For students of history, the China stock market crash looks eerily familiar.
It's playing out much like the Wall Street stock market crash of 1929.
In case you've been distracted by such things as the Greek debt crisis and a bizarre glitch that shut down the New York Stock Exchange for more than three hours Wednesday, the Chinese stock market has been in a free fall lately.
Although it rebounded 5.8% today (Thursday) thanks to more government intervention, the Shanghai Composite Index has shed 29% over the past month.
An equivalent loss for the Dow Jones Industrial Average would be a drop of more than 5,100. Paper losses already exceed $3.25 trillion.
This follows a dramatic run-up of 150% in the 12 months leading up to mid-June.
Both have prominently featured failed interventions.
Back in 1929, it was the big bankers of Wall Street that tried to stop the bleeding. The top names of the day – Morgan Bank, Chase National Bank, and National City Bank – pooled their resources and tried to prop up the market by buying shares of blue-chip stocks such as United States Steel Corp. (NYSE: X).
But the strategy could not overcome the wave of selling, which eventually dropped the DJIA 89% from its peak.
In China, the government has done just about everything it can think of to halt the Chinese stock market crash. The government has:
- Loaned $42 billion to 21 brokerage firms to buy stock
- Announced a $40 billion economic stimulus plan
- Allowed half the listed companies to stop trading of their shares
- Prohibited controlling shareholders and company board members from selling any shares for six months
- Put all IPOs on ice for now
- Instructed the People's Bank of China to cut interest rates by 0.25%
- Announced a crackdown on short selling
These drastic measures have succeeded in only briefly reversing the China stock market crash.