1973-1974: The Worst Market Plunge Since 1929Watergate hearings and the 1974 oil embargo by OPEC combined o make 1973-1974 the worst stock market catastrophe since 1929-1933 depression. While the 1973-1974 bear market saw the Dow correct 50%, the average stock plummeted over 70%. This was a complete disaster for stockholders and was almost as severe as the proximately 90% correction the average stock showed from 1929 to 1933. (However, in 1933, industrial production was only 56% of the 1929 level and more than 13 million of that period’s population were unemployed.) |
The market was so demoralized in 1973-1974 that most members on the floor of the New York Stock Exchange were afraid the stock exchange might not survive as a viable institution. At that time, the head of a large brokerage firm lobbied two years in Washington to get negotiated commission rates approved allowing brokers to provide markets in NYSE stocks upstairs within their own organizations and among their own customers. This seemingly altruistic ploy might have limited the New York Stock Exchange’s ability to conduct an auction market and could have resulted in the industry leaders’ sharply cutting prices and driving many smaller competitors out of business. Thereafter, the leader could theoretically more easily dominate in the stocks and set the price markups it might desire. Of course, this is not what was told members of Congress. |
Delegations of other New York Stock Exchange members went to Washington to plea their case, which mainly fell on deaf ears because the powers in Washington at the time didn’t trust the self-serving nature of the pleas. A few days later the SEC began a policy change away from abruptly switching from fixed to negotiated rates and allowing big firms to make upstairs markets with their listed stock customers. It slowed down the breakneck pace it had been following toward possibly decapitating the New York Stock Exchange market making function, putting smaller organizations out of business and maybe opening the door to more monopolistic control for the industry’s largest firm. More Investment Tips: |