?Black Thursday? Essay, Research Paper
The nineteen twenties were a time in this countries history of unbelievable prosperity. The stock market was going through the roof, stocks doubling in price, prosperity was everywhere, and America seemed to have the formula for exceptional success. Billions of dollars were invested in the stock market as people began to squander money on the rising stock prices and buying on margin. . The stock market was controlled by professionals that worked for large firms who had good financial backing which made it easier to use the market advantageously. Small investors were never shut out of Wall Street but the professionals paid for stock tips and also rigged the market so that certain stocks would rise and fall. This gave small investors a much harder time in making money through the stock market. As the market began to grow more small investors entered the game and were really just gambling their money.
Those who didn’t put their money in the stock market were judged insane or incompetent. However, the same formula that generated all of the profit would eventually be the cause of ?Black Thursday?.
Thursday, October 24, 1929 has the unpleasant honor of being called ?Black Thursday? because it was on this day that the New York Stock Exchange crashed, indicating the end of the “Roaring Twenties” and the beginning of the Great Depression. On Black Thursday, the stock market nearly totally collapsed as millions of people began withdrawing money in fear of losing it all. The following Monday the stocks dropped once again and on Tuesday a record 16,410,030 shares were sold. Not only did the stock market prices drop drastically but the business world was brought down with it. Inflation also rose because of the crash. The crash that occurred on October of 1929 caused Americans to lose Thirty billion dollars, and the American dollar value was 90% less than it was prior to October of 1929.
Investment during the 1920?s was based on margin buying. This meant that you only paid 40% of the value of the stock. Investors bought borrowed money from their brokers, who went to the banks for that money. When stocks failed and investor failed to pay the brokers back, the money was permanently lost. The banks simply didn’t have the money and were forced to go bankrupt.
Adding to the crash was America?s slowing economy. The consumer?s desire for goods went down, as Americans became satisfied with what they had. For example, radio and television production didn?t continue to rise in sales because, you can only own so many radios and television sets before you realize that you have enough. This in turn affected the companies and the workers that produced these items. This was the beginning of a downward spiral.
The crash of 1929 brought the roaring twenties to a premature end, as those who had put their trust into the strength of the economic system lost everything. As the growing bubble of the stock market suddenly stopped some of the wealthiest people in our country instantly became paupers. Of coarse as a direct result of the crash, the economy weakened and unemployment skyrocketed.
Now as to whether the crash was the case of the great depression is still strongly debatable. Since the great depression happened after the 1929 stock market crash, many people blamed it for the economic collapse. Some held President Hoover responsible, others targeted the brokers, bankers, and businessmen. Others still say that the cause of the great depression could not be credited to one individual or to a group of people. It seems unlikely that the collapse of stock prices would have been sufficient enough to lead the U.S. economy into economic depression.
The foremost question in most people’s mind when thinking about the stock crash is, can and will it happen again? When asked this simple question most experts agree that in our present economic situation something like The Depression couldn’t develop. This is because the US passed many additional laws during the 30’s to prevent a stock market crash from re-occurring so that the economy would not falter so badly again. The United States government made changes in the regulation of stock exchanges, providing much greater protection for investors. If something like The Stock market crash started again federal bureaus would step in and attempt to prevent it.
However, this is of little importance since many of the causes of the 1929 crash are now illegal. First of all commercial banks are no longer allowed to invest in stocks. Second, the Federal Reserve now has greatly increased power over interest rates. Which gives them much greater head power to prevent a crash. The Exchange Act of 1934 regulated stock market trading. These acts gave investors more piece of mind because they knew more about what they were buying or investing in and it also gave them more protection from fraud. Another factor that makes it less likely for a crash to occur is the elimination of the big investment trusts, except the mutual funds, which are highly regulated.