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Stock Market Crash 1929
Transcript of Stock Market Crash 1929
US economy was severly weakened
Many banks were forced to close due to their ill-fated investments
Personal income, tax revenue, profits and prices dropped, while international trade plunged by more than 50%. Unemployment in the U.S. rose to 25% and became a nation-wide social issue
Hundreds of thousands of Americans found themselves homeless
Areas dependent on Primary sector industries suffered the most.
Politics changed, President Hoover loses re-election and Franklin D. Roosevelt becomes 32nd President of USA During the 1920s, America experienced an era of tremendous growth, optimism, and prosperity
An economic and cultural boom fueled by rapid industrialization and the popularization of new technologies
The Dow Jones stock average soared throughout the twenties
Stocks were thought to be extremely safe rather than risky by most economists at that time.
As more people invested in the stock market, prices began to rise.
Rising prices then encouraged even more people to invest.
By 1928, the stock market boom had begun.
The stock market was no longer for long-term investments.
People foolishly invested in hot stocks such as Ford.
Few people actually studied the finances of the companies they invested in. Black Thursday: The Start of the Crash On September 3, 1929, the stock market reached its peak with the Dow Jones Industrial Average closing at 381.2.
Stock prices fluctuated from throughout September and into October.
On Thursday, October 24, 1929, stock prices plummeted.
In only three days, over $5 billion worth of market capitalization had been lost from stocks that were trading on the New York Stock Exchange.
By the end of the crash in 1932, the stocks had lost nearly 90% of their value. Not everyone could afford to buy stocks.
Buying "on margin" meant that the buyer would put down some of their own money and the rest of the cost would be borrowed from a stockbroker.
Investors had to pay only 10% of the total value of the stocks.
If the price of the stock fell lower than the loan amount, the broker would issue a “margin call”.
If stocks dropper too much, a margin holder could lose all their money and also owe money to their broker as well.
Analysts found that in 1929, almost 5% of the total value of the stock market was due to margin buying.
The stock market could not stay stabilized when such a high amount of money was borrowed from it.
When stocks prices fell, investors were forced to sell their shares so that they could pay back their brokers.
Banks also began to fail when investors could no longer pay back the money they owed to them. Margin buying caused over-valued stocks. - People bought stocks with money they didn't have.
- 60% of people were living below the poverty line. With money so easy to obtain, the demand for stocks was extremely high. - A constant bidding war for stocks caused it to rise in price. Big problem with inflated stock prices. - A drop in stock values means that everybody loses money, a big risk.
- Margin calls.
- A cause for the great depression. How the Stock Market Works Banks Brokers People Stocks The stock crash restored stock values to original price. Between May 1928 and September 1929, the average prices of stocks rose 40 percent. Over-production What is a stock? How do people earn money? Buying a small fraction of the company.
Referred as "stockholder/shareholder".
People research on companies and their successes when choosing stocks.
Good investments in the past include: Apple, Coca Cola, Google, Microsoft.
When companies go bankrupt, the stock becomes worthless. When companies do well, their stock prices increase.
People buy stocks when stock prices are low, hoping companies will be successful.
To earn money, shareholders can sell their stocks (at a price higher than what they bought them for).
Some people sell stocks of failing companies to cut loses. Overpriced stocks covered the fact that companies weren't doing too good.
Companies were producing more products than the market could handle. - Economic boom allowed for increased productivity with companies buying better equipment and machines. This affected both industrial and farm industries. - Ex. Corn sold for 70 cents a bushel in the early ‘20s, dropped to 10 cents a bushel. Started a vicious cycle. No jobs = No Money No money = No consumers No consumers = Lay offs Downfall for many companies.