Today most stock indices are in the red, many of them by more than 4%. How low can they go? History might provides an interesting indication.

Many of the conditions seen in the 1990s where a replica of what happened in
the 1920s:

-a technological revolution with the subsequent feeling that "everything has changed". In the 20s it was the radio, massive conversion to the Ford production system, cars, and others.
-unequal distribution of wealth and income. The inequality in wealth and income distribution seen at the end of the 90's had never been as high since the 20's
-unequal distribution of corporate power, which reduced competition through massive consolidation (usually done at extremely high prices, which later became a liability in the consolidated balance sheets).
-relaxed banking rules. In the 20s, banking regulation was low. In the 90s, even though banks where well regulated, many other entities became investment vehicles with poor or no regulation. Hedge Funds (like the Long Term Capital fund, that crashed in '98 creating a mini-crisis) are an example.
-unequal foreign balance of payments.
-overspending and low saving rates by consumers, and by corporations as well.

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A great book on the crash is The Great Crash 1929 by John Kenneth Galbraith.

So, let's consider the market value for the Dow Jones Index (at the close of trading) for the period that covers the crash of '29 and and the depression.

1929

Categories: personal
Posted by diego on July 15 2002 at 7:58 PM