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Why did this happen?

Why did this happen?. FIRST , The Stock Market Booms. By 1927 “ bull market” Americans believed that there was: n o risk, everyone gets rich, short-term investment. In 9 years, market increased by 10 times "Stock prices have reached what looks like a permanently high plateau.“.

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Why did this happen?

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  1. Why did this happen?

  2. FIRST, The Stock Market Booms • By 1927 “bull market” • Americans believed that there was: • no risk, everyone gets rich, short-term investment In 9 years, market increased by 10 times "Stock prices have reached what looks like a permanently high plateau.“

  3. What caused the “bull market”? • People are buying lots of stuff, companies are thriving • RCA Radio stock was the hot ticket! • Everyone is investing in the stock market! • Banks invested in the market • Companies invested profits in the market • Average people invested for the first time! • Stocks on margin – only put 10-20% of the price down, borrow the rest, repay when sell the stock • By 1929, 2 out of every 5 dollars a bank loaned were used to purchase stocks • If stock price ever went below loan amount broker issued “margin call”, which means buyer had to pay back loan immediately… no need to worry bc…

  4. Things are looking great!

  5. Hoover Won in 1928 • "Given the chance to go forward with the policies of the last eight years, we shall soon with the help of God, be in sight of the day when poverty will be banished from this nation…” …"We in America today are nearer to the final triumph over poverty than ever before in the history of any land…" There will be a … “chicken in every pot… two cars in every garage.”

  6. Hoover inaugurated March 1929

  7. The Bubble Began to Burst • Market peaked on September 3, 1929 • In the last hour of trading on Thursday, Oct. 24, 1929, stock prices suddenly plummeted – down 11% • Big banks try to do something (Morgan, Chase, Nat’l City) • Next day, Friday, Oct 25th - 13 million shares sold …. Why??? • And then came Black Monday, Oct 28 • companies like U.S. Steel and General Electric began to tumble • 13% in one day! Brokers slept in offices

  8. The Bubble Bursted • Black Tuesday, Oct 29, “sell, sell, sell” • Reports of broker suicide - “margin calls” • trash cans filled with transactions & fist fights! • Down another 12% - 15,000 miles ticker tape • William Durant and Rockefeller family try to stop it! • Oct 30, small rebound then… Fell until Nov 13, 1929 • In total, $25 billion ($319 billion in today's dollars) — was lost in the 1929 crash

  9. Anyone who bought stocks in mid-1929 and held onto them saw most of his or her adult life pass by before getting back to even.Richard M. Salsman

  10. Why did this happen? • Long-term reasons • Short-term reasons

  11. President of the Chase National Bank said at the time "We are reaping the natural fruit of the orgy of speculation in which millions of people have indulged. It was inevitable, because of the tremendous increase in the number of stockholders in recent years, that the number of sellers would be greater than ever when the boom ended and selling took the place of buying."[

  12. Why did this happen? LONG-TERM • Market was NOT STABLE • Culture of investing, with no knowledge (WWI) • “when a shoe shiner knows as much about investing as me it is time to get out”, Joe Kennedy • Buying on Margin (unstable) • Speculation (unstable) • Individuals & banks! • Over-valued stocks (as a result of all of the above) • No government regulation • This time is different, “it is a global economy now”, “market will correct itself” • It had to happen at some point (what goes up…) • Market was a big, unstable bubble!! SHORT-TERM • FEAR

  13. Should someone have realized the bubble was going to burst?

  14. In Reality, The Market…. • Extremely unstable – ALL reliant on a good stock market! • Market “bubble” – what happens to a bubble?

  15. http://www.youtube.com/watch?v=Fp1CttLLR0k • 45 min • 19 min crash itself

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