stock market crash (McD 2010)

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Presentation Transcript

Slide 1: 

Optimistic mood where everything seemed fine Economy in late 20s

Slide 2: 

It was a Bull market

Slide 3: 

NOT a bear market

Slide 4: 

1925 - market value of all stocks = $27 billion 1928: stock values rose by almost $11.4 billion Oct. 1929 - stock values hit $87 billion

Slide 5: 

5 top bankers meet to try & stop it by buying stocks On Friday stocks rally on rumors of their meeting NY Stock Exchange crashed Thursday, Oct. 24, 1929

Monday Oct. 28, 1929 : 

Monday Oct. 28, 1929 Market opens with investors & brokers poised to sell. Everyone is nervous.

Tuesday, Oct. 29, 1929 : 

Tuesday, Oct. 29, 1929 “The most devastating day in the history of markets” AKA: Black Tuesday

Slide 8: 

Prices fell so much that ALL gains from previous year were lost Public confidence was shattered

$30 Billion in stock disappeared : 

$30 Billion in stock disappeared $150 Million in Margin Calls were made I’ll explain this in a minute

Slide 10: 

Reasons for the Crash

Slide 11: 

Buying on Margin Investor pays fraction of price (5%) & borrows the rest from broker. The stocks are held as collateral. 2.

Slide 12: 

Calling in Margins: 3. Investors are asked to repay the loan broker gave them to buy stock

Slide 14: 

Brokers forced to sell (stocks had no value) FYI: Banks could invest savings $$$ in the market!

Slide 15: 

But savings deposits were not insured by gov’t so they were lost as well

Slide 16: 

The Depression raged throughout all of the 1930s BUT...

Slide 17: 

The Great Depression Depression: Period of severely reduced economic activity characterized by rise in unemployment

Causes of theGreat Depression : 

Causes of theGreat Depression Hey ya’ll, you’re about to learn about some causes of the Great Depression that I hope you can get excited about!

Cause #1: Overproduction – creating a very large supply of produced goods : 

Cause #1: Overproduction – creating a very large supply of produced goods Tax Breaks for the wealthy (over $60,000) were to encourage the rich to use their money to invest in business, leading to expansion …and eventually overproduction  Large Profits, especially in the new industries such as electrical appliances and synthetics, encouraged these industries to expand their facilities and production. This led to OVERPRODUCTION

Cause #2: Underconsumption – having a low demand for produced goods : 

Cause #2: Underconsumption – having a low demand for produced goods High American tariffs encouraged foreign countries to retaliate and not buy American goods “Sick Industries” such as COAL (200,000 miners umemployed) and TEXTILES laid off workers who were now unable to buy (consume) goods Farmers, who received very low prices for their crops, were cut off from foreign markets and government subsidies. Therefore, they could not afford to buy (consume) very many goods.

Cause #3: Easy Credit and Stock Speculation : 

Cause #3: Easy Credit and Stock Speculation Banks and investors were both suffering from “Get Rich Quick” fever. Banks made it very easy to borrow money to invest on the stock market This worked as stock prices continued to soar until “Black Tuesday”, October 29, 1929. Fear of falling prices caused banks and stock brokers to “call in their loans.” Investors had to sell their stocks to repay the loans and this drove prices lower, leading to the CRASH on Tuesday, October 29, 1929.

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