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Résonance # 1/6 - The 1929 crash: the trauma of recession

Listen to our podcast on the 1929 financial crash and ensuing Great Depression, presented by Belgian business columnist Salma Haouach and enhanced by the views of Benoît Elvinger, member of our Executive Committee and head of Dealing Room and Loans & Credits.

This article is a transcript of the podcast in French.

Welcome to Résonance, a Banque de Luxembourg podcast that takes a look at the major events of the past 100 years and shares our insights into how they have impacted modern society. How can these past milestones prepare us for the financial challenges of the future?

This is part of a series of six podcasts presenting a positive analysis of the major changes born of past crises.


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It’s by financing the real economy that banks such as ours can contribute to economic recovery. Benoît Elvinger, head of Dealing Room and Loans & Credits

Podcast summary

The Roaring Twenties, complete with the Great Gatsby and flapper dresses, left an indelible impression of madness in the collective consciousness. The period was an immense source of inspiration for cinema, fashion and literature. The euphoria lasted from 1920 to 1929 when, despite the burden of post-war debt, anything seemed possible.

The recession that followed this era was the biggest economic depression of the 20th century. It brought with it massive deflation and skyrocketing unemployment, and prompted governments to carry out a major reform of the financial markets.

At the time, businessmen had never been so universally appreciated and progress seemed limitless. Henry Ford brought about two major revolutions: automobiles for all – with the appearance of the first automobile assembly lines – and higher wages for workers to reduce his turnover, an action described at the time as an ‘economic crime’ by the Wall Street Journal.

Such was society’s mindset back then. Consumer credit also made its first appearance, with somewhat lax, if not non-existent, regulations.

This was one of the main reasons why the bubble could not have been predicted: at the time, the only indicator people were looking at was the Dow Jones index. The measurement of GDP had not yet been introduced. It was therefore impossible to take the temperature of an economy which, if we use today‘s analysis tools, was showing clear signs of overheating.

Wages were stagnating, households were getting into debt, and stock market speculation was soaring. The bubble was about to burst, and the knock-on effect would be very difficult to contain. Households, which had bought stocks on credit, were unable to repay the banks. All of this unsettled the markets and caused prices to tumble.

On 24 October 1929, nearly 13 million shares were traded on the New York Stock Exchange, almost three times the normal volume. With no buyers, share prices collapsed.

Overall, between seven and nine billion dollars were wiped out in a single day. Thousands of investors were ruined. There was widespread panic and the stock market plunged by 30% in October and 50% in November.

‘Black Thursday’, which sounded the death knell for this speculative period, extended to all financial markets, starting with London. The cataclysm hit Europe hard, with US banks demanding immediate repayment of post-war reconstruction loans.

In the spring of 1930, recession took hold in the United States, leading to a fall in output, bankruptcies and massive unemployment. That year, 35,000 people took to the streets of New York in a hunger march.

The economy had come to a standstill: no more work, no more wages, and without wages, no more consumption. This resulted in excess inventories and a drop in revenue for producers who were consumers themselves.

The key point was that not only did the banks stop lending, but by the time Roosevelt was elected, one-third of the banks had failed. Industrial output fell by half between 1929 and 1932, and in March 1933 half the working population in the United States was jobless.

Roosevelt did his best to clean up the economic environment by regulating banking operations. While speculation tantalised with the promise of short-term gains and investment, he demanded patience and trust. And so the first regulations for investments were introduced, which was how investment banks came to be separated from retail banks.

To escape poverty, many Americans criss-crossed the country in search of work. Dubbed ‘hobos’, these itinerant workers were the subject of a song by their icon, musician Woody Guthrie: ‘I Ain’t Got No Home in This World Anymore’.

It was a stock-market and economic shock that has left a permanent mark on history.

The Great Depression hit all western economies. In France, unemployment numbers increased 14-fold between 1929 and 1932. The economic crisis also had political repercussions; significantly, the 1933 German election victory of Adolf Hitler, whose expansionist and nationalist policy would trigger the start of the Second World War.

The effect of the 1929 crash on the Great Depression has been the subject of a variety of analyses. For Samuelson, it was just one of the factors, one he described as ‘fortuitous’, that led to the Great Depression. For Friedman, the crash was caused by inadequate monetary policy. In any event, it was a stock-market and economic shock that has left a permanent mark on history.

It also leads us to wonder what role a bank like Banque de Luxembourg plays during such a critical time. We talked to Benoît Elvinger, head of Dealing Room and Loans & Credits at Banque de Luxembourg, to get his views on the topic.

  • “Many parallels can be drawn between the current crisis and that of 1929, and the decline in economic output, increase in unemployment, multiplication of bankruptcies and, of course, the stock market collapse. To prevent this now-global recession turning into a new depression, governments and central banks have introduced a series of stimulus measures, some of which can be compared to the interventionist measures used by Roosevelt to combat the effects of the Great Depression.
  • Today, as then, banks play a decisive role in stimulating the economy. On the one hand, they act as a transmission channel for the central banks’ monetary policy, and on the other, they help implement major stimulus programmes approved by governments. So banks can issue more loans and, if necessary, grant moratoria on existing ones. It’s by financing the real economy that banks such as ours can contribute to economic recovery.
  • As a Luxembourg-based bank, we are mainly involved in our local market, but we also support business owners and all types of businesses in Belgium and France.
  • Another challenge of our time is the fight against climate change, and to this end we make every effort to act responsibly and contribute not just to crisis resolution but also to green and sustainable finance.”


This dual role of the bank is worth emphasising. It shows just how delicate and complex the mechanisms are – but also that everything in this financial and economic universe is interdependent. The role of finance within society becomes clear!

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