Stock Market Crash

Boom and Bust

Key Terms

• Federal Reserve System

• Stock Exchange

• Corporation

• Stock

• Dividend

• Buying on the Margin (Margin Call)

what is the stock market?

False Prosperity

• Since World War I the economy had boomed

• Value of total stocks grew from 27 to 87billion

• The idea that everyone could/should be rich was very common

New Products and Ads of the 20s

Missed Signs

1. Uneven Prosperity

2. Buying on Credit

3. Stock Market Speculation

4. Too much supply Too little demand

Uneven Prosperity

• Most of population was struggling most American families had no savings

• All members of the family had to work to get buy, children included

• The actual “rich” made up less than 1%

Buying on Credit

• People were tempted to live well beyond their means and did just that

Stock Market Speculation

• People bought a lot of stock on the hope it would climb in value

• Buying on the margin- buying stock on credit with high interest that can be paid if you sell for profit

• Worked for a while, couldn’t last, no real value

Too much supply Too little demand

• Producers made so much stuff that it was stored in warehouses

• Many could not afford to buy these new inventions, at least not in the quantity they hoped

Missed Signs

• These things should have been warning signs

• We are now much more attentive to these problems (oh really????????)

A Bad Decision

• In an effort to stop over speculation the Federal reserve limited the money supply by raising interest rates this would leave very little in circulation to help stimulate the Economy when things went bad

Black Thursday

• Many worried investors begin to sell stocks at a big loss

• GE bought for $400 a share sold for $238• $3 billion lost that day

• The government said don’t worry• Many investors pool money and that helps

for a few days

Black Tuesday

• Investors still worried rush to pull money out of the stock market.

• Prices fall, businesses and investors lose billions

• Brokers and Bankers call in their loans but no one had the cash to pay them

• We are in a Crash

From Crash to Depression

• This crash effected many in business and stocks immediately over the next few months it began to be felt by almost all Americans

• GNP $103 billion in 1929

• GNP $56 billion in 1933

• The Crash was a signal for bad times NOT THE CAUSE

Effects of the Depression

Businesses Had No Money

Businesses could not hire workers or keep old ones

• 1in 4 Americans out of work (25%)

• Crop Prices fell- farmers lost land

• Banks tried to get back investments but couldn’t over 5,000 banks close

• 9 million savings accounts vanish

World Wide Impact

• Many Europeans were depending on Germany’s World War I reparation payments

• To pay those payments Germans counted on American investment

• Americans were out of money to invest, Germany cannot pay.

• Europe is now drawn into depression

Social Impact of the Depression

Poverty is Rampant

• The people who were already poor were hit the hardest

• Homelessness numbers shot way up

• Hoovervilles- named after the president, were shanty towns were homeless congregated. Houses were made from cardboard and scrap material

Farm Problems

• Farmers can’t pay mortgages so banks take property

• Dust Bowl- a region of the Great Plains that experienced drought for much of the 1930s

• Dust Bowl forces about 100,000 migrants from the Great Plains to California

Strains on Society

1. Impact on Health

2. Impact on the Family

3. Racial/Ethnic Discrimination

Impact on Health

• Many American are starving

• Especially dangerous to children’s health

• Some got a little relief from government organizations

Impact on the Family

• Many men begin to see themselves as failures, can’t support the family

• Women are often fired if they are married so not to take a job from a man

• Women have little opportunity outside of cleaning or typing etc.

Racial/Ethnic Discrimination

• Hard times increase hostilities toward immigrants

• Many white southerners openly declared that no African American should hold a job if whites were out of work.

• African Americans were denied civil rights (voting, education, healthcare) and increased lynching

• Relief agencies also discriminated so black churches set up their own organizations

Racial/Ethnic Discrimination

• Hispanics and Asian Americans were deported

• Many of the deported were actually born in America

People Turn to Symbols

• To deal with the problems of the day many turn to humor. Newspapers, cartoons, radio & movies. People laugh to escape

• The Empire State building gave people pride as well as a technical marvel

• 21st Amendment- marked a symbolic end to organized crime and corruption

Government Action or Lack Of

• Hoover thought that voluntary action by business was the only way.

• Hoover believed that direct federal help would destroy people’s self respect and create a large bureaucracy

• Government began to spend money on large construction projects, i.e. Boulder (Hoover) Dam

Hawley-Smoot Tariff

• Highest import tax on foreign goods ever

• Europe response with huge taxes on American goods

• All international trade grinds to a halt

• The world is much worse off than it was before Hawley-Smoot

Hoover is in trouble

• Many blamed Hoover for their problems

• Hoover allows the Army to use violence to end the “Bonus Army” protest

• Obvious to most he will lose re-election

FDR

• Franklin Delano Roosevelt elected in 1932• Announces he has a “New Deal” for Americans

during his nomination speech at the party’s convention

• Ready to Experiment with new gov. controls• Open to the ideas of John Maynard Keynes

• Keynesianism- when times are bad the government must get involved (usually spending) to make it better

• Deficit Spending-spending more than you make

Today

http://finance.yahoo.com/echarts?s=%5EDJI

Today

• Unemployment high (but not nearly as high as the depression) about 8%-10%

• Business, financial, personal finance news - CNNMoney.com