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    • 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
    • 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?
      • 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?
      • 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
    • Before The Crash
    • 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?
      • 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?
      • The Electrification of the production process
        • This expanded the ability to transform raw materials into finished products
        • Ex. Ford Motors
    • 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
    • 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
      • 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 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!
    • 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
      • 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
      • 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!!!!!!!!!!!!!
      • PANIC! PANIC! PANIC!
    • 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)
      • Major banks and investment companies bought up great blocks of stocks to stop the panic but….
      • THERE ATTEMPTS FAILED!!!!!!!!!
    • 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
      • 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%
      • ALL THESE FAILED TO EASE CRISIS AND DEPRESSION FOLLOWED!!!!
    • 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)
      • 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 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
      • Thousands of individual investors ruined
      • Loss of savings
      • Poverty and panic
      • Less spending and demand
      • Unemployment
      • Wages decrease
    • 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
      • 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
      • America’s intimate relationship with Europe causes serious economic troubles overseas and contributes to a world wide depression
    • 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)
      • 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
      • 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 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
      • 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)
      • 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
      • Political and revolutionary thinker
      • Elected 1932
      • Introduced major changes in structure of economy
      • 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
      • Civilian Conservation Corp
      • National Recovery Administration
      • Federal Deposit Insurance Corporation
      • Securities and Exchange Commission
    • 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
      • 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?
      • 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
      • Taxation
      • Industrial regulation
      • Social programs (social security, pensions, welfare, others)
      • Public programs
      • Deficit spending
    • 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