How did the Stockmarket Crashed during the Great Depression?

Question

I know that it crashed on 1929 that day was called The Black Tuesday.

Guys also what was the month and the date of the Black Tuesday?

Answer 1

During the 20s, buying on credit was a new thing. People also started using installment plans to give monthly payments for things that they bought. There were new forms of technology and more people were getting homes with electricity and wanting to buy washing machines and such. To meet consumer demands, businesses took out loans to produce their products. People tried to buy on credit even though they didn't really have enough money. The banks were out of money and they closed. All of the money was in the products in the stores or homes that nobody could pay for becuase they were out of money.

Answer 2

KAR is correct.

actually, the crash occurred before the Depression, and was one of several contributing factors.

Up until 1929, you could buy stock with a phone call, and not pay for it (or your broker fees) until you dsold it off; people were that blindly assuming that all stocks were rising, and the brokers aided and abetted this because the more people buying stocks meant more profits for them.

So when the market tanked, the whole system collapsed (like a pyramid scheme) - stocks dropping in price meant they were never paid for in the first place, brokers' expected incomes vanished, and they were left holding the debts. That's why so many jumped out of their windows.

Answer 3

There is one theory that excessive 'shorting' was a major contributor to the 1929 stock market crash.

While there are a myriad theories and contributing factors, such as overdrawn banks which couldn't meet called loans causing business to default and go under causing unemployment and non-payment of bills or banks giving 'sub-prime' loans to poor candidates who couldn't afford a rise in the interest rate, all in rapid succession.

It was still the method of 'shorting' buying stocks you don't own on margin (borrowed money) on such a massive scale that billions of dollars of stocks where bought on bad credit based on no money.

So in essence the American economy was 'mortgaged', and all it took was the inability of the 'shorters' to pay a 'call' and a rapid domino effect resulted in the economic house of cards to fall (sorry for the mixed metaphors).

Answer 4

Unsound financial practices led to the Stock Market Crash. Essentially a lot of stocks were (grossly) over valued and people were buying stocks on credit often borrowing against non existent funds. Imagine going to a poker game, you buy in for a HUNDRED bucks in cash - - - - you end up playing with a THOUSAND dollars in Chips (stocks) - - - you ride the excitement of the game, the pile of the chips is multiplied by five players each with a thousand dollars of chips they paid a hundred for. The last hand - - - you throw out your last chip, the one chip that could be redeemed for your original HUNDRED dollar buy in. You lose - - - but wait a minute, while you were riding high you gave a chip tip to the bartender ($100), the Dealer ($100), and the guy who gave you a fluff in the john ($100) and they want cash before you leave. No you are out $300!

All at once hundreds of small traders / stock brokers were expected to cash out accounts and there was no cash to give out. Bankers at reliable instutions had borrowed from their own bank massive amounts of cash/gold to buy stocks. That gold/cash was out of their hands when suddenly these bankers were expected to give out cash to cover their borrowing.

Finances are a delicate maze - - - the US Debt is over a Trillion what is that - - - is that cash in your wallet or credit on a long number & a security code enough to get you dead cow flesh on a bun and fires and a soda?

Peace

Answer 5

my great-grandmother who was born in 1917 and is still alive today said that she stood in line for 7 hours for one loaf of bread sugar and milk during the depression. She also said that butchers were selling wild game and horse meet and faking to the people that it was beef



True story

Answer 6

The Wall Street Crash of 1929, also known as the Crash of ’29, was one of the most devastating stock market crashes in American history. It consists of Black Thursday, the initial crash and Black Tuesday, the crash that caused general panic five days later. The crash marked the beginning of widespread and long-lasting consequences for the United States. Though economists and historians disagree on exactly what role the crash played in the ensuing economic fallout, some regard it as the start of the Great Depression. Most historians, however, agree that it was actually a symptom of the Great Depression, rather than a cause. The crash was also the starting point of important financial reforms and trading regulations.

At the time of the crash, New York City had grown to be a major financial capital and metropolis. The New York Stock Exchange (NYSE) was the largest stock market in the world. The roaring twenties were a time of prosperity and excess in the city, and, despite warnings of speculation, many believed that the market could sustain high price levels. In the words of Irving Fisher, "Stock prices have reached what looks like a permanently high plateau." The euphoria and financial gains of that great bull market were shattered on 24 October 1929, Black Thursday, when share prices on the NYSE collapsed. Stock prices fell on that day and they continued to fall, at an unprecedented rate, for a full month.

In days leading up to Black Thursday the market was unstable. Periods of panic selling and high volumes of trading were interspersed with brief periods of rising prices and recovery. After the crash the Dow Jones Industrial Average (DJIA) recovered early in 1930, only to reverse again, reaching a low point of the great bear market in 1932. The market did not return to pre-1929 levels until late 1954, and was lower at its July 8, 1932 nadir than it had been since the 1800s.

