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October 29, 2004 Listen to this story INTRODUCTION: Seventy-five years ago today -- on October 29th, 1929 -- the stock market crashed. On that day -- "Black Tuesday" as it came to be known -- the Dow Jones Industrial Average lost almost 31 points. That doesn't sound like much today, but back then it amounted to a drop of nearly 12 percent. And that was just the beginning. The Dow would eventually bottom out in July of 1932 at 41 points. That's right -- 41. By then investors had lost billions and the country was in the throes of its worst financial crisis ever. Today, Marketplace's Matthew Algeo takes a special look back at Black Tuesday, a day that triggered monumental changes in America's financial markets -- and in America itself.

(Note: Producer Matthew Algeo's narrative is in lower case, while all quotes from interview subjects are in upper case)

On September 10th, 1929, Louis Armstrong and his orchestra assembled in a New York studio and recorded what would become Satchmo's first big hit: When You're Smiling.

MUSIC: "When You're Smiling" by Louis Armstrong

America had plenty to smile about that September. On the day after Labor Day, the Dow hit 381.17 -- a new record high. The unemployment rate was just three percent. With their newfound wealth, Americans bought everything from cars to radios in record numbers. Not even Prohibition could dampen the enthusiasm of the Roaring Twenties.

EVERYBODY HAD FUN AT THAT TIME. LIFE WAS GREAT!

In 1929, Al Gordon was a 28-year-old Harvard Business School grad working at Goldman Sachs in New York. He was making more money than he knew what to do with: about 4-thousand-dollars a year.

MY FATHER ASKED ME, "HOW MUCH DOES IT COST YOU TO LIVE, ALBERT?" I SAID, "I DON'T KNOW -- AND WHAT DIFFERENCE DOES IT MAKE?"

Life was pretty good for Ferdinand Anderson, too.

I'M TELLIN' YOU IT WAS SOME TIME OF LIFE. YES INDEED. YEAH.

Anderson emigrated from Jamaica to the United States in 1923. He soon found work in New York -- as a chauffeur for a rich interior decorator named Patsy Green.

SHE WAS A BUSINESS WOMAN AND SHE WAS REALLY A FLASHY GIRL. SHE WAS VERY SMART.

Anderson wasn't making as much as Al Gordon, but he was doing alright:

Ferdinand Anderson in 1935. (Photo: The Anderson family)

TWENTY-NINE DOLLARS A WEEK. THAT WAS RESPECTABLE MONEY AT THAT TIME!

The whole country was swept up in the boom says historian John Steele Gordon (no relation to Al). After all, he says, it was a time of unprecedented economic growth.

THINGS WERE VERY GOOD INDEED FOR MOST OF THE PEOPLE -- I MEAN THE GROSS NATIONAL PRODUCT INCREASED IN THE 1920S BY 56 PERCENT!

It all seemed too good to last -- and it was. For one thing, the stock market was overheated; it was rising much faster than the overall economy. Gordon says another problem was that many investors were buying stocks on margin:

BUYING ON MARGIN IS WHEN YOU BORROW A PERCENTAGE OF THE PRICE OF THE STOCK. AND IN THE 1920S THEY HAD 90 PERCENT MARGINS. IN OTHER WORDS, IF YOU WANTED TO BUY ONE SHARE OF A HUNDRED DOLLAR STOCK, YOU ONLY HAD TO PUT TEN DOLLARS DOWN. WHICH IS GREAT IF THE STOCK'S GOING UP: SO IT GOES FROM A HUNDRED TO 110, AND YOU SELL OUT, YOU'VE DOUBLED YOUR MONEY: YOU INVESTED TEN DOLLARS AND CAME OUT WITH 20. ON THE OTHER HAND, IF THE PRICE OF THE STOCK GOES DOWN TEN PERCENT -- YOU'RE WIPED OUT.

It was a classic bubble -- and in late October, it burst. The crash began on the 24th -- Black Thursday. On that day the Dow dipped below 300 -- and Wall Street began to panic.

