1. The Stock Market Crash of 1929
Aim: What were the causes and effects of the
Stock Market Crash of 1929.
Do Now: Quiz –You have 5-7 minutes.
Mr. BETA

2. Some Basic Background on the Stocks and the Economic Market

3. What are Securities?
Securities can be either stocks or bonds which are sold and bought on the stock market.

4. What is the New York Stock Exchange?
World’s largest market place for securities
Currently membership limited to 1,366 members.
Seat obtained by purchasing from existing member

5. Interesting Fact: How did Stock Exchange begin?
The Exchange evolved from a group of men who used to meet under a buttonwood tree on what is now Wall Street in 1792 to discuss securities

6. Before The Crash

7. Buying on Margin
Investors were buying on margin, or buying stocks with loans from stockbrokers, intending to pay brokers back when they sold the stock.
As the market rose, brokers required less margin, or investors’ money, for stocks and gave bigger loans to investors.
Buying on margin was risky, because fallen stocks left investors in debt with no money.
If stocks fell, brokers could ask for their loans back, which was called a margin call.

8. The Great Bull Market Great American stock exchange boom of 1928-1929
Huge bubble where there were high speculations (investment involving high risk but also the possibility of high profits)
People made many investments to make big money

9. Bull Market sparked by? Growth in American industries
Technological progress
Increase in productivity (worker)
Rise in national income from 33,200 million to 79,200 million from 1914 to 1925
Expectation for great future and un-boundless optimism for the market

10. What Sparked This Growth in Industry?
The Electrification of the production process
This expanded the ability to transform raw materials into finished products
Ex. Ford Motors

11. HOWEVER??????
Wages did not raise even though the production did and prices of products failed to decrease.
There was not an excess demand for labor
Leaving unemployment rate steady

12. Stock Exchange Average Rise in Share Prices 1924-1928

13. Political Promises Spark Market Speculation
Herbert Hoover was the most promising candidate for president because of his ideas which promised increased economic growth in America.

14. Hoover’s Plan
Proposed a Tariff bill which Senator Smoot presented called the Smoot-Hawley Tariff
Promised increased tariffs on imports
Planned to allow more productivity for US manufacturers
Help ease unemployment

15. Investors marvel at This Proposal
Investors believed profits from stocks would increase if the tariff bill was passed
Sparked intense speculation
Dow Jones Industrial Average increased by almost 35% because expected election of Hoover and his bill

16. This Bubble was bound to Burst!

17. General Causes of the Crash
Rampant over speculation in market
People holding companies and investment trusts (which by nature creates debt)
Bursting of Bull Market economic bubble in August 1929
Large bank loans could not be liquidated

18. Direct Cause of Crash of Stock Market
After Hoovers election certain people began to doubt if the tariff bill would help the US Economy
Farmers, America’s trading partners, Democrats, and some Republican’s opposed the passage of new tariffs.
On October 21, 1929 Senate announces plans to limit tariff revisions
October 22, 1929 more limits set on tariff bill

19. Investors Realize Tariff Bill is DOOMED!!!!!!!!!!!!!
PANIC! PANIC! PANIC!

20. Black Thursday On October 18, 1929 prices began to fall
Panic stuck out on October 24 “BLACK THURSDAY” after the announcements from the Senate
Record of 12,894,650 shares were traded

21. Black Thursday (Continued)
Major banks and investment companies bought up great blocks of stocks to stop the panic but….
THERE ATTEMPTS FAILED!!!!!!!!!

22. Black Monday and Tuesday
The Panic continued and 16,000,000 shares were traded
Prices on the stock market collapsed completely!!!!

24. Hoover’s Plan to combat Crash
Extracted promises from manufacturers to maintain production.
Signed legislation providing generous additional funds to pubic works
Smoot-Hawley Tariff 1930 (finally passed): to raise duties 50%

25. Hoover’s last Attempts
Hoover proposes one year moratorium on war debt payments
Too little too late
Financial panic: European Government goes off their gold standard and devalues currencies, destroying exchange system (hurts trade)
Europe withdraws gold from US banks

26. Gold Crisis Withdrawal of European gold from US banks causes
Banks to call their loans on US businesses
Bankruptcies
Bank customers go into ruin
Eventually banks in ruin

27. Hoover’s last Attempts (continued)
Reconstruction Finance Corp- to lend funds to banks, railroads, etc
Glass-Steagall Act- Gold to meet w/ foreign withdrawals
THESE AND OTHER ACTS FAILED TO PROMOTE RECOVERY!!!!
The American People lose faith in Hoover.

28. Franklin D. Roosevelt Wins Presidency
Political and revolutionary thinker
Elected 1932
Introduced major changes in structure of economy
New Deal

29. What did we learn from the 1929 Crash?
Market can be very unpredictable
Investors must not get caught up in market bubble illusions
Market forces alone may be unable to achieve recovery from economic slump
Changes were needed in US economic structure

30. Government Action Taken now to Ensure Economic Stability
Taxation
Industrial regulation
Social programs (social security, pensions, welfare, others)
Public programs
Deficit spending

31. Food for Thought
Currently our economy is prosperous because of new technology and advancements (especially in computers)
Its Important not to over speculate or jump the gun when it comes to investments
Important to know stock market crashes are still possible (Crash of 1987 and 1997)