THE STOCK MARKET
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In the 1920's, people discovered that they could make money off of the stock market. Forgetting the stock market was versatile, people invested their life's savings into the market and others bought stocks on credit. At the beginning of the 20's, the mood of the country exuberant and the stock market seemed like a wise investment in the future. As more people invested in the stock market, stock prices began to rise. This was first noticeable in 1925. In 1925 and 1926, stock prices fluctuated and they increased dramatically in 1927. This resulted in more and more people investing and by 1928 the stock market boom had begun.
Because of the boom, the stock market became a place where everyday people believed they could become rich. Newspapers reported of stories that told of ordinary people - like chauffeurs, maids, and teachers - making millions off the stock market, causing the need to buy stocks to continue to increase. Although and increasing amount of people wanted to buy stocks, not everyone could afford it.
When people did not have the money to buy stocks, they could get them "on margin." Buying stocks on margin 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. Buying stocks this way could be very risky because if the stock's value fell below the loan amount, the broker could issue a "margin call" and buyer must come up with the cash to pay back his loan immediately. Many people in the 1920's used this system and they were not aware of the risk they were taking.
In early 1929, everyone across the US was desperate to get involved in the stock market. The profits seemed so assured that even many companies placed money in the stock market. And even more problematically, some banks placed customers' money in the stock market (without their knowledge). Although people were shocked when the market crashed that October, there had been warning signs of what was to come.
In March, the market had suffered a mini crash that foreshadowed the events to come. As prices began to drop, panic struck across the country as margin calls were issued. When one banker, Charles Mitchell, made an announcement that his bank would keep lending, his reassurance stopped the panic and saved the Stock Market for the time being. Although Mitchell and others tried the tactic of reassurance again in October, it did not stop the big crash.
By the spring of 1929, there were additional signs that the economy might be headed for a serious setback when steel production was set back, 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 who advised caution were labeled pessimists and they were ignored.
Both the mini crash and the people who believed the market was crashing were forgotten in the summer of 1929 when the stock market surged ahead. From June to August, the market reached its highest prices to date. To many, the continual increase of stocks seemed inevitable and people were more than happy to keep trusting in the market.
On the morning of Thursday, October 24, 1929 (also known as "Black Thursday") the stock market plummeted. Vast numbers of people were selling their stock, receiving margin calls, and watched the stock ticker as the numbers it showed out spelled their impending doom. This tracker was so overwhelmed that it quickly fell behind and a crowd gathered on Wall Street in New York. People were so devastated that there were rumors of some committing suicide.
To the great relief of many, the panic subsided in the afternoon. When a group of bankers pooled their money and invested a large sum back into the stock market, their willingness to invest their own money in the stock market convinced others to stop selling their own stocks. By that afternoon, people were already buying more socks and the previous record of shares sold on one day was broken- by double the amount. Although the stock market recovered from its crash that day, it crashed again four days later (Rosenberg).
Among the causes of the eventual market collapse were low wages, debt, a struggling agricultural sector, and an excess of large bank loans that could not be liquidated. This crash was the major factor that set The Great Depression in motion (Stock Market Crash of 1929).
Because of the boom, the stock market became a place where everyday people believed they could become rich. Newspapers reported of stories that told of ordinary people - like chauffeurs, maids, and teachers - making millions off the stock market, causing the need to buy stocks to continue to increase. Although and increasing amount of people wanted to buy stocks, not everyone could afford it.
When people did not have the money to buy stocks, they could get them "on margin." Buying stocks on margin 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. Buying stocks this way could be very risky because if the stock's value fell below the loan amount, the broker could issue a "margin call" and buyer must come up with the cash to pay back his loan immediately. Many people in the 1920's used this system and they were not aware of the risk they were taking.
In early 1929, everyone across the US was desperate to get involved in the stock market. The profits seemed so assured that even many companies placed money in the stock market. And even more problematically, some banks placed customers' money in the stock market (without their knowledge). Although people were shocked when the market crashed that October, there had been warning signs of what was to come.
In March, the market had suffered a mini crash that foreshadowed the events to come. As prices began to drop, panic struck across the country as margin calls were issued. When one banker, Charles Mitchell, made an announcement that his bank would keep lending, his reassurance stopped the panic and saved the Stock Market for the time being. Although Mitchell and others tried the tactic of reassurance again in October, it did not stop the big crash.
By the spring of 1929, there were additional signs that the economy might be headed for a serious setback when steel production was set back, 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 who advised caution were labeled pessimists and they were ignored.
Both the mini crash and the people who believed the market was crashing were forgotten in the summer of 1929 when the stock market surged ahead. From June to August, the market reached its highest prices to date. To many, the continual increase of stocks seemed inevitable and people were more than happy to keep trusting in the market.
On the morning of Thursday, October 24, 1929 (also known as "Black Thursday") the stock market plummeted. Vast numbers of people were selling their stock, receiving margin calls, and watched the stock ticker as the numbers it showed out spelled their impending doom. This tracker was so overwhelmed that it quickly fell behind and a crowd gathered on Wall Street in New York. People were so devastated that there were rumors of some committing suicide.
To the great relief of many, the panic subsided in the afternoon. When a group of bankers pooled their money and invested a large sum back into the stock market, their willingness to invest their own money in the stock market convinced others to stop selling their own stocks. By that afternoon, people were already buying more socks and the previous record of shares sold on one day was broken- by double the amount. Although the stock market recovered from its crash that day, it crashed again four days later (Rosenberg).
Among the causes of the eventual market collapse were low wages, debt, a struggling agricultural sector, and an excess of large bank loans that could not be liquidated. This crash was the major factor that set The Great Depression in motion (Stock Market Crash of 1929).