the fall of the stock market
The Overview of the Stock Market
The end of World War I heralded a new era in the United States. It was an era of enthusiasm, confidence, and optimism. A time when inventions such as the airplane and radio made anything seem possible. It is in such times of optimism that people take their savings out of their banks and invest it. In the 1920s, many invested in the stock market. More people were investing in the stock market, causing the stock prices to rise. The Stock Market boom began in 1928. People belived that it was their chance to gain wealth. Although an increasing number of people wanted to buy stocks, not everyone had the money to do so.
When someone didn't have the money to pay the full price of stocks, they could buy stocks "on margin". Buying stocks on margin means that the buyer would put down some of his own money, but the rest would be borrowed from a broker. In the 1920s people who bought on margin only had to buy 10 to 20 percent of their own monet and thus borrowed 80 to 90 percent of the cost of the stock. Buying on margin was 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 com up with the cash to pay back his loan immediatly. In the 1920s many people bought stocks on margins, they nevver seriously considered the risk they were taking.
Black Thursday
On the morning of Thursday, October 24, 1929, sotck prices plummeted. Vast number of people were selling their stocks. Margin calls were sent out. Poeple across the country watched the ticker as the numbers it spit out spelled their doom. The ticker was so overwhelmed that it quickly fell behind. A crowd gathered outside the New York Stock Exchange on Wall Street, stunned at the downturn. Rumors circulated of people committing suicide.
A group of bankers pooled their money and invested a large sum back into the stock market, their willingnedd to invest thier own money in the stock market convinced other to stop selling.
The morning had been shocking, but the recovery was amazing. By the end of the day, many people were again buying stocks at what they thougt were bargain prices.
On "Black Thursday," 12.9 million shares were sold. Four days later, the stock market fell again.
Black Tuesday
October 29, 1929, "Black Tuesday." is known at the worst day in stock market history. There were so many orders to sell that the ticker quickly fell behind. (By the end of close, it had lagged to 2 1/2 hours behind.) People were in a panic; they couldn't get rud of their stocks fast enough. Since everyone was selling and nearly on one was buying, stock prices collapsed.
Rather than the banker rallying investors by buying more stocks, rumors circulated that they were selling, panic hit the country. Over 16.4 million shares of stock were sold.
The Drop Continues
The market closed on Friday, November 1 for a few days. When ot reopened on Monday, November 4 for limited hours, stocks dropped again. The slump continued until November 23, 1929, when prices seemed to stabilize. However, this was no the end. Over the next two years, the stock market continued to drop. It reached its low point on July 8, 1932 when the Dow Jones Industrial Average clesd at 41.22.
Aftermath
To say that the stock Market Crash of 1929 devastated the economy is an understatment. Although reports of mass suicides in the aftermath of the crash were most likely exaggerations, many people lost their entire savings. Numerous companies were ruined. faith in banks was destroyed.
Historians, economists, and others continue to study the Stock Market Crash of 1929 in the hopes of discovering the secret to what started the boom and what instigated the panic. As of yet, there has been little agreement as to the cuses. In the years after the crash, regulations covering buying stocks on marging and the role of banks have added protections in the hopes that another severe crash could never happen again.