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The Stock Market Crash: Veselina Tomova

The stock market crash of 1929 led to the Great Depression. In the late 1920s, the US stock market was soaring to new heights driven by wild speculation. However, signs of trouble emerged in September 1929 as stock prices began to decline. This turned into a crash on October 24, 1929 known as "Black Thursday" and worsened on October 29, 1929 becoming known as "Black Tuesday" as stock prices collapsed. A combination of factors caused the crash including risky margin trading, price manipulation, and overproduction. The crash itself did not solely cause the Great Depression but revealed weaknesses in the US and global economy such as uneven income distribution and fragile international trade. The Depression spread globally in the early 1930s with massive unemployment

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56 views14 pages

The Stock Market Crash: Veselina Tomova

The stock market crash of 1929 led to the Great Depression. In the late 1920s, the US stock market was soaring to new heights driven by wild speculation. However, signs of trouble emerged in September 1929 as stock prices began to decline. This turned into a crash on October 24, 1929 known as "Black Thursday" and worsened on October 29, 1929 becoming known as "Black Tuesday" as stock prices collapsed. A combination of factors caused the crash including risky margin trading, price manipulation, and overproduction. The crash itself did not solely cause the Great Depression but revealed weaknesses in the US and global economy such as uneven income distribution and fragile international trade. The Depression spread globally in the early 1930s with massive unemployment

Uploaded by

Vessy Tomova
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© © All Rights Reserved
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THE STOCK MARKET

CRASH
Veselina Tomova
The USA in the 1920s
• “Roaring Twenties”
• Consumer society
• Technological advancements
• Extreme economic growth and prosperity
• Herbert Hoover was inaugurated on 1928
– “We in America today are nearer to the final triumph over poverty
than ever before in the history of any land.”
• Great optimism about the future
Europe in the 1920s
• Still rebuilding itself after WWI
• Treaty of Versailles redrew the borders of Europe and imposed
heavy reparations on Germany + restrictions to the army
• League of nations was established; US did not join
• Germany was in financial crisis
– Severe inflation
Events Leading to the Crash
• To the average American, the economic signs in 1929 seemed
encouraging
• Summer of 1929
– New York Stock Exchange stock prices were soaring
• Radio Corporation of America: $85  $420
• DuPont: $310  $525
Events Leading to the Crash
• September 1929: declined, rose, then took a downward drift
– Was viewed as a temporary “correction” that would precede a surge
• Some people warned of impending problems
• President Hoover told his financial broker to sell some of his
holdings because “possible hard times are coming”
The Crash
• October 24, 1929 (“Black Thursday”)
– Prices collapsed
– 13 million shares traded
– Stockholders absorbed $9 billion in losses
• October 29, 1929 (“Black Tuesday”)
– Decline in prices continued
– Fistfights occurred on the trading floor
– Many people committed suicide
Causes of the Crash
• Wild investment fever that led investors into risky ventures
• Corporations relied on stock offerings to finance their
businesses
• Generous tax breaks led to the wealthy accumulating money
– Spent it on the stock market
• “Margin” trading
– Purchasing stock on credit (10-15% of actual price)
– People borrowed money to buy on margin
Causes of the Crash
• Investors with knowledge manipulated stock prices
– “Shear the sheep”
• New companies often consisted of schemes to issue stock
assuming the market would rise
– “Paper empires”  Ivar Krueger’s International Match Company &
Kolster Radio
• Government regulation of stock issues was very lax
• Stock exchanges had few requirements for revealing a
company’s financial status
Causes of the Great Depression
• The crash on its own did not cause the Great Depression
– The causes were more deeply rooted
• Uneven income distribution
– 5%  1/3 of total personal income
– Not enough people with money to buy products
• Industry leaders put their gains in the stock market
Causes of the Great Depression
• Overproduction of agricultural goods
– Rural banks failed when mortgages were not paid
• The world economy was fragile
– Germany borrowed from US to pay reparations
– Used loans to pay France & Britain

The intricate process hinged on the strength of the American economy.


Causes of the Great Depression
• 1930: US imposed Smoot-Hawley tariff (highest)
• Other countries raised tariffs in retaliation
– “Beggar thy neighbor” protectionism
– Crippled export industries
– Shrinking world trade
• 1929 – 1932: global trade declined by 36% & world trade
dropped by 62%
Consequences in the USA
• 1,350 banks failed (1930)
• Industrial production declined with 26%
• 4 million unemployed—8.7% (1930)
• Hoover’s programs were inadequate for the size of the
unemployment situation
– Refused government intervention; relied on self-reliance and
volunteerism
Consequences in Europe
• The depression reached Europe in 1931
• Reparation payments & war loans were canceled
• France & Britain
– Made their colonial empires purchase their products
• Germany
– Unemployment reached 6 million (1932)
– Created massive economic and social upheaval
– Sowed the seeds for radical leadership
THANK YOU FOR THE
ATTENTION!

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