the stock Market Crash of 1929
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The Stock Market Crash of 1929
The 1929
Stock Market Crash is well known as the
most
devastating crash in United States history.
Here's a look at this historic event, which
marked
the beginning of the Great Depression.
When the stock market crashed in 1929, it
didn’t happen on a single day. Instead, the stock
market
continued to plummet over the course
of a few days setting in motion one of the most
devastating
periods in the history of the
United States.
Black Thursday
The most significant events started on Black
Thursday, October 24, 1929. On that day, nearly 13
million
shares of stock were traded. It was a
record number of stock trades for the U.S. and
marked the end of
an upward trend on stock
prices. On Black Thursday, the stock prices
dropped so quickly, the stock
ticker could
not keep up. As the day progressed, the stock
ticker lagged behind, failing to show the most
up to date stock prices.
Top American
Bankers Try to Save the Banking System
On
the next day, Friday, October 25, several of the
nation’s largest bankers met to decide what they
could do about the situation. Among the
attendees were the heads of Morgan Bank, Chase
National
Bank, and National City Bank. The
bankers ultimately decided to purchase a number of
U.S. Steel
shares above market price. A
similar tactic worked to end a previous stock
market scare in 1907 when
the New York Stock
Exchange plummeted, causing many banks and
businesses to file bankruptcy.
American
banker J.P. Morgan and a few other bankers bailed
out the banking system using their own
money.
The bankers who tried to thwart the 1929 stock
market crash were unsuccessful. There were
positive results, but they were short lived.
In those days, the stock market traded
six days a week instead of five. The bankers’ move
led to a slight
increase in stock price on
Saturday, October 26. But over the weekend many
investors lost faith in the
stocks and
decided to sell their shares. When the markets
reopened on Monday, October 28, 1929,
another
record number of stocks were traded and the stock
market declined more than 22%. The
situation
worsened yet again on the infamous Black Tuesday,
October 29, 1929 when more than 16
million
stocks were traded. The stock market ultimately
lost $$14 billion that day.
What Caused
the 1929 Stock Market Crash?
In the years
leading up to the stock market crash of 1929, the
stock market
had gained much popularity as a
way of making money. Because stocks
prices had
been on the rise, they gained the reputation of
being a safe way
to invest. Many investors
believed stocks were their ticket to riches.
A great number of investors were purchasing
stock on the margin, meaning
they put 10% of
the investment and borrow the remaining 90%. For
example,
if $$10 worth of stock was purchased,
the investor put in $$1, while the
mortgage
broker put in the other $$9. It was a good deal as
long as stocks
were gaining value. However, if
the stock lost value, the stockbroker would
issue a margin call requiring the investor to
pay back the loan. In the
example above, not
only did the investor lose the $$1 he invested, he
also
had to pay back the $$9 he’d borrowed.
How Mass Trades Lowered Stock Prices
All was well for most of the 1920s.
People believed that stock values would
never
stop rising. But, in 1929, some of the larger
investors realized the
stock prices were
artificially high as a result of the mass
investments from
speculative investors. So,
those “savvy” investors started trading their
stocks
and consequently, stock prices began to
fall. Then, brokers issued margin
calls
leading to further stock market drops. The
situation peaked on Black
Tuesday when the
stock market completely crashed.
Even
after Black Tuesday, stock prices continued to
fall until November 23,
1929 when there was a
brief period of stabilization. Though it seemed
like
the worst had been seen, there was more
decline to come. After that, the
stock market
continued to decline until it reached its lowest
point on July 8,
1932.
The Stock
Market Crash’s Effect on the U.S. Economy
The stock market crash devastated the American
economy because not only had individual investors
put
their money into stocks, so did
businesses. When the stock market crashed,
businesses lost their
money. Consumers lost
their money too, because many banks had invested
their money without their
permission or
knowledge.
The Great Depression soon
followed. Even though the stock market crash of
1929 was one of the
contributors to The
Depression, it was not the only cause.
Factories had begun to overproduce
consumer goods, but demand for those goods
didn’t
increase at the same rate. Prices
of those goods began to fall, but once the stock
market
crashed, few people could afford to
purchase goods.
A similar
situation happened with farm crops as farmers
planted more wheat than was
demanded on
the market.
Banks had
little to no government regulations to abide by
and lost many of their customers’ life
savings in the stock market crash. Hundreds of
banks failed over the course of the Great
Depression, worsening the situation as many
consumers were left with no money.
Herbert Hoover, who was President from 1929 to
1933, believed the government shouldn’t
intervene with the economy. Rather, he said,
families could turn the economy around if they
continue to work hard and rely on
themselves.
In 1930,
Hoover signed the Smoot-Hawley Tariff, which
increased the tariff rates on imported
goods. Foreign nations responded by boycotting
American products. This severely hurt
American producers who were in dire need of
sales.
New Government Programs Created
After the stock market crash of 1929, the
government took several measures to prevent a
similar crash
from occurring. The Securities
and Exchange Commission (SEC) was created on
October 1, 1934 to
regulate stocks, bonds,
and other commissions. The Federal Deposit
Insurance Corporation (FDIC)
was also created
to insure consumers’ deposits in FDIC-enrolled
financial institutions. The Federal Crop
Insurance Corporation (FCIC) was created to
insure crops planted by farmers. These are a few
of the
government-created agencies that have
been put in place to prevent another stock market
crash of the
magnitude of the stock market
crash in 1929.