The Stock Market Crash
Diagram of how stock market went up and down.
The Stock Market Crash is one of the biggest reasons for The Great Depression. October 24th, 1929 is when the market began to crash. From this time until Black Tuesday October 29th, 1929 when the market hit rock bottom the most damage was done. Their were several factors that lead into the crash. First, the stock market boomed to numbers that many believed were unrealistic. Economists warned that it was not safe investing because the market was gonna come plummeting down. People ignored them and invested in the market, really not knowing what they were doing and got in over their head. These people were called speculators. This is when a person invests in the stock market in hopes of making money and becoming rich, even though they had no clue what to do. Also, people did not fully have to buy the stock with their own money. "The practice of buying on margin allowed him to expend in cash as little as ten percent of the price of a stock to acquire it"(Discovering U.S. History). This was done to further stimulate the already booming economy. The rest of the money that was given to the person to invest with came from a broker who was in turn represented by a bank. These banks also gave money to people in the form of loans. Some of which were way to large for the person to pay back resulting in debt. This resulted in the banks losing money. Another thing that evolved was credit. A system upon which people could by a product now and pay later. Also, people could put a small amount of money down on a product and pay small amounts back on it. This had people buying more and more products that were not considered necessities. Meanwhile the federal reserve system was put into effect and was suppose to regulate the amount of money available for investors. Also, it was suppose to manage the credit system to make sure that people were fit and could pay for the product fully. The reserve system however did not do much to regulate these things. As a result people took money from banks that they could never repay and bought items that they never could fully pay for. Also, people invested money that they really did not have and that led to a lot of money being lost. Overall the government did a very poor job of regulating the stock market. "Another contributing factor might have been the fact that there were few government regulations over business, the stock trade, and banking in the period preceding the market boom and during the subsequent collapse"(Carson and Bonk)As people bought on margin it became clear that many of them could not pay back their debts to the broker, if the government had regulated this system their would not have been such a problem. Also, insider trading became a problem as people knew which stocks were gonna go up and drop so they knew where to invest with an unfair advantage. If the government stepped in and stopped insider trading then investing would have been fair for more people and not slanted. The biggest issue that lead to the crash was that everyone sold their stocks on one day and there was not enough money to pay people for their profits earned. The increase in stocks was due to the new installment plan of " buy now and pay later". There was no way to ensure that the money got paid back. So even though stores were selling their products, they weren't really making a profit. This created a fake economy, boosting the stocks. When everyone went to cash out on the same day, there wasn't enough money to go around and billions of dollars were lost. Overall this was why the stock market crash happened.