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Great Depression

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Austin Lemieux

on 1 May 2013

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Transcript of Great Depression

The Great Depression was caused by World War I giving the Unites States optimism, buying on margin, and the stock market crash of 1929. Thesis Statement The Great Depression was a period of worldwide economic depression that lasted from 1929 until approximately 1939. This period was devastating to United States economy, and its citizens. The starting point of the Great Depression is usually listed as October 29, 1929, commonly called Black Tuesday. This was the date when the stock market fell dramatically 12.8%. What Was The Great Depression? The end of World War I brought in a new era in the United States. It was an era of enthusiasm, confidence, and optimism. This caused an enormous amount of people to take their savings out from under their mattresses, and out of banks and invest it . In the 1920s, many invested in the stock market. Buying On Margin The Great Depression By: Austin Lemieux Buying on margin could be very risky. If the price of stock fell lower than the loan amount, the broker would likely issue a "margin call," which means that the buyer must come up with the cash to pay back his loan immediately. Many of these investors neglected to seriously consider the risk they were taking. The Dow Jones Industrial Average would eventually bottom out by July, 1932 with a loss of approximately 89% of its value. Fun Fact! So What Caused The Great Depression? The actual causes of the Great Depression are much more complex than just the stock market crash. In fact, historians and economists do not always agree about the exact causes of the depression. Call from Lemieux Candy Industries. Unfortunately, your candy stock fell 4 candies. You have lost almost all of your investment, and to make things worse, you have been losing a lot hours at your job due to the economy. You have 5 candies, however Lemieux Candy Industries will loan you another 5 candies to invest in the candy stock market! This will rapidly increase how much money you can earn! Candy Demonstration Of Buying On Margin "Good morning, we have noticed that your stock has fell 4 candies in one day, and are issuing a Margin Call on 2 candies. You have until 11:59 Pm tonight to pay us back in full. " Your Candies
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.
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