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The boom and stock market crash of the 1920s. The public begins to invest in the stock market. Wall Street expands and banks begin selling securities. Wall Street bankers and brokers become celebrities. Federal Reserve is unable to slow down market bubble. The crash occurs and country quickly slides into depression. Market loss the largest in American history.

This chapter examines the nature, effects, and consequences of the bubble of 1995-2000. The 20th century experienced four exceptional stock market booms in the United States that have been called “bubbles”. Economist Richard Sylla describes these periods (1905, 1928, 1958, 1998) as times when the 10-year moving averages of real rates of return on stocks reached peaks from which they rapidly descended (or crashed) a year to two later. Of these four bubbles, the ones that peaked in 1928 and 1998, leading to crashes in 1929 and 2000, respectively, were the ones of greatest significance. The 2000 crash involved more financial wreckage than earlier crashes. It was followed by scandals that were front-page stories for months, and public interest in the market collapse and its causes and consequences was intense. The causes of the 2000-2002 crash are analyzed.

This chapter examines the universal nature of the critical log-periodic precursory signature of stock market crashes. It considers the crash of October 1987 and of October 1929; the Hong Kong crashes of 1987, 1994, and 1997; the crash of October 1997 and its resonance on the U.S. market; currency crashes; and the crash of August 1998. It also discusses a nonparametric test of log-periodicity, the slow crash of 1962 ending the so-called “tronics boom,” and the Nasdaq crash of April 2000. Finally, it looks at “antibubbles,” taking into account the “bearish” regime on the Nikkei starting from January 1, 1990, the price of gold after the burst of the bubble in 1980. The chapter shows that large stock market crashes are analogous to critical points studied in the statistical physics community in relation to magnetism, melting, and similar phenomena.

This chapter considers two versions of a rational model of speculative bubbles and stock market crashes. According to the first version, stock market prices are driven by the crash hazard that may increase sometimes due to the collective behavior of “noise traders.” The second version assumes the opposite: the crash hazard is driven by prices that may soar sometimes, again due to investors' speculative or imitative behavior. The chapter first provides an overview of what a model is before discussing the basic principles of model construction in finance. It then describes the basic ingredients of the two models of speculative bubbles and market crashes, along with the main properties of the risk-driven model. It also examines how imitation and herding drive the crash hazard rate and concludes with an analysis of the price-driven model, how imitation and herding drive the market price, and how the price return drives the crash hazard rate.

This chapter explains what financial crashes are and why, how, and when they occur. More specifically, it examines the mechanisms underlying crashes; whether we can forecast crashes; whether we could control or at least have some influence on crashes; whether crashes indicate a fundamental instability in the world financial structure; and what could be changed to modify or suppress these instabilities. The chapter considers the stock market crash of October 1987 and the main explanations for its occurrence, as well as other financial crashes in history, including the tulip mania, the South Sea bubble, and the great crash of October 1929. It also discusses extreme events in complex systems and concludes with an analysis of a new set of computational methods that can be used in the prediction of large-scale financial crashes.

The 1997/8 Asian crisis was severe for most of the region and the financial crisis had a deep impact on many real economies. This chapter shows that explanations for the crisis are many and varied, as are explanations for the ‘miracle years’; but there are some conclusions that can be safely made. First, the volume of funds involved in the currency and stock market crashes was large with respect to the size of the economies the funds were invested in. There were also large differences in economic performance in the region and while this did not affect the degree to which currency and stock speculation occurred, it did have an effect on the depth of the crisis and the speed of recovery. Thailand, Indonesia, and Korea were worst affected while the People's Republic of China and Taiwan were least badly hit. Finally, the international response to currency crises needs to be more sensitive to the nature and causes of economic problems and their social consequences. The measures described in the ‘letters of intent’ were not the best policies for the affected countries. In particular, they failed to deal with the question of inadequate domestic demand and included policies that made matters worse.

This chapter analyzes the response of the State Street Investment Corporation (SSIC) to the stock market crash. The SSIC partners had played the 1928 market very well. At times, they had bought on margin, but whenever they had thought the market was too high, they had raised cash. At the turn of 1929, while their sense of valuation and history led them to expect a “correction” or a “short-term opportunity,” they were not ready for a crash. The stock market followed a volatile downward course between early September and late October of that year—an unforeseen crash that they would casually and conservatively endure. Barely a month later, and despite being affected by the business recession that could later turn into a depression, SSIC resumed operations with renewed morale. The rationale behind the SSIC re-operation was that it remained flexible enough to continually reevaluate decisions and to reverse course whenever it made a bad one.

This chapter examines how to predict stock market crashes and other large market events as well as the limitations of forecasting, in particular in terms of the horizon of visibility and expected precision. Several case studies are presented in detail, with a careful count of successes and failures. After providing an overview of the nature of predictions, the chapter explains how to develop and interpret statistical tests of log-periodicity. It then considers the concept of an “antibubble,” using as an example the Japanese collapse from the beginning of 1990 to the present. It also describes the first guidelines for prediction, a hierarchy of prediction schemes that includes the simple power law, and the statistical significance of the forward predictions.

The chapter on panic begins—as it must—with Orson Welles’s 1938 War of the Worlds, the panic it inspired, and the scholarly debate about panic that it also began. With War of the Worlds as a touchstone, the chapter turns to other supposed instances of panic in the decade: the stock market crash in 1929, the bank runs of 1933, and Richard Wright’s Native Son, which begins with Bigger Thomas’s panicked murder of Mary Dalton and ends with Wright’s depiction of the hysterical response to that crime on the part of white Chicagoans. Putting these texts together, the chapter argues that for as much as we remember the decade of the 1930s for its populism, it was also a decade in which people felt real fear about what individuals and crowds of people might be capable of when they panicked or otherwise lost control of their emotions.

