We got our blog assignment. It is anything that has to do with the Great Depression.
What were the causes of the Stock Market Crash of 1929?
During the 20's the stock market was booming. The value of stocks continued to climb, and people began to think it would never fall. Prior to this time period, the stock market was only played by the rich. Because there was so much money to be made, common people began to play the sock market with money borrowed from banks. A stock is when someone buys a small share of a company. It terms, you are like an owner almost. A few causes were buying on credit, overvalued stocks, buying on margin, over production, and no government regulation. On October 24, 1929: A day known as "Black Thursday". On this day the stock market lost 11% of its value. People began to panic immediately started to trade in all their stocks. This was a day of total chaos. October 28, 1929: "Black Monday". Newspaper articles caused investors from around the country to join the panic and trade in their stocks. The market lost an additional 13% of its value on this day. October 29, 1929: "Black Tuesday". A record breaking amount of stocks were traded in on this day, a grand total of 16 million. The market dropped another 12%. In the months and years to follow, the stock market continued to depreciated in value until July 8, 1932, when the market had reached an all time low of an 89% total loss rate. From that day on, the market began a slow path to recovery. Previously about a decade earlier, Charles Mitchell had saved the stock market by investing his money in the stock and caused the numbers to rise. He, along with JP Morgan, tried to save it again, but it didn't work. Mr. Mitchell lost everything that day.
Buying on Credit -
During the 20's, buying on credit was a new fad. The system worked in a similar way that credit cards work now. There were no real limits on how much people could borrow, this allowed people to acquire lard amounts of debt. Because people were in debt they stopped buying things, and distributing money into the economy. This contributed greatly to the depreciation of stocks' value.
Overvalued Stocks/ Over Speculation-
Stocks were being sold for much more than they were actually worth. Investors expected the value of stocks to continue to increase, never considering that eventually the upward trend would cease. Speculators were the ones who quickly bought and sold stock to make money.
Buying on Margin -
Buying on margin allowed more middle class people to invest large amounts of money into the stock market. They would take out "loans" from investors with the intentions of paying them back with interest when they started to profit from their investments. The fact that so much of the stock market was supported by borrowed money made it very unstable. Another form of buying on margin allowed for investors to pay just 10% of the value of the socks they purchased at the time of purchase, and pay installments for the other 90%. The stock market was not likely to continue to be stable when so much was money being borrowed from it. When the stock market was only the rich people, it was more stable than with all the middle class people.
Over Production -
No Government Regulation -
The government had not set good enough regulations for banks. No requirement for minimum capitol to start a bank had been made. No limit to how much banks could lend out had been set. When the market crashed, banks that had a lot invested into stocks were wiped out.
I think this group did a good job! :)
Comments