Transcript The Great Bull Market - My Social Studies Teacher

The Stock Market Crash of 1929
Aim: What were the causes and effects of the
Stock Market Crash of 1929.
Do Now: Quiz –You have 5-7 minutes.
Mr. Ott @ BETA 2011-12
Some Basic Background on the
Stocks and the Economic Market
What are Securities?
• Securities can be either stocks or bonds
which are sold and bought on the stock
market.
What is the New York Stock
Exchange?
• World’s largest market place for securities
• Currently membership limited to 1,366
members.
• Seat obtained by purchasing from existing
member
Interesting Fact: How did Stock
Exchange begin?
• The Exchange evolved from a group of men
who used to meet under a buttonwood tree
on what is now Wall Street in 1792 to
discuss securities
Buying on Margin
• Investors were buying on
margin, or buying stocks with
loans from stockbrokers,
intending to pay brokers back
when they sold the stock.
• As the market rose, brokers
required less margin, or
investors’ money, for stocks and
gave bigger loans to investors.
• Buying on margin was risky,
because fallen stocks left
investors in debt with no money.
• If stocks fell, brokers could ask
for their loans back, which was
called a margin call.
The Great Bull Market
• Great American stock exchange boom of
1928-1929
• Huge bubble where there were high
speculations (investment involving high risk
but also the possibility of high profits)
• People made many investments to make big
money
Bull Market sparked by?
•
•
•
•
Growth in American industries
Technological progress
Increase in productivity (worker)
Rise in national income from 33,200 million
to 79,200 million from 1914 to 1925
• Expectation for great future and
un-boundless optimism for the market
What Sparked This Growth in
Industry?
• The Electrification of the production
process
– This expanded the ability to transform raw
materials into finished products
– Ex. Ford Motors
HOWEVER??????
• Wages did not raise even though the
production did and prices of products failed
to decrease.
• There was not an excess demand for labor
– Leaving unemployment rate steady
Stock Exchange Average Rise in
Share Prices 1924-1928
250
200
24-May
24-Dec
25-Dec
26-Dec
27-Dec
150
100
50
0
Stock
Exchange
Political Promises Spark Market
Speculation
• Herbert Hoover was the most promising
candidate for president because of his ideas
which promised increased economic growth
in America.
Hoover’s Plan
• Proposed a Tariff bill which Senator Smoot
presented called the Smoot-Hawley Tariff
– Promised increased tariffs on imports
– Planned to allow more productivity for US
manufacturers
– Help ease unemployment
Investors marvel at This
Proposal
• Investors believed profits from stocks
would increase if the tariff bill was passed
• Sparked intense speculation
• Dow Jones Industrial Average increased by
almost 35% because expected election of
Hoover and his bill
This Bubble was bound to Burst!
General Causes of the Crash
• Rampant over speculation in market
• People holding companies and investment
trusts (which by nature creates debt)
• Bursting of Bull Market economic bubble in
August 1929
• Large bank loans could not be liquidated
Direct Cause of Crash of Stock
Market
• After Hoovers election certain people began
to doubt if the tariff bill would help the US
Economy
– Farmers, America’s trading partners,
Democrats, and some Republican’s opposed the
passage of new tariffs.
– On October 21, 1929 Senate announces plans to
limit tariff revisions
– October 22, 1929 more limits set on tariff bill
Investors Realize Tariff Bill is
DOOMED!!!!!!!!!!!!!
PANIC! PANIC! PANIC!
Black Thursday
• On October 18, 1929 prices began to fall
• Panic stuck out on October 24 “BLACK
THURSDAY” after the announcements
from the Senate
• Record of 12,894,650 shares were traded
Black Thursday (Continued)
• Major banks and investment companies
bought up great blocks of stocks to stop the
panic but….
THERE ATTEMPTS FAILED!!!!!!!!!
Black Monday and Tuesday
• The Panic continued and 16,000,000 shares
were traded
• Prices on the stock market collapsed
completely!!!!
35
Sept. 1929
30
25
20
15
10
5
July 1932
0
Jan-21
Jan-23
Jan-25
Jan-27
Jan-29
Jan-31
Jan-33
Jan-35
Jan-37
Jan-39
Hoover’s Plan to combat Crash
• Extracted promises from manufacturers to
maintain production.
• Signed legislation providing generous
additional funds to pubic works
• Smoot-Hawley Tariff 1930 (finally passed):
to raise duties 50%
Hoover’s last Attempts
• Hoover proposes one year moratorium on
war debt payments
– Too little too late
– Financial panic: European Government goes off
their gold standard and devalues currencies,
destroying exchange system (hurts trade)
– Europe withdraws gold from US banks
Gold Crisis
• Withdrawal of European gold from US
banks causes
–
–
–
–
Banks to call their loans on US businesses
Bankruptcies
Bank customers go into ruin
Eventually banks in ruin
Hoover’s last Attempts
(continued)
• Reconstruction Finance Corp- to lend funds
to banks, railroads, etc
• Glass-Steagall Act- Gold to meet w/ foreign
withdrawals
THESE AND OTHER ACTS FAILED TO
PROMOTE RECOVERY!!!!
The American People lose faith in Hoover.
Franklin D. Roosevelt Wins
Presidency
• Political and revolutionary thinker
• Elected 1932
• Introduced major changes in structure of
economy
• New Deal
What did we learn from the 1929
Crash?
• Market can be very unpredictable
• Investors must not get caught up in market
bubble illusions
• Market forces alone may be unable to
achieve recovery from economic slump
• Changes were needed in US economic
structure
Government Action Taken now to
Ensure Economic Stability
• Taxation
• Industrial regulation
• Social programs (social security, pensions,
welfare, others)
• Public programs
• Deficit spending
Food for Thought
• Currently our economy is prosperous
because of new technology and
advancements (especially in computers)
• Its Important not to over speculate or jump
the gun when it comes to investments
• Important to know stock market crashes are
still possible (Crash of 1987 and 1997)