THE NEXT DAY, FRIDAY, THE MARKET ACTUALLY RALLIED. SATURDAY, WHICH THEY HAD A HALF-DAY SESSION UNTIL AFTER WORLD WAR TWO, THE MARKET STUMBLED A LITTLE BIT BUT NOT BAD. ON MONDAY IT STUMBLED A LOT WORSE, AND ON TUESDAY THE 29TH THERE WAS SIMPLY NO STOPPING IT. IT WAS JUST AN AVALANCHE.

Throughout that Tuesday -- October 29th, 1929 -- worried investors descended on Wall Street, anxious to hear the latest numbers. The gallery overlooking the floor of the Stock Exchange was packed:

ONE OF THE PEOPLE WHO WAS IN THE GALLERY ON THE 29TH WAS WINSTON CHURCHILL, WHO WAS FUNCTIONING AS A REPORTER AT THAT POINT. AND HE REPORTED IN A SUBSEQUENT ARTICLE THAT SOMEBODY HAD THROWN THEMSELVES OUT A WINDOW AND THE BODY HAD LANDED VERY CLOSE TO HIM. AND THIS IS THE ORIGIN OF THE STORIES ABOUT PEOPLE THROWING THEMSELVES OUT THE WINDOW. IT'S JUST NOT TRUE. UNFORTUNATELY, WINSTON CHURCHILL WAS JUST TELLING A GREAT STORY. BUT IT'S NOT A TRUE STORY. THERE'S NO RECORDS OF ANYBODY THROWING THEMSELVES OUT A WINDOW. SOME PEOPLE WENT HOME AND SHOT THEMSELVES -- BUT NOBODY THREW THEMSELVES OUT A WINDOW DURING THE DAY.

SOUND OF STOCK TICKER.

Across the country, investors followed the action on tickers, like this one at the Museum of American Financial History in New York. The tickers spit out stock prices on long, narrow strips of paper. They could process dozens of trades every minute, but proved woefully inadequate on the 29th. A record-shattering sixteen million shares were traded that day, and the tickers simply couldn't keep up.

THE STOCK TICKERS DIDN'T STOP TICKING UNTIL WELL AFTER EIGHT O'CLOCK -- WELL AFTER FIVE HOURS AFTER THE MARKET HAD CLOSED. AND SOMEBODY WHO OBVIOUSLY HAD NOTHING BETTER TO DO ESTIMATED THAT THE TICKERS IN THE COUNTRY USED 15,000 MILES OF TICKER TAPE THAT DAY, JUST PRINTING OUT THE PRICES.

That afternoon, the popular entertainer Eddie Cantor went into the Victor Record Company studio on East 24th Street and recorded his thoughts on the day's events. Cantor would lose his fortune in the crash:

WELL FOLKS, THEY GOT ME IN THE MARKET JUST AS THEY GOT EVERYBODY ELSE. IN FACT THEY'RE NOT CALLING IT THE STOCK MARKET ANY LONGER. IT'S CALLED THE STUCK MARKET. EVERYONE IS STUCK. WELL, EXCEPT MY UNCLE. HE GOT A GOOD BREAK. HE DIED IN SEPTEMBER. POOR FELLOW HAD DIABETES AT 45. THAT'S NOTHING. I HAD CHRYSLER AT 110.

A few blocks away, a big band called the Casa Loma Orchestra was in a different studio, recording a song that would become an ironic anthem:

MUSIC: "Happy Days are Here Again" by the Casa Loma Orchestra.

The Dow closed that day down 30 points at 230. In a week, it had dropped nearly 30 percent. At the time, of course, no one could predict how bad things would get. Al Gordon and his colleagues at Goldman Sachs thought the Dow would bounce right back:

I THOUGHT IT WAS TEMPORARY. MOST PEOPLE THOUGHT IT WAS TEMPORARY. SO THERE WAS A SLIGHT RECOVERY AFTER THE CRASH. AND SO THE NEXT FEW WEEKS THERE WAS OPTIMISM.

But that optimism soon faded. Public confidence in the stock market was shattered. The boom, like the Roaring Twenties, had ended. Happy Days were over.