“ Anyone who bought stocks in mid-1929 and held on to them saw most of his adult life pass by before getting back to even. ”
—Richard M. Salsman

The trading floor of the New York Stock Exchange just after the crash of 1929.After an amazing five-year run that saw the Dow Jones Industrial Average (DJIA) increase in value fivefold, prices peaked at 381.17 on September 3, 1929. The market then fell sharply for a month, losing 17% of its value on the initial leg down. Prices then recovered more than half of the losses over the next week, only to turn back down immediately afterwards. The decline then accelerated into the so-called "Black Thursday", October 24, 1929. A then-record number of 12.9 million shares were traded on that day.

At 1 p.m. on Friday, October 25, several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor. The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank. They chose Richard Whitney, vice president of the Exchange, to act on their behalf. With the bankers' financial resources behind him, Whitney placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As amazed traders watched, Whitney then placed similar bids on other "blue chip" stocks. This tactic was similar to a tactic that ended the Panic of 1907, and succeeded in halting the slide that day. In this case, however, the respite was only temporary.

Over the weekend, the events were dramatized by the newspapers across the United States of America. On Monday, October 28, more investors decided to get out of the market and the slide continued with a record 13% loss in the Dow for the day. The next day, "Black Tuesday", October 29, 1929, 16.4 million shares were traded, a number that broke the record set five days earlier.

Author Richard M. Salsman wrote that on October 29—amid rumors that U.S. President Herbert Hoover would not veto the pending tariff bill—stock prices crashed even further."[3] William C. Durant joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks in order to demonstrate to the public their confidence in the market, but their efforts failed to stop the slide. The DJIA lost another 12% that day with 16.4 million shares traded - a new record - surpassing the one set only the previous Thursday and not exceeded until 1969. The ticker did not stop running until about 7:45 that evening. The market lost $14 billion in value that day, bringing the loss for the week to $30 billion, ten times more than the annual budget of the federal government, far more than the US had spent in all of World War I.

An interim bottom occurred on November 13, with the Dow closing at 198.6 that day. The market recovered for several months from that point, with the Dow reaching a secondary peak at 294.0 in April 1930. The market embarked on a steady slide in April 1931 that did not end until 1932 when the Dow closed at 41.22 on July 8, concluding a shattering 89% decline from the peak. This was the lowest the stock market had been since the 1800s.[5]

Salsman observed that "As late as April 1942, U.S. stock prices were still 75% below their 1929 peak and would not revisit that level until November 1954—almost a quarter of a century later."[3]


Dow Jones Industrial, 1928-1930The crash followed a speculative boom that had taken hold in the late 1920s, which had led millions of Americans to invest heavily in the stock market, a significant number even borrowing money to buy more stock. By August 1929, brokers were routinely lending small investors more than 2/3 of the face value of the stocks they were buying. Over $8.5 billion was out on loan, more than the entire amount of currency circulating in the US.[6] The rising share prices encouraged more people to invest; people hoped the share prices would rise further. Speculation thus fueled further rises, and created an economic bubble. The average P/E (price to earnings) ratio of S&P Composite stocks was 32.6 in September of 1929 [7], clearly above historical norms.

On October 24, 1929 (with the Dow just past its September 3 peak of 381.17), the market finally turned down, and panic selling started. 12,894,650 shares were traded in a single day as people desperately tried to mitigate the situation. This mass sale was considered a major contributing factor to the Great Depression. Economists and historians, however, frequently differ in their views of the Crash's significance in this respect. Some hold that political over-reactions to the crash, such as the passage of the Smoot-Hawley Tariff Act through the U.S. Congress, caused more harm than the Crash itself.

In 1931, the Pecora Commission was established by the U.S. Senate to study the causes of the Crash. The U.S. Congress passed the Glass-Steagall Act in 1933, which mandated a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.

After the experience of the 1929 crash, stock markets around the world instituted measures to temporarily suspend trading in the event of rapid declines, claiming that they would prevent such panic sales. The one-day crash of Monday, October 19, 1987, however, was even more severe than the Crash of 1929. On so-called Black Monday of 1987, the Dow Jones Industrial Average fell a full 22.6% (the markets quickly recovered, posting the largest one-day increase since 1932 only two days later).

The Wall Street Crash had a major impact on the US and world economy and it has been the source of intense academic debate - historical, economic and political, from its aftermath until the present day. The crash marked the beginning of widespread and long-lasting consequences for the United States. The main question is, did the crash cause the depression, or did it merely coincide with the bursting of a credit-inspired economic bubble? The decline in stock prices caused bankruptcies and severe macroeconomic difficulties including business closures, firing of workers and other economic repression measures. The resultant rise of mass unemployment and the depression is seen as a direct result of the Crash, though it is by no means the sole event that contributed to the depression, it is usually seen as having the greatest impact on the events that followed. Therefore the Wall Street Crash is widely regarded as signaling the downward economic slide that initiated the Great Depression.

Many academics see the Wall Street Crash of 1929 as part of an historical process, that was a part of the new theories of Boom and bust. According to economists such as Joseph Schumpeter and Nikolai Kondratieff the Crash was merely a historical event in the continuing process known as Economic cycles. The impact of the Crash was merely to increase the speed at which the cycle proceeded to its next level. According to the economist Milton Friedman, in the immediate aftermath of the crash, the Federal Reserve did not sufficiently expand the money supply and so turned the recession into a depression.