This chapter, which is concerned with the stock market crash, uses the interview data after the dot-com bust along with historical materials to illustrate some of the problems facing venture labor. It specifically explores the multiple framings of the dot-com crash and the impact of these contestations for people working in Silicon Alley, and more broadly, for the relationship to market structures. Building on the work of David Stark, Michel Callon, and Don Slater, the chapter argues that the way in which people’s perceptions determine the market and the way in which people respond to the market need to be more often considered in tandem as forces of both market construction and rational action. It reveals that dot-commers in Silicon Alley grappled with a problem which generations of workers from every sector have had to face.

The collapse of the railway securities markets in the last days of October 1845 left a powerful financial vacuum in its wake. Millions of pounds of capital had flowed through a screen of paper companies into the purses of numberless attorneys, stockjobbers, engineers, and tradesmen. Thousands of men (and some women) had ‘staked their all’ in railway promotions solely upon the chance of selling their shares, scrip, or letters of allotment for a quick and tidy profit. The panic erased this chance. Tumbling prices left most investors with sheaves of railway paper they were either ‘unable to sell at all, or only at a ruinous sacrifice’. The crash created a vast and tangled web of indebtedness. A sizeable proportion of the entire country's monied classes became participants in a vicious cross-fire of lawsuits. Before the end of December 1845, hundreds of lawsuits had already been commenced by railway investors and promoters. By the end of 1846 the three courts of common law together had issued 24,000 more writs than in the previous year. In the aftermath of the hurricane of railway litigation, English railway capitalism was in a woeful condition. The companies that had survived the panic only barely survived its legal aftermath. Railway share prices continued to fall. Capital had become scarce just when the expanding industry needed it most. The only clear winners in these events were England's legal professions. Solicitors and barristers alike had enjoyed a huge windfall of profitable employment.

Numerous factors accounted for the precipitous decline in musicals starting in mid-1930. The stock market crash and the Pathé studio fire in 1929 were dire omens, and the overabundance of backstage films and unsuitability of filmed revues and operettas played a prominent role. Songs were cut from a number of (former) musicals such as The Life of the Party, while some major projects were aborted shortly before shooting. Most calamitous was MGM's The March of Time, a lavish and shapeless revue that was tinkered with incessantly and finally abandoned, a symbol of the hubris and miscalculation of the era.

This chapter examines stock market crashes in the entire financial history of the United States as well as the world economy and population dynamics over the last 2,000 years. It suggests the existence of strong positive feedbacks that point to an underlying finite-time singularity around 2050, signaling a fundamental change of regime of the world economy and population around 2050 (a super crash?). Three leading scenarios are described: collapse, transition to sustainability, and superhumans. After analyzing financial as well as economic and population times series over the longest time scales for which reliable data is available, the chapter considers the pessimistic viewpoint of “natural” scientists vs. the optimistic viewpoint of “social” scientists regarding human population size and growth. It also discusses the faster-than-exponential growth of population, GDP, and financial indices before concluding with an overview of the increasing propensity to emulate the stock market approach.

President George W. Bush left office with the United States and the world economies in a catastrophic condition. Millions of Americans lost their homes in mortgage foreclosures, the stock market fell by 40 per cent, unemployment rose rapidly and a full-scale recession threatened. In the largest extension of government ownership of business in American history, financial institutions, such as the mortgage giants Fannie Mae and Freddie Mac, the insurance giant AIG and nine major banks passed into total or majority government control. Bush's public reputation declined with the economy. By mid-2008, only 20 per cent of Americans approved of his performance on economic policy, and three-quarters thought that Bush's policies had made the United States worse off. This chapter discusses the Bush administration's economic policy, fiscal policy, and monetary policy and regulation. It also examines economic growth and equality, the stock market crash of 2008 and the Bush team's response to the financial crisis and Bush's economic legacy.

This chapter explores how finance began to stand in for “the economy” through the journalistic and realistic representation of the 1987 stock market crash. It is centered on Tom Wolfe’s novel The Bonfire of the Vanities and Oliver Stone’s film Wall Street, both released around the time of the crash and both transformed into cultural objects that, by virtue of their timing, their channels of distribution, and their announcement of a radical new realism, claimed a narrative monopoly on representing an emergent financial era. After the crash producers and critics of culture began to ask: What is a financial period, what is a financial text and, most crucially, what is a financial aesthetic? The Bonfire of the Vanities and Wall Street were central to offering an answer by presenting a form of “capitalist realism” that recorded how a new financial class was beginning to identify itself and its economic object.

This chapter examines the impact of the stock market crash of October 1929 on the monetary system of the United States. Very little attention has been given to the factors which converted the uncomfortable and distressing crises of the previous century into the profound and enduring tragedy known as the Great Depression. Neither the stock market crash of October 1929 nor the antecedent speculation has often been deemed to be a decisive cause. The chapter first considers how the stock market crash affected investment expenditures by business and consumer expenditures before discussing the bank failures that followed the crash. It also explores how bank failures and the fear of bank failures induced deflation and how the Federal Reserve System began open-market operations after harboring fears of inflation. Finally, it looks at the reform of the Federal Reserve System by legislation in 1933, 1934, and 1935.