1. Stock Market Crash

2. Risky Increase in Stock Market
1) Bull Market – soaring stock prices encouraged people to invest
2) Margin Buying – investors only paid certain percentage of stock purchased and were loaned the remainder from a broker

3. Risky increase in Stock Market
3) Increased speculation – Predictions that stocks would continue to rise

4. Risky increase in stock levels leads to downfall of market
4) Hard to recruit new customers to invest in stock market
5) Credit begins drying up so less people buying companies’ product leading to decrease sales
6) Professional investors sense danger and begin selling stocks

5. 7) Brokers call in margins from investors
8) Investors who bought on the margin sold quickly so have enough money to repay loans

6. Result Black Tuesday – October 29, 1929
Market Lost 12% of its value and by 1932 would lose 89% of its value
The 22% annual growth from was over

7. Banks were loaning money to stockbrokers who loaned it to the investor who then played the stock market. Investor bought on margin (meaning they only had to pay a % of what they invested at first) What is the problem if the stock falls?
NYSE- Ford
New York Stock Exchange
Buy on margin

8. Federal reserve stepped in to tell banks to stop loaning to brokers so brokers then got money to loan to investors from big businesses. What happens if stock prices fall?
NYSE- Ford

9. Why stock prices began to fall?
Credit eventually dried up so people weren’t buying as much causing industries to suffer because they had a large supply of product but no demand for it
Speculation: Stocks were rising to unrealistic levels and when they began to fall a little people panicked and sold out of fear

10. BANK loans you money You use money to buy car
You pay back bank with interest
Warehouses become full of goods no on can buy – drives down stock
When no more money to loan (credit dried up) you can’t buy car

11. Other economic weaknesses
Poor Distribution of Wealth –
owners and managers experiencing much more prosperity than workers – money not being passed down
Still wanted to experience prosperity so bought on credit
Federal Reserve did not do much to stop problems like banks and businesses playing the stock market
So when stocks went down banks and businesses that loaned money took a big hit