The Fives: Dark times for the market, a quick course on the crashes of the past 100 years or so

By Todd Williams, Journal staff | Tuesday, September 16, 2008

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Feeling a little woozy over yesterday's Wall Street swoon? Who isn't?

The truth of the matter is that the financial news of the past 18 months of so has pretty much been pointed in one direction, and it isn't a positive one. The problem, of course, is that it's hard to tell exactly what it means.

Are we at the bottom or just beginning on our trip there? And what will it mean to us here in western South Dakota?

There are a lot of questions with a whole lotta speculation. Here's a thumbnail guide to five of the most remembered and worst stock market crashes of the past 100 years or so.

The granddaddy of them all, the crash of 1929

This is the big one in many people's eyes. The crash that began on Sept. 3, 1929 and ended about two months later kicked off the worst economic disaster known in the United States.

It isn't cheery news that the total loss was only the fourth worst in U.S. history, as the Dow Jones lost slightly less than 48 percent of its value. In reality, the crash was bad, but it was more like the bell that signaled the beginning of bad times than being the end all of bad times.

However, it was bad enough that it took 25 years for the market to recover to levels it had seen before the crash. And during its bottoming out, the Dow fell to depths not seen since the 1800s.

Understand that the Dow had just completed a run that saw its value increase five times its value in as many years and that, in many ways, the original crash was a correction of sorts. However, the loss of confidence in the market coupled with market forces and the lack of market controls put into motion the Great Depression, an even that only a World War and time were able to change.

The Panic of 1907

Over a two year period -- roughly January of 1906 until late 1907 -- the Dow Jones lost 48.5 percent of its value, which is actually more than that lost during the initial crash of 1929. Granted, it was over two months time, but it was significant enough to lead to the creation of the Federal Reserve System.

But what the panic of 1907 was also known for the manner in which a complete collapse was averted. Renowned banker and a man "with more money than God," J.P. Morgan acted to restore order as banks and brokerages began going bankrupt left and right. What Morgan did was lead a movement among bankers and financiers to move money from strong institutions to weaker ones to try to prevent more bankruptcies.

With help from the government, market conditions improved and disaster was prevented.

However, politics of the day held sway as different groups pointed to the forces that had caused the crisis and that reform was needed. Eventually, in a matter of a few years, the Federal Reserve was created as a means of implementing checks and balancing on the nation's banking system while providing a way for the government to take a more direct role in preventing significant economic calamities.

The 1932 Stock Market Crash

When it comes to the great depression, the events of 1929 get all the ink. But if you're looking for the real whopper, it lay just three years down the road. The crash of 1932 actually began in 1930 and lasted for three years.

The precipitous fall began in April of 1930. While the markets had semi-recovered from the the events of late 1929, the economy had not. And neither had the public's confidence in the market system.

Between April 17, 1930, and July 8, 1932, the dow Jones fell an incredible 86 percent. In essence, the market started from a point that looked like it was the tail end of a market correction and ended smack dab in the middle of the Great Depression.

Black Monday

At the time, Black Monday -- Oct. 19, 1987 -- was the biggest one day fall in the market history. On that day, the Dow Jones dropped by 508 points, more than 22 percent in a single day.

And the shockwave wasn't felt only in New York. markets worldwide tumbled as a series of events -- including a market correction combined with preset program trading and a sell-off by nervous investors created a sudden reversal of fortune for traders.

The amazing thing of the sudden market losses is that the Dow finished the year largely at the same place it had begun. Unlike some of the aforementioned crashes, it had little long term effect, although it did take a few years to recover to the levels it had seen in August of 1987.

9-11 and the markets

As far as a single, confined event, the economic fallout from the terrorist attacks on New York and the Pentagon were mammoth.

On the day Wall Street reopened, Sept. 17, 2001, the market responded by falling some 600 points, the biggest single day drop in the history of the Dow Jones. Over the following week, the Dow dropped about 2,000 points.

However, they rebounded quickly, largely thanks to a huge infusion of cash into the market.

Regardless, the economic impact is in the neighborhood of $47 billion, which makes it a market force that, although contained, remains perhaps the biggest event in the history of the U.S. economy.