The History Of Financial Meltdowns Since 1900
Article Category: Finance
Recessions come and go. Fortunately, financial meltdowns on a global scale are far less common. Common sense and some seriously big brains in the banking industry have worked tirelessly to ensure that the money markets, and the investors, are protected. But what happens when, as seen in 1996, things go wrong? Simple: the markets go into meltdown.
Here, in chronological order, are 5 of the worst market crashes since 1900:
Post WWI Crash
Between 1914 and 1918, the world stood on the verge of absolute collapse. The very first World War claimed millions of lives. Spanish flu cut a huge swathe of death and disease through anyone not killed in conflict. Although industry was booming the growth was based on the supply of materials to the fighting man in the field. Once the Treaty of Versailles was signed it was only a matter of time before the global economies contracted to reflect a new era of peace and prosperity.
The period of contraction started right at the end of World War I. The post-war years were marked by economic retreat during which millions lost their jobs in the arms industry. The crash in fortunes only lasted about 7 months in the United States, but was followed by a sharper decline between 1920 and 1921. Experts have pointed to a failure to adjust from a wartime to peacetime economy and the huge rise in the pool of potential workers returning from fighting in Europe.
The Great Depression
The inter-war years were a time of relative calm but many nations were still suffering from the economic impact of the First World War. In 1929, the calm and prosperity that settled into the money markets was shattered by the events of the Great Depression. Far from being a blip, the great crash spanned 17 years. Following an initial, first round of financial obliteration the U.S economy experienced a milder contraction in the late 1930's.
The actual dates of the Great Depression vary, depending on the country you lived in. The crisis originated in the United States following the stock market crash of 1929 (Black Tuesday). The long tendrils of hardship spread across the country decimating manufacturing and farming industries. In America alone, unemployment figures hit a high of 25%. As the shockwaves reverberated across the globe, countries reliant on heavy industry were smashed in a perfect storm of financial and manufacturing destruction.
Post Korean War Recession
Many recessions follow in the wake of extended, highly destructive warfare. The economic decline that followed the two world wars of the 20th Century are prime examples. But other lesser periods of conflict have had a significant impact on the global economy. The Korean war is one example that many historian's and money men tend to overlook when attempting to predict how markets fluctuate when influenced by given events.
Starting in 1953 and running until 1954, the recession had its roots in a period of high inflation that started in 1951. The U.S government planned to head off any dip in the markets by transferring funds into national security and implementing a strict set of controls over monetary policy. The policy was implemented even though the feared level of inflation never manifested itself. A lack of an appropriate response to the changes resulted in a huge dip in the U.S GDP which cost an estimated $56 billion.
1987 Stock Market Crash
Some crashes can be attributed to something a little less drastic than war: stupidity and greed. In general, human beings are pretty poor at making rapid decisions based on large volumes of data. But that's ok because we've built computers to do all the heavy lifting work for us. So what happens when the data we enter isn't correct or we come to accept that our microchip-packed assistant are infallible? Although it would be unfair to place all the blame on computers - let's take a look at the events of 1987.
The crash of 1987 was one of the worst in the history of the stock markets. The DOW Industrial Average lost around 22 points - a huge number by any standards. The causes of this event have their roots in a number of areas. High volume, computer trading, overvaluation of share prices, lack of liquidity and failure of markets to work in synch are all factors that had combined to damage the global economy.
Sub Prime Crisis
Sometimes, it's fair to say that we should have seen things coming. But, because we're human, we don't mind being just a little bit greedy. We don't think really bad things will ever happen to us or our family. Financial disasters have their place, but it's not in our lifetime. Sadly, sometimes the money markets prove us wrong on all counts. Now, there's nothing wrong with wanting a home for you and your family but the banks seemed prepared to risk investors' money because, as they say, "What could possibly go wrong?"
The sub prime crisis. Or rather, a correction in the value of land and houses. The price of owning a home had gradually climbed to the point that many people simply couldn't afford to get a mortgage. In order to help anyone wanting to get onto the property ladder, the banking sector bent over backwards to bring in new custom no matter what the cost. When the markets eventually corrected, many home owners were left in negative equity. The resulting fallout caused a global nightmare in which some of the biggest finance houses in the U.S went under.
Written by James Redden
Article first published: 24 Apr 2013.
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