The Historical Context
The term “Black Friday” originally referred to the sharp drop in a financial market on September 24, 1869. A group of financiers, including Jay Gould and James Fisk, attempted to corner the gold market in the United States. Their efforts resulted in a dramatic overvaluation of gold, leading to a business panic that triggered a broader economic depression.
The Panic of 1873
Significantly, another financial panic began on a Friday in 1873, marking another historical note for the term “Black Friday.” This event compounded the negative connotation associated with Fridays and market crises.
Black Friday in Financial Markets
Modern Usage
In contemporary financial parlance, “Black Friday” is often used to describe any severe market downturn that occurs on a Friday, although it is more commonly associated with historical events rather than recurring market phenomena.
Special Considerations
Market Mechanics
Cornering the Market: In the case of the original Black Friday, Gould and Fisk’s attempt to control a large proportion of the gold market exemplifies a classic market manipulation tactic known as “cornering.” This tactic involves purchasing enough of an asset to manipulate its price, often leading to significant volatility when the market corrects.
Economic Implications: The panic triggered by cornering gold led to a dramatic depreciation of other financial assets, illustrating the interconnectedness of markets.
Examples and Historical Context
September 24, 1869
On this day, the price of gold spiked from $135 to $162 before a federal intervention led by President Ulysses S. Grant forced the price to plummet back to $130 within minutes. The rapid fluctuation caused widespread financial distress and bankrupted many speculators.
The Panic of 1873
The financial panic that began in September 1873 was triggered by the collapse of Jay Cooke & Company, a significant American bank. The financial instability led to a severe economic depression lasting several years.
Applicability and Comparisons
Similar Events
Black Tuesday (1929): Another significant day in financial history is Black Tuesday, which marked the start of the Great Depression following the stock market crash of 1929.
Black Monday (1987): On October 19, 1987, global stock markets experienced a severe crash, with the Dow Jones Industrial Average falling by 22.6% in a single day.
Related Terms
- Market Correction: A decline of at least 10% in a stock, bond, commodity, or market index from its recent peak.
- Bear Market: A period during which prices in a financial market are falling, typically characterized by declines of 20% or more.
FAQs
Why is it called 'Black Friday'?
How does Black Friday differ from other market crashes?
Can Black Friday happen again?
References
- Gould, Jay, and Fisk, James. “Historical Documentation on the Gold Market Crisis.” Financial Archives, 1869.
- Carter, Susan B. “The Long Depression: Economic History and Analysis.” Economic Review, 1972.
- Kindleberger, Charles P. “Manias, Panics, and Crashes: A History of Financial Crises.” Wiley, 2005.
Summary
Black Friday in financial terms refers to significant market downturns, particularly the sharp drop in the gold market on September 24, 1869, and subsequent financial crises. It underscores the susceptibility of financial markets to manipulation and the severe economic consequences of market panics. Understanding Black Friday helps contextualize modern financial market regulation and the importance of safeguards to prevent a recurrence of such events.
