On this day in economic and financial history...
Today we reflect on Black Tuesday, Oct. 29, 1929, when the Dow Jones Industrial Average (^DJI 0.74%) crashed nearly 12%. At the time, it was the second-worst fall in its history next to Black Monday, which had shaved more than 13% off the index only the day before.
At this point in the Great Crash, the Dow had lost 40% of its value. The end of this brutal decline wouldn't come until the summer of 1932, by which point the Dow had lost 82% more of its value since the end of Black Tuesday, leaving the economy decimated. But on Black Tuesday, many refused to believe that the situation could get worse.
The Kansas City Star wrote, "Now that the inevitable deflation has come, business conditions remain essentially sound. ... The way is prepared for a further advance in industry."
"The sagging of the stocks has not destroyed a single factory, wiped out a single farm or city lot or real estate development," claimed the New York News. "All those things are still there."
The New York World wrote, "However sour things may look to individuals at the moment, the country has not suffered a catastrophe."
Meanwhile, the Baltimore Sun wrote, "The stock market crash is the result of many forces, most of them transitory, and all of them combined incapable of upsetting the firm base of prosperity."
"The country is in reality no poorer than it was before the boom set in," claimed the Des Moines Register. "We may look forward confidently to a much saner and much safer financial winter than promised a few weeks ago."
The Davenport Times wrote: "The nation is economically sound. Now, not a month ago, is the time to be bullish on America."
The Chicago Herald and Examiner wrote, "It is difficult to believe that financial shoppers in this country and abroad will not take advantage of the low prices at which the very best of securities are selling."
The St. Louis Globe-Democrat claimed that "The country is too well fortified by its business and financial conditions to be materially disturbed. ... Conditions have never been more favorable than they are at this time."
Other major newspapers, including the Troy Morning Herald and the Louisville Courier-Journal, followed suit, proclaiming the end of the decline and the beginning of a new bull market.
Albert Conway, New York State superintendent of insurance, declared that lowered stock prices had now made them "suitable investments for large insurance companies." Robert S. Brinker, president of United States Shares Financial, agreed, saying, "We have been substantial purchasers in today's market."
JPMorgan (JPM 0.69%) president Thomas W. Lamont, a key figure in the market panic, told the Chicago Daily Tribune that "the feeling among the bankers is that the public is coming somewhat to its senses."
Towards the end of the day, "there was a wave of optimistic feeling among the brokers," wrote the Los Angeles Times. "Old traders 'felt it in their bones that the worst was over."
A few dared to be pessimists, but their opinions were buried in a flood of undeserved optimism. A record 16.4 million shares traded hands on the stock exchange floor on Oct. 29, 1929, destroying an estimated $9 billion in shareholder wealth. The drastic decline in stock prices caused some brokerage firms to reduce their margins to 25%, proving that they had learned absolutely nothing from 1929's credit-fueled boom and bust.
Connecting...
Your ability to access this article today stems directly from two letters sent between UCLA and the Stanford Research Institute on Oct. 29, 1969. The first ARPANET communication attempted to transmit the word "login" but only managed "lo" before crashing. When these two letters showed up on the tape at Stanford, it signaled the start of a computerized world that would eventually revolutionize every aspect of modern life.
The technology behind ARPANET was essential in the later development of the Internet. Cisco (CSCO +0.73%) built its entire business on ARPANET's legacy, but every Dow component -- and really, every modern corporation in the world -- now makes use of computer connectivity to streamline operations and improve its ability to respond to new challenges.
Wal-Mart (WMT 1.03%), for example, became the largest retailer in the world on the strength of its connected inventory-management system, which is fast and precise enough to determine which items customers stock up on -- it's Pop-Tarts, apparently -- when a hurricane's a-blowing.
