On this day in economic and business history...

The Dow Jones Industrial Average (DJINDICES:^DJI) soared 14.9% on Oct. 6, 1931 -- its largest-ever percentage increase at the time. This remains the second-largest increase in Dow history behind only the post-banking-holiday surge of President Franklin D. Roosevelt's first month in office. But while Roosevelt's record-breaker had a clear impetus, the causes of 1931's mid-Depression buying frenzy were somewhat less apparent.

President Herbert Hoover attempted to chart a path to restore confidence in America's banksĀ that Roosevelt would follow a year and a half later, which was perhaps the chief reason behind the rebound. But the Hoover plan, was not available at press time after the close of trading on Oct. 6, and was only revealed the following day. It dealt largely with the solvency and security of the banking system:

  • A $500 million fund, provided by sound American banks, was requested as a means of providing liquidity to weaker banks. New York City banks had already pledged $150 million.
  • Federal Reserve branches were directed to mobilize additional funds for similar purposes.
  • The Federal Reserve's mandate was to be expanded by act of Congress.
  • A "finance corporation" was proposed, if necessary, for other avenues of liquidity.
  • Congress was directed to provide bailout funds to the "land banks" -- predecessors to Fannie Mae and Freddie Mac that offered mortgage credit to farmers.

The mere idea that Hoover would act boldly to stem the tide of depression was enough for investors, who added an estimated $5 billion in value to the decimated stock market, a value that "approximates the total amount of currency in circulation in this country and exceeds the total amount of our monetary gold," according to the Los Angeles Times.

But this rebound, which occurred only a day after the Dow's 10.7% collapse over political uncertainties stemming from the Hoover situation, could only restore the index to a level 74% below its 1929 high. The Dow enjoyed a brief resurgence following the announcement of Hoover's banking plan, but these efforts proved futile, and the Dow would fall another 59% from its Oct. 6 level before bottoming out nine months later. A widespread bank run, which Hoover labored in vain to prevent, swept through the country in advance of Roosevelt's inauguration.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.

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