Tuesday, October 24, 2006

Crash Anniversary

For those who keep track of such things, today is the anniversary of the 1929 Stock Market Crash. The Fed raised interest rates several times during 1929 to cool off over enthusiastic investors. The bears were running wild by October. On October 24th, it was a Thursday, panic selling set in. Margin calls sent many into bankruptcy. The market kept falling through November 1929, erasing as much as $16 billion dollars from stock values. Because banks had invested deposits in the stock market, a number of large banks became insolvent.

The Crash of 1929 provided several tough lessons. Banking and stock market reforms followed, including the creation of the Securities Exchange Commission. So the story has unfolded, leaving us with a series of rules and regulations designed to prohibit shaky investments and runaway trading activities. Recently minted analysts and investment bankers often take for granted the level playing field on which we now play, such as prohibitions against trading ahead, requirements for full disclosure and the many trading checks and balances imposed by the self-regulatory organizations.

Sometimes it is worthwhile to look back and consider the path along which we have traveled. Much has been made of crossing the 12,000 Dow. Perhaps the actual level is not so important as the tranquil manner in which we crossed it.

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