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The Stock Market
On Thursday October 24, 1929 the headline, “Prices of Stocks Crash,” boldly lined the front page of the New York Times. Within only hours the country had lost over $4,000,000,000. The most feared nightmare had happened. Not only did bankers and brokers loose their fortunes; some ordinary working people were financially ruined. But what created this devastation? Why did the bottom of the stock market fall out so quickly?
Today, 70 years later, many people speculate and even suggest explanations for the 1929 stock market crash. However, most of these theories can not be proven. The only explanation that is widely agreed on is the understanding that the stock market was built on a rocky foundation.
The 1920’s were booming. Wages and customer spending began to soar. In fact, the economic growth made people optimistic, convincing them it was safe to invest in the stock market. The middle class saw easy opportunities to make millions. There was just one problem, large businesses had already thrown huge amounts of money into the stock market causing prices of stocks to be greatly overpriced. The middle class was forced into buying stocks on margins, in other words, loans. These margins are what held up most of the stock market. Basically, half the money invested in the market was owed. Therefore, just a small drop could have serious consequences.
Most economist of that time began warning investors that a market built on margins was unsteady and could result in a crash at any moment, but people did not listen. The government did not get involved because of a simple word known as, “Laissez-faire.” This French term may sound pretty, but in English all it means is, ‘let things be’. Laissez-faire is a government policy of non-intervention. No one wanted to touch the stock market; on the outside it seemed as if the growth was good for the United States economy.
Although it can not be totally proven, margins along with misjudgments severely increased the chances for a crash during the twenties. Therefore, the government has now become involved in the stock exchange in many ways. For example, the Federal Reserve has set laws on margins, which prevents people from buying stocks with money they do not have. It is impossible to prevent a crash, but hopefully with federal regulations a future crash will never be as devastating as the 1929 stock market crash.
“Prices of Stocks Crash in heavy Liquidation, Total Drop of Billions,” New York Times, 24 October 1929.
“The 1929 Stock Market Crash.” March 1995 <http://www.arts.unimelb.edu.au/amu/ucr/student/1997/Yee/1929.htm>.
Savill, Richard. “The Crash of 1929.” 1999. <http://www.btinternet.com/dreklind/thecrash.htm>
Underwood, Mark. “Thursday, October 24, 1929.” 1 May 1996 <http://sac.uky.edu/msunde00/hon202/p4>.
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Stock market crashes, Economic bubbles, Great Depression in the United States, Wall Street Crash, Stock market, Stock exchange, Stock trader, Black Monday
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