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Market Speculation

Explore the allure and risks of stock market speculation during the roaring 20s, leading to the devastating crash of 1929 and the onset of the Great Depression. Discover how the pursuit of quick fortunes through risky strategies left thousands in financial ruin. Uncover the lessons learned from this historic event.

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Market Speculation

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  1. Market Speculation Too Great A Risk?

  2. The American Dream • Goal: Achieve permanent prosperity • Belief: Everyone can be rich by investing money in the stock market • Result: Thousands poured savings into the market • Downfall: They wanted to make their fortune immediately

  3. Speculation • Buying stocks they thought would quickly rise in price • After stock price rises, sell for a quick profit • Very profitable venture b/n 1927-29 • See Chart pg 419 • Very attractive gamble

  4. Buying on the Margin • Common practice • Perks • To buy $500 worth of stock, you didn’t need $500 up front • Down payment of as little as 5% ($25 in our example) • Borrowed the rest from a stockbroker (loan) • With $500, you could buy $10,000 worth of stock • Stock rises, Sell, Pay broker back, Make a profit

  5. Buying on the Margin • Risks • Stockbroker can make investor pay off loan at anytime • If investor could not pay, broker keeps the stock (collateral)

  6. Saturation of the Market • 1929: $6 billion in margin loans • Brokers called in investors • Investors could not pay, so they sold their stocks • What happens to the market? • Other investors see the downturn of the market, panic, and sell their stocks • Domino effect: by October 29, 1929 the bottom fell out of the market

  7. Great Depression Begins • Millionaires were in debt • Banks lost their reserve money as debtors could not repay loans • Money invested in a savings account at a bank vanished to pay off bank notes • Banks were not federally insured • Millions of innocent Americans lost all their savings

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