When Herbert Hoover ran for president in 1928, he confidently predicted in campaign speeches that the abolition of poverty was right around the corner. The steadily rising bull market in the nine months after his inauguration proved that point to millions of Americans.

Day after day newspaper headlines reported the skyrocketing stock prices of companies such as RCA and General Motors. Values of obscure companies such as Western Warehouses tripled within weeks. Traditional business practices were forgotten as stocks no longer increased in value because the company made money or produced a desirable product.

In September 1929, the market began a roller-coaster ride that made many investors queasy. Stocks would soar to new highs, then lose half their original value within a few days. Meanwhile several large banks had lent brokers over $6 billion (equal to around $330 billion today) so that small investors could buy stocks...