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Transcript of Great Depression
5 Loaned Candies
5 Loaned candies
5 What will you do? Take an independent loan of one candy from a classmate. (with an interest rate of a candy per day.) Not pay the call! Your Candies
1 Congratulations! Your action of not paying the margin call, is devastating, and Lemieux Candy Industries eats/sells all of your candy. Candies 0 What Goes Up, Must Come Down When it seemed like everyone was investing in the stock market, prices surged, and stocks became more valuable. To have a crash like the one in 1929, the stock market needs a boom first, and after World War I's boom, it set up the economy for the great depression. What Is The Stock Market? Stock Market Boom A share of stock is the smallest unit of ownership in a company. If you own a share of a company’s stock, you are a part owner of the company. You have the right to vote on members of the board of directors and other important matters before the company. If the company distributes profits to shareholders, you will likely receive a proportionate share. However if something terribly wrong happens like a lawsuit, the worse that can happen is your stock becomes worthless. The creditors can’t come after your personal assets. Stock Market Crash Of 1929 In early 1929, citizens across the United States were scrambling to get their money into the stock market. The profits seemed so assured that even many companies even placed money in the stock market. And even more problematically, some banks placed customers' money in the stock market (without their knowledge). With the stock market prices upward bound, everything seemed wonderful. When the great crash hit in October, these people were taken by surprise. However, there had been warning signs. On March 25, 1929, the stock market suffered a mini-crash. It was a prelude of what was to come. As prices began to drop, panic struck across the country as margin calls were issued. When banker Charles Mitchell made an announcement that his bank would keep lending, his reassurance stopped the panic. Although Mitchell and others tried the tactic of reassurance again in October, it did not stop the big crash. Money Is Poured Into The Stock Market Prelude to the crash More Signs Of An Impending Crash By the Spring of 1929, there were additional signs that the economy might be headed for a serious setback. Steel production went down; house construction slowed; and car sales waned. At this time, there were also a few reputable people warning of an impending, major crash; however, as month after month went by without one, those that advised caution were simply ignored. WARNING World War I And Optimism As more people invested in the stock market, stock prices began to rise. This was first noticeable in 1925. And by 1928, a stock market boom had begun. Interest in the stock market reached a fevered pitch. Stocks had become the talk of every town. The fever to buy stocks grew exponentially. Although an increasing number of people wanted to buy stocks, not everyone had the money to do so. Investing After The War What Is Buying On Margin? Margin Calls When someone did not have the money to pay the full price of stocks, they could buy stocks "on margin." This means that the buyer would put down some of his own money, but the rest he would borrow from a broker. In the 1920s, the buyer only had to put down 10 to 20 percent of his own money and thus borrowed 80 to 90 percent of the cost of the stock. Black Thursday Over the weekend, the events that previously happened were covered by the newspapers across the United States. On October 28, "Black Monday", more investors decided to get out of the market, and the slide continued with a record loss in the Dow for the day of 38.33 points, or 13%. Black Tuesday On October 24 ("Black Thursday"), the market lost 11% of its value at the opening bell on very heavy trading. Several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor. The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank of New York. They chose Richard Whitney, vice president of the Exchange, to act on their behalf.
With the bankers' financial resources behind him, Whitney placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As traders watched, Whitney then placed similar bids on other stocks. It succeeded in halting the slide. The Dow Jones Industrial Average recovered, closing with it down only 6.38 points for the day Black Monday The next day, "Black Tuesday", October 29, 1929, about 16 million shares were traded, and the Dow lost an additional 30 points, or 12%, The volume of stocks traded on October 29, 1929 was a record that was not broken for nearly 40 years.
On October 29, William C. Durant joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks in order to demonstrate to the public their confidence in the market, but their efforts failed to stop the large decline in prices. Due to the massive volume of stocks traded that day, the ticker did not stop running until about 7:45 p.m. that evening. The market had lost over $30 billion in the space of two days which included $14 billion on October 29 alone. The Market Falls Fun Fact! The Dow Jones Industrial Average increased 0.14% yesterday. Conclusion All of these reasons provide a formidable argument that the great depression was caused by World War I giving the Unites States optimism, buying on margin, and the stock market crash of 1929.