The panic caused by the rapid international spread of the Coronavirus has caused a large fall on stock exchanges throughout the world. This crash has been called the worst fall for Wall Street since 1987.
However stock exchanges has existed for far longer than 1987, so what can cause larger crashes than a worldwide pandemic outbreak? And how do they compare to the economic crisis we face today?
Black Monday 1987
On 19th October 1987 stock markets around the world suffered one of the worst days in its history. US markets feel around 20%, while Hong Kong and Australia saw loses around 40%.
The cause of the crash is still today, more than 30 years later, uncertain. A great deal of uncertainty in international monetary relations might have been a factor, as the G7 experienced a conflict over the price of the dollar.
However a prevalent theory is that the newly adopted trading computers played a vital role in the crash. The use of computers in investment strategies was still fairly new on Wall Street in 1987. When the market began dropping a few points, computers began automatically selling off. The market had therefore never experience thousands of order that at the same time tried to insure their portfolios by selling off. Causing disruption and panic on the market and a massive sell-off sending the market down with it.
The Wall Street Crash of 1929
The wall street crash of 1929 has become perhaps the most infamous stock crash in history. The crash began on october 29th 1929 on a day that has become known as “Black Tuesday”. This crash helped spur the great depression which lasted all the way up to the early 1940s.
During the 1920s the US economy had experienced a massive post war economic boom. The period became known as america’s “Jazz Age”. Stock prices had followed and soared. However as the decade was ending production was slowing down and unemployment was rising. This left a greatly overpriced stock market.
In September and october prices slowly began to drop until their total collabs on october 29th. It remains to this day the largest drop in the history of financial markets in terms of total value lost. 14 Billion dollars worth of stock was lost on Wall Street. But with far larger economic loses in the decade to follow for the whole world.
The South Sea Bubble 1720
The South Sea Bubble was a economic crisis that occured in England in the early 18th century. The crisis centered on the South Sea Company. A franchise focused on the slave trade with the spanish colonies in South America.
As the War of the Spanish Succession was drawing to a close in 1711 the company was founded on the hope of profiting of the coming peace treaty. However the treaty became less favorable to the english, than had been hoped for by the company. In the end only one english slave ship was allowed access to spanish ports every year.
The company was therefore only moderately successful. However in 1720 the company was able, through an act of parliament, to takeover the english national debt. From there the price of the company’s stock skyrocketed from 128 in january to more than 1000 in august. Bad actors saw a opportunity to inflate the price of the company to enrich themselves, by lying and promoting the stock. However by september the price of the company had crashed, along with the rest of the english economy.
Tulip Mania 1637
In 1593 tulips first arrived in the Netherlands from Turkey. A few years later these tulips contracted a virus which gave them a unique multi-color look. This made the already popular flower even more popular among the fascinated dutch people.
Prices for the tulips therefor began to rise with an astonishing rate. In one month prices increased 20 fold. People began selling their land and valuables to get their hands on more tulips, and hopefully make a nice profit.
Eventually people began selling the tulips in order to cash out, however a domino effect developed as more and more people began selling. Effectively bursting the bubble of the price of the tulips. However now no one was interested in buying tulips, causing many to be left without a penny. The first example in history of economic crash of its kind. Causing a devastating recession in the dutch economy.