The Stock Market Crash

1. The Stock Market Crash 15.1

2. Background • 1920s appeared to be a decade of prosperity = “The Roaring 20s” • Some believed economic problems existed below the surface • Most ignored these warnings

3. Credit • Confidence in nation’s prosperity led many to purchase goods on credit • 1929: Credit purchases =$7 billion • Government encouraged credit spending by keeping interest rates low

4. Problems With Easy Credit • Easy access to credit enabled people to buy things they couldn’t afford • Economic experts worried about debt • High consumer debt could cripple people in an economic downturn

5. Bull Market • A market with an upward trend in prices • Seemed no end to 1920s Bull Market Bear Market • A market with a downward trend in prices

6. Stock Speculation • = Playing the market by buying and selling stocks to make a quick profit – becomes popular • This stimulated economic growth • Rapid buying and selling inflated stock prices • Could be a problem if demand decreased.

7. Margin Buying • = The practice of purchasing stocks with borrowed money • Speculators often buying stock with 10% down – borrowing 90% • Margin buying was great with a bull market But…. • Bear market would be investors deep in debt.

8. The Crash • October 24, 1929: Black Thursday = The beginning of the crash • Rising interest rates made large numbers of investors nervous • - they began selling large # of shares • Leads confidence to drop and prices pushed lower and lower

10. Black Tuesday • October 29, 1929 • Stock prices sank to shocking lows • 16 million shares of stock were sold in one day • = huge amount of debt

12. Stock Brokers & Debt • Brokers began to contact investors who had purchased theirs on margin(by borrowing) • They demanded cash to cover their loans • Investors were unable to pay • = had to sell stocks at huge losses • By mid- Nov – leading stocks values were cut in half!!