Why did the stock market crash in 1929? Preceeding the Great Depression?

Question

Doing a project...

Answer 1

Just prior to 1929, prosperity seemed to be everywhere (even though there was there was a huge underclass of unemployed and poor farmers which the rest of the country ignored) Prosperity was especially conspicuous on Wall Street. New companies like General Motors had issued stock that made many investors, large and small, seemingly wealthy. A person could make a large fortune unscrupulously because there was no Securities & Exchange Commission as of yet. A great number of successful men were operating in shady territory in those days. They would buy cheap stock and drive up the prices among themselves and lure outside investors into their 'pool' and dump their stocks at artificially inflated prices, leaving the 'sucker' holding a bag of overpriced stock.
The 'paper' wealth being acquired masked a rot in the American economy. Farmers continued to struggle. Unemployment was already high as factories became mechanized and the worker at the bottom was let go. Housing starts fell in 1927, always an ominous sign in the American economy. The American consumer could not consume all of the goods that American manufcturers were producing.

Yet thousands were drawn to the lure of fortunes made in the stock market. People pulled their life savings from banks and put them into stocks and securities. The rules of the day meant that investors only had to put down 10 - 20% in cash to buy stock; the rest was available on cheap credit. The American public was in enormous debt and their 'wealth' was all on paper.
Meanwhile, steel and auto production were in decline while the stock market continued to rise, reaching it's peak in September of 1929. Skittish European investors began to withdraw their investments in the U.S. When brokers called customers to pay off the amounts owed on stocks bought w/ borrowed money, these investors had to sell off their stocks to raise cash. This created a fear of losing everything that quickly gained momentum. As stock prices fell, more brokers called on customers to put up more cash and a vicious cyle was unleashed, sending prices on the stock exchange plunging. On 'Black Thursday', Oct. 24, 13 million shares of stock were sold off. On Oct 29, 'Black Tuesday' more that 16 million shares were sold off as panic swept the stock exchange. Within days, the 'wealth' of a large part of the country, which had been concentrated invastly inflated stock prices, simply vanished.

Answer 2

Read 'The Day the Bubble Burst' by Gordon Thomas and Max Morgan -Witts. Should be available at a good library or ask the librarian to order it for you.

Answer 3

I dont really think there was an actual reason. maybe a bad day, but at that time the stock market was such a BIG DEAL that a lot of people invested all their money in it. when it crashed it obviously was the major source of the great depresion.

Answer 4

The Smoot-Hawley Act destroyed the economy with its tariffs and protectionism. Then the government compounded the economic collapse it created by deflating rather than inflating the money supply.