Stock Market Crash

Stock Market Crash Essay, Research Paper

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Matthew P. Magee

Mr. Tipton

14 May 1999

Stock Market Crash of 1929

The 1920 s were a time of great prosperity and growth for Americans. This time period even got the nickname The Roaring Twenties. Americans were high in spirits, and times were changing. During this time, Americans were getting wealthy and having fun doing so. They started to invest their money in the stock market. Then on one day in 1929, the market crashed and set many people to the poor house. This day would become to be known as Black Tuesday, October 29,1929.

In the early months of 1929, the market was reaching record highs. The economy was booming, and there seemed to be no worries for the country. In September of 1929, the Dow Jones Industrial Average reached its all time high. It rose to 381.17 points, the pre-depression high (U.S. News & World Report 32). Everything seemed to be going so well for our country.

On Thursday, October 24, New York s Stock Market crashed precipitously. On that day, 12,894,650 shares of stock changed hands, according to the official figures (Faber 150). Although this is not known in history as the day the market crashed, it starts to tell the story of how the economy was going to hit a very low point. People knew what was going on. They knew they were losing a lot of money on this one day. Rumors of suicides kept sweeping the trading floor (Faber 151).

On Monday, October 28, the market was again getting into trouble. The large stocks of the time were dropping in record numbers. Steel dropped 18 points, General Electric went down 48 points, and the whole list of stocks traded on the New York Stock Exchange lost an average

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of about 50 points (153). As word got out about the record falling of points in the market, people began to wonder if their money was safe in the stocks. Then, as if it were planned, people decided that their money wasn t safe and they wanted it out of the Stock Market before it hit rock bottom. So on Tuesday, October 29, 1929, the Stock Market crashed and many people lost everything.

On this Tuesday of 1929, more than 16 million shares of stock were traded in the largest volume of Stock Exchange activity ever recorded (153). Most of the major stocks suffered terribly on this day. American Telephone & Telegraph went down 28 points; Delaware & Hudson Railroad closed with a loss of 25 and a quarter. General Electric plummeted 28 points, U.S. Steel dropped 12 points and General Motors went down 7 and a half points (U.S. News & World Report 36). This is what one news article read the day of the crash:

When the market opened this morning, traffic came to a standstill as thousands of investors blocked the road. They were trying to push their way into the Stock Exchange to sell shares that had become almost worthless. After 16 million shares had been sold, prices dropped to rock bottom. There is an air of disbelief in America tonight. Many investors face ruin (Sharman 39).

There were several factors that caused this devastation. Most of the reasons were by the American people themselves. People were starting to experience great wealth. They thought that if they invested in the Stock Market they would get more money. This was the first problem, people who didn t know about the stock market were investing their money into it. Now that so many people were investing, stock prices rose to prices that were higher than what the company was really worth. Americans began to realize that they were paying too much

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money for their stocks, and they tried to sell their stock to take a profit. The people who didn t realize this waited too long to sell their stocks, and when they did, they sold for less than what they originally paid for the stock. At this point they started losing money. Not only were people buying stocks, but they were also using their stocks as collateral. When the market crashed people lost their collateral and their money.

The rich people were looking for ways to get even richer. Wealthy people often got together and made pools. Pools are defined as combinations of persons who attempt to influence or manipulate the price of a stock for their own benefit (Tindall 1092). Essentially, a pool is when rich people buy and sell a stock back and forth to each other driving the price of that stock up. When the average investor sees the way the stock is increasing, they invest their money into it. Then when the rich get the money they want, they sell the stock and the price goes back down, causing the average investor to take a loss. This practice is now illegal.

The government also had its hand in the crash of 29. The Federal Reserve (FED) raised interest rates. This caused the selling of stocks because it was feared that companies would lose money. In turn, people quit taking out loans to buy products, due to the higher interest rates.

When the market crashed, people weren t the only ones hurt. Banks had to close down as well. People didn t trust the banks anymore, so they started to withdrawal their money. The banks couldn t give all the money back to the people, because they didn t have enough currency. Americans began to hoard their money in mattresses, the walls of their houses, tin cans buried in their yards, anywhere but in the banks (Farrell 21). Since people hoarded their money, there was no more money in circulation.

The years that followed the Stock Market Crash of 1929 would be known as The Great

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Depression – a time of great suffering for our country. Americans would suffer throughout the thirties, as unemployment hit an all-time high.

Our market today has made a couple of changes to see that this doesn t happen again. The market will no longer be able to plummet like it did. Circuit breakers automatically halt trading on the NYSE for a half-hour when the DOW drops by 350 points and for an hour when the blue-chip indicator falls by 550 points. They have revised the system several times in recent years. People today are also getting smarter about their money and how they invest it. Even though there are a lot of people in the market today, there is also more education about it so that a catastrophe like this doesn t happen again. Our government has become smarter and has people looking out for signs that wouldn t indicate us to a crash in the market. These people s jobs are to monitor the market and how it s going. If it appears to be heading in the wrong direction, the government has ways to try and turn it around. As the American people have gotten smarter they have also become wiser with their money. This is evident in the way our economy is headed. The Dow Jones Industrial Average has surpassed 11,000 points. Our economy is headed in the right direction, and we don t have to worry about another catastrophe like the one in 1929.

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Michael M. Magee