What made the crash so bad, says John Steele Gordon, was the government's response -- or lack thereof. In December, President Herbert Hoover told Congress the worst effects of the crash were over. And the Federal Reserve continued to keep money tight:

WHEN YOU HAVE A CRASH, WHAT YOU WANT TO DO IS MAKE MONEY JUST AS LOOSE AS YOU CAN MAKE IT -- YOU WANNA THROW LIQUIDITY INTO THAT MARKET. THE FEDERAL RESERVE DID NOTHING. IN FACT, FOR THE NEXT THREE OR FOUR YEARS IT ESSENTIALLY DID NOTHING. AND SO THEY KEPT IN EFFECT TREATING THE PATIENT FOR FEVER LONG AFTER THE PATIENT HAS STARTED TO FREEZE TO DEATH!

Al Gordon in his New York office. (Photo: Matthew Algeo)

Some investors had seen the bears coming. Al Gordon was one of them. He sold most of his stock in the months before the crash. In 1931, he and two partners bought a struggling investment banking firm called... Kidder, Peabody.

WE CUT TO THE BONE, AND 1931, OUR FIRST YEAR, WAS THE ONLY YEAR IN WHICH WE LOST MONEY.

Chauffeur Ferdinand Anderson wasn't as fortunate.

THERE WAS NO MONEY AROUND! NOBODY HAD ANY MONEY!

Like many domestic workers, he was fired after the market crashed. In 1931 his wife died. He couldn't afford to raise their two children, so he sent them to Jamaica to live with his sister:

MY SISTER AT THAT TIME WAS WELL OFF, YOU KNOW. SHE COULD AFFORD TO KEEP THEM. AND I WAS JUST LUCKY TO BE ABLE TO DO THAT.

In 1932 the Dow bottomed out at 41 points. The unemployment rate hovered around 25 percent. About 40 percent of the nation's banks had failed -- many because they'd made loans to stock market speculators that could never be repaid. The country was in its worst depression ever. John Steele Gordon says things got so bad, the interest rate on Treasury Bills went negative; investors were willing to take a loss, just to know their money was safe:

IN THE FALL OF 1932 THERE WAS SO MUCH DEMAND FOR WHAT IS BY DEFINITION THE SAFEST OF ALL INVESTMENTS -- THE SHORT TERM OBLIGATIONS OF A SOVEREIGN POWER -- THAT PEOPLE WERE ACTUALLY PAYING A PREMIUM TO OWN TREASURY BILLS. THAT IS A BAD ECONOMIC SITUATION, WHEN PEOPLE ARE PAYING FOR THE PRIVILEGE OF LOANING MONEY!

In 1933, Franklin Roosevelt became president, and the government began taking steps to improve the economy. An alphabet soup of programs boosted employment: the CCC, the NRA, the WPA. The FDIC was formed to insure bank deposits. And the SEC was created to oversee the stock market, which had largely regulated itself before the crash. But Gordon says it still took a long time for the Dow to recover:

THAT SEPTEMBER HIGH OF 381.17 WOULD NOT BE BREACHED UNTIL 1954. IT WOULD BE 25 YEARS BEFORE THEY REACHED THAT FIGURE AGAIN ON THE DOW.

Those 25 long years profoundly affected a generation of investors.

Stuart Baker has been dabbling in the stock market since 1928. (Photo: Matthew Algeo)

SOUND OF STUART BAKER PULLING A BOOK OFF A SHELF

In his room at a nursing home just outside New York City, 98-year old Stuart Baker turns on his hearing aid and carefully opens a well-worn ledger. Baker's been dabbling in the stock market since 1928 -- and he has meticulously catalogued every transaction, by hand. Baker didn't lose very much in the crash; he was only 23 and didn't have much money in the market anyway. But he says the crash taught him a valuable lesson: when it comes to stocks, don't believe the hype. He has thoroughly researched every company he's ever invested in. In 1956 he was thinking of buying some stock in a uranium mine in Utah -- so he packed his son Michael and the rest of the family into his Chrysler and headed west:

IN THOSE DAYS URANIUM WAS JUST SOMETHING NEW THAT HAD NEVER BEEN AROUND BEFORE. AND WE WENT TO SEE IF WE COULD GET A FEELING OF IT -- WHETHER TO SPECULATE IN IT OR NOT. AND I DON'T KNOW HOW WE MADE OUT. (TO MICHAEL:) I THINK WE MADE MONEY ON 'EM, DIDN'T WE? (MICHAEL:) "I'M NOT SURE ABOUT THAT!" (STUART:) I'M NOT EITHER. I MEAN WE DIDN'T KNOW OF COURSE WHAT WE WERE LOOKING AT -- BUT WE THOUGHT WE DID.

When asked about the possibility of another crash like the one in 1929, Baker demurs:

WHAT YOU'RE REALLY ASKING IS: WHAT'S THE MARKET GONNA DO? AND I DON'T KNOW! NOBODY ELSE REALLY KNOWS! WE JUST MAKE OUR GUESSES.

But historian John Steele Gordon is less reticent:

WE COULD HAVE ANOTHER CRASH. IN FACT, I WILL BRAVELY GO SO FAR AS TO SAY SOMEDAY, WE'RE GOING TO. IT WILL COME OUT OF LEFT FIELD BECAUSE CRASHES ALWAYS COME OUT OF LEFT FIELD -- BECAUSE IF YOU SEE THEM COMING THEY DON'T HAPPEN.

But if -- or, according to Gordon, WHEN -- there's another crash, it won't resemble 1929's. As an example, he points to the stock market crash of 1987, when the Dow fell 23 percent in a single day. Yet, after that crash, the Dow recovered in about 18 months -- not 25 years:

AND THE MAIN REASON WAS THAT THE FEDERAL RESERVE ACTED IN 1987 AS IT SHOULD HAVE ACTED IN 1929: IT FLOODED THE STREET WITH MONEY. IT JUST TOLD ANYBODY, YOU HAVE MONEY PROBLEMS, YOU COME TO US AND WE WILL SOLVE THEM. AND THAT'S WHAT KEPT THE 1987 CRASH FROM TURNING INTO THE START OF A NEW DEPRESSION.

SOUND OF OPENING BELL AT THE NEW YORK STOCK EXCHANGE.

Wall Street's changed a lot since 1929. The market is heavily regulated. You can still buy stocks on margin -- but only up to 50 percent, not 90 -- and good luck finding a bank willing to loan you the money. And if the market falls too much, some trading is now automatically suspended. Still, 103-year-old Al Gordon says some things haven't changed. He says recent corporate scandals involving Enron and WorldCom point out the perils of investing -- even today:

THERE ARE ALWAYS CROOKS. YOU SEE, SOMEBODY GETS OVER HIS HEAD, SO HE GAMBLES THAT HE CAN MAKE SOME MONEY TO COVER HIS LOSSES. AND THEN HE LOSES MORE. AND THEN HE BORROWS MORE. THEN HE GETS FOUND OUT.

Ferdinand Anderson in 2003. (Photo: The Anderson family)

Al Gordon still keeps an office in Manhattan, which he visits three or four times a week -- though he says he only pretends to work. Ferdinand Anderson, the chauffeur who lost his job after the crash, eventually found work as a mechanic. He was reunited with his children, remarried, and had three more children -- one of whom now works as a stock broker:

I THINK I CAME A LONG GOOD WAY. BUT IT WAS A TOUGH ROAD. TOUGH ROAD. BELIEVE ME.

Ferdinand Anderson passed away shortly after we spoke with him last July. He was 100. As for Stu Baker, he's still busy following the market -- pencil in hand:

AND YOU TRY TO BUY IN THESE LOW SPOTS AND SELL IN THE HIGH SPOTS. SO WE SELL THERE AND LOOK WHAT HAPPENS. SEE? THERE'S NOTHING THAT SIMPLE. (ALGEO:) DO YOU ENJOY DOING THIS? (STUART) OH I SURELY DO! AFTER ALL, IT'S PRETTY EXCITING!

I'm Matthew Algeo for Marketplace.