doozy: the stock market crash of ’29.
STACEY VANEK-SMITH: On Black Tuesday, the Dow Jones Industrial Average plunged nearly 12 percent and the country watched the disaster unfold on ticker tape.
Investors lost billions, banks collapsed and the country lurched into the Great Depression. The reason for the crash was a cooling economy and an overheated stock-market propped up on credit.
See back then, you could buy stock on 90 percent margin. That meant you could purchase $100 worth of shares for $10 and borrow the rest. So when stocks dropped, people found themselves swimming in debt.
It took 25 years for the Dow to recover, but we’re not likely to see another such crash.
Wall Street learned its lesson: You can still buy on margin but only up to 50 percent and trading is automatically suspended if the markets fall too much.
I’m Stacey Vanek-Smith.
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