The Stock Market Crash

Topics: Wall Street Crash of 1929, Stock market, Roaring Twenties Pages: 5 (1682 words) Published: August 29, 2013
The end of World War I indicated a new era in the United States. It was an era of enthusiasm, confidence, and optimism. Once the 1920s arrived, many people and America itself became very wealthy and full of economic prosperity. The “Roaring 20s” sparked the American people to look towards the new and improved USA. The “Roaring 20’s” showed Americans a different side of the USA. The “Roaring 20s” changed the United States. Americans became very wealthy during the 1920s.

During the 1920s, unemployment went down, and business people were buying stocks. Inventions, such as the radio, television, movies, airplanes, and automobiles were produced during the 1920s. Though people could not foresee it, booming business without regulations can lead to a terrible financial future.

“The dream of making a fast fortune and the ability to buy stocks on credit promoted ordinary Americans to invest their small savings in the stock market”(The Stock Market Crash of 1929 1). During the 1920s, the stock market underwent rapid expansion. Because the market was expanding and prices were rising, it was known as a bull market. Stocks represent part ownership in a company. An investor chooses to buy stocks in hope that the value of the stock will go up so they can sell the stocks for more than they paid for it. Stock prices can fall when few investors buy a stock or if the company is unsuccessful. Investors lose money when stock prices fall. Stocks did not fall in the 1920s. The stock market had become a place where everyday people truly believed that they could become rich because prices never seemed to fall. Although the stock market has the reputation of being a risky investment, it did not appear that way in the 1920s. Many people wanted to buy stocks, but not everyone had the money to do so. When someone did not have the money to pay the full price of the stock, the person could buy the stock on margin. Buying stocks on margin means that the buyer would put down some of his or her own money, but the rest would be borrowed from a broker. The buyer had to only put down ten to twenty percent of his or her own money and the broker put eighty to ninety percent of the cost of the stock. Margin buying was very risky to do. If prices were to fall, investors could find themselves deep in debt. The buyer would have to pay the broker back the loan instantly. This practice, of bakers demanding payments from borrowers, is called a “margin call”. As stock prices were rising steadily through the 1920s, many investors thought buying on the margin was safe.

Investors in the 1920s were wrong and there were signs of trouble with the stock market. By 1929, many Americans were scrambling to get into the stock market. More dangerous, companies placed money in the stock market who gambled by buying stock in other companies. If the companies failed, so did the one who bought stock in it. Worse, banks also placed customers money in the stock market. Banks who safe guard the savings of others should not be taking risky investments. On March 25, 1929, the stock market suffered a mini crash. As prices began to drop, panic struck across the country as margin calls were issued. There were additional signs that the economy might be headed for a serious downfall in the spring of 1929. After nine years of boom, overproduction forced companies to slow. Steel production went down, house construction slowed down, and car sales faded away. Companies ran out of people to sell to. The crash was a prelude of what was to come.In September 1929, confidence in the market’s ability to continue its upward spiral began to diminish demand. Stock prices declined and many people sold their stocks. Investors, and the market, turned from bull to bear. A bear market features a downward trend in stock prices and the investors began to sell their stocks short. As more and more brokers demanded their money by margin calls, stock values continued to drop rapidly.

Stock prices...

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Fearon, Peter. “Stock Market Crash (1929).” Encyclopedia of the Great Depression. Ed. Roberts S. McElvaine. Vol. 2. New York: Macmillan Reference USA, 2004. 935 941. U.S. History in Context. Web, 26 Mar. 2013
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