The Stock Market Crash Of 1929

1692 words - 7 pages

The United States signaled a new era after the end of World War I. It was an era of hopefulness when many people invested their money that was under the mattresses at home or in the bank into the stock market. People migrated to the prosperous cities with the hopes of finding much better life. In the 1920s, the stock market reputation did not appear to be a risky investment, until 1929.First noticeable in 1925, the stock market prices began to rise as more people invested their money. During 1925 and 1926, the stock prices vacillated but in 1927, it had an upward trend. The stock market boom had started by 1928. The stock market was no longer a long-term investment because the boom changed the investor’s way of thinking (“The Stock Market Crash of 1929”). The Stock Market Crash of 1929 was a mass hysteria because of people investing without any prior knowledge and the after effects that eventually led to the Great Depression.
During 1928, the stock market was common among any class of the roaring twenties. Ordinary people talked about, and many made millions off the stock market. People watched other people invest their money and gain more profit hence, increasing other’s trust in the stock market. Many people did not have money to pay the total prices of stocks; people bought stocks “on margin”, meaning that the buyer would put down some of his own money, but the rest the buyer would borrow from a broker. Thus, the buyer borrowed about 80-90 percent of the cost of the stock and only 10-20 percent of his money (“The Stock Market Crash of 1929”). This way of investing money was very risky. At times, brokers issued a “margin call.” In this case, the buyer had to pay back the money he borrowed earlier. Most ordinary people bought these stocks on margin and ignored the risk to buy stocks on margin. Most Americans were trying to get into the stock market by early 1929. No one wanted to be left behind from the profit that he or she could earn without working. Many companies also invested money in the stock market because the profits were guaranteed. Some banks invested their customers’ money (customers’ were unaware) which created more problems when the stock market crash because the customers lost their money to the stock market without them investing themselves.
Everything seemed great with the stock market because the profits were guaranteed. Many people were shocked when the crash hit in October. There had been warning signs before the crash happened. On March 25, 1929, the stock market foreshadowed the “Black Tuesday.” That day the stock market suffered a mini-crash. As margin calls were issued, a panic hit across the country and the prices began to drop. A panic hits across the nation when margin calls are issued because people borrowed up to 80- 90 percent of the money invested which they could not pay back when time came. Banker Charles Mitchell stopped the panic by reassuring that his bank would keep lending money. The strategy of...

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