Slide 1:It’s Causes and Effects By Jeanine Brotherston Dr. Volpert: Mathematics of Finance The Stock Market Crash of 1929


Some Basic Background on the Stocks and the Economic Market :Some Basic Background on the Stocks and the Economic Market


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


What is the New York Stock Exchange? :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


Interesting Fact: How did Stock Exchange begin? :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


Slide 6:Before The Crash


The Great Bull Market :The Great Bull Market Great American stock exchange boom of 1928-1929 Huge bubble where there were high speculations People made many investments to make big money


Bull Market sparked by? :Bull Market sparked by? Growth in American industries Technological progress Increase in productivity 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


What Sparked This Growth in Industry? :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


HOWEVER?????? :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


Stock Exchange Average Rise in Share Prices 1924-1928 :Stock Exchange Average Rise in Share Prices 1924-1928


Political Promises Spark Market Speculation :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.


Hoover’s Plan :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


Investors marvel at This Proposal :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


This Bubble was bound to Burst! :This Bubble was bound to Burst!


The Crash of 1929 :The Crash of 1929 “American economic disaster that precipitated the Great Depression which was approximately a 10 year economic slump affecting all the western industrialized countries.” –Encyclopedia Britannica


General Causes of the Crash :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


Direct Cause of Crash of Stock Market :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


Investors Realize Tariff Bill is DOOMED!!!!!!!!!!!!! :Investors Realize Tariff Bill is DOOMED!!!!!!!!!!!!! PANIC! PANIC! PANIC!


Black Thursday :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


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


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


Hoover’s Plan to combat Crash :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%


Slide 24:ALL THESE FAILED TO EASE CRISIS AND DEPRESSION FOLLOWED!!!!


Causes of Great Depression :Causes of Great Depression Agriculture had crashed in 1919 and was a continuing source of weakness. Banks over-extended Wages had not kept up with profits In 1920’s consumers were reaching limits of ability to borrow and spend


Cause’s of Depression (continued) :Cause’s of Depression (continued) Production was declining and unemployment increasing EVEN before the crash! Destroyed confidence in the economy Down sizing of industry causing unemployment


The Great Depression :The Great Depression The stock prices in the next three years continued to fall By 1932 prices had dropped to only about 20% of there original value


Effects of Depression on Individual :Effects of Depression on Individual Thousands of individual investors ruined Loss of savings Poverty and panic Less spending and demand Unemployment Wages decrease


Decline in Production :Decline in Production DOWNWARD SPIRAL little out put means less jobs Manufacturing output fallen to 54% of its 1929 output 25-30% of work force unemployed 12 -15 Million jobless


Effects of Depression on Economy :Effects of Depression on Economy Stock prices drop Industry declines Value of assets decline 11,000 of 25,000 banks fail Because of tariffs international trade market decreases Causes a world wide depression


World Wide Depression :World Wide Depression America’s intimate relationship with Europe causes serious economic troubles overseas and contributes to a world wide depression


Reasons America’s Depression Effects World :Reasons America’s Depression Effects World World War I left Europe with large war debts America was a major financer and creditor of post war Europe. Once US slumped American investments to Europe dried up Germany hurt because of large war reparations


Reasons (continued) :Reasons (continued) Nations attempt to protect domestic production with tariffs and having quotas on imports This only reduced international trade and damaged market even more


Hope Shattered :Hope Shattered In 1930 there is a slight rise in production and it seems depression might ease however: Spring 1931 the weakening of western European economy causes the major bank in Vienna to crash and Germany defaults on its war reparation payments


Hoover’s last Attempts :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


Gold Crisis :Gold Crisis With draw 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


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


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


FDR’s New Deal :FDR’s New Deal Opposite of Laissez-Faire Increased government regulation Massive public works projects for relief of poverty Aid for the unemployed and unfortunate


Some of FDR’s Programs :Some of FDR’s Programs Civilian Conservation Corp National Recovery Administration Federal Deposit Insurance Corporation Securities and Exchange Commission


More Programs :More Programs 1935 Wagner Act (authority of Federal government in industrial relations) National Labor Relations Board Social Security, unemployment compensation, disability insurance


End to Depression :End to Depression Outbreak of World War II causes US factories flooded with orders form armaments and munitions Unemployment decreases and production increase Depression ends completely by the time the US enters the war in 1941


What did we learn from the 1929 Crash? :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


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


Food for Thought :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)


Thank You for Your Attention :Thank You for Your Attention