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Economic Weaknesses
<ul><li>Uneven Distribution of Wealth </li></ul><ul><ul><li>Few people prospered </li></ul></ul><ul><ul><li>Income of weal...
<ul><li>People stopped saving </li></ul><ul><li>Overuse of credit </li></ul><ul><li>Buying slowed </li></ul><ul><li>Wareho...
 
<ul><li>Credit also used to buy stocks </li></ul><ul><ul><li>Risky practice, popular trend </li></ul></ul><ul><li>BUYING O...
<ul><li>B.O.M. grew in popularity </li></ul><ul><ul><li>Brokers began requiring lower margins </li></ul></ul><ul><ul><ul><...
<ul><li>B.O.M. = huge risk </li></ul><ul><li>If stock price rises $15/share </li></ul><ul><ul><li>Mr. Investor could sell ...
<ul><li>MARGIN CALL: Brokers force investors to repay loans if stock’s value falls below certain point  </li></ul><ul><ul>...
<ul><li>Federal Reserve Board: works to regulate nation’s money supply to promote healthy economic activity </li></ul><ul>...
<ul><li>“ Sooner or later a crash is coming, and it may be terrific.” </li></ul><ul><ul><li>Roger Babson </li></ul></ul><u...
<ul><li>1928 - market value increased 50% </li></ul><ul><li>1929 – market value increased 27% </li></ul><ul><li>People in ...
<ul><li>Thursday October 24 th  1929 </li></ul>
<ul><li>Friday, October 25, 1929 </li></ul><ul><ul><li>Market returned to normal </li></ul></ul><ul><li>Monday, October 28...
<ul><li>October 1929 – stock market value drops by $16 billion (1/2 of its value) </li></ul>
<ul><li>EFFECTS ON INDIVIDUALS </li></ul><ul><li>EFFECTS ON BANKS </li></ul><ul><li>Investors lost huge fortunes </li></ul...
<ul><li>EFFECTS ON BUSINESS </li></ul><ul><li>EFFECTS OVERSEAS </li></ul><ul><li>Banks and investors unable to provide ind...
<ul><li>Terms </li></ul>
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1930 Stock Market Crash Lecture 2

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Transcript of "1930 Stock Market Crash Lecture 2"

  1. 1. Economic Weaknesses
  2. 2. <ul><li>Uneven Distribution of Wealth </li></ul><ul><ul><li>Few people prospered </li></ul></ul><ul><ul><li>Income of wealthiest 1% of Americans grew 60% </li></ul></ul><ul><ul><ul><li>Most workers - 8% increase </li></ul></ul></ul><ul><li>By 1929 70% of families had income below level needed for a good standard of living </li></ul>
  3. 3. <ul><li>People stopped saving </li></ul><ul><li>Overuse of credit </li></ul><ul><li>Buying slowed </li></ul><ul><li>Warehouses filled with goods </li></ul>
  4. 5. <ul><li>Credit also used to buy stocks </li></ul><ul><ul><li>Risky practice, popular trend </li></ul></ul><ul><li>BUYING ON MARGIN: buying stocks with loans from stockbrokers </li></ul>Mr. B <ul><li>Mr. B buys 100 shares of stock at $10 a share </li></ul><ul><ul><li>100 X $10 = $1000 TOTAL COST </li></ul></ul><ul><li>Mr. B pays $500 and borrows other $500 from a stockbroker </li></ul><ul><ul><li>Mr. B plans to pay off the loan when he sells the stock </li></ul></ul>
  5. 6. <ul><li>B.O.M. grew in popularity </li></ul><ul><ul><li>Brokers began requiring lower margins </li></ul></ul><ul><ul><ul><li>As little as 10% </li></ul></ul></ul><ul><ul><ul><li>Mr. Investor 10% = only $100 of $1000 investment </li></ul></ul></ul><ul><li>Seemed like an easy way to make $$$ </li></ul>
  6. 7. <ul><li>B.O.M. = huge risk </li></ul><ul><li>If stock price rises $15/share </li></ul><ul><ul><li>Mr. Investor could sell stock for $1,500 </li></ul></ul><ul><ul><ul><li>Get back $500 </li></ul></ul></ul><ul><ul><ul><li>Pay back $500 to broker </li></ul></ul></ul><ul><ul><ul><li>$500 profit </li></ul></ul></ul><ul><li>Stock price drops to $5/share </li></ul><ul><ul><li>Mr. Investor can only sell stock for $500 </li></ul></ul><ul><ul><ul><li>$500 pays of loan </li></ul></ul></ul><ul><ul><ul><li>Loses his own $500 </li></ul></ul></ul><ul><ul><ul><li>No profit </li></ul></ul></ul>
  7. 8. <ul><li>MARGIN CALL: Brokers force investors to repay loans if stock’s value falls below certain point </li></ul><ul><ul><li>Made sure brokers get repaid </li></ul></ul><ul><ul><li>Investors in big trouble if stock lost value quickly </li></ul></ul>
  8. 9. <ul><li>Federal Reserve Board: works to regulate nation’s money supply to promote healthy economic activity </li></ul><ul><ul><li>Worried about B.O.M. </li></ul></ul><ul><ul><li>Made it difficult and expensive to offer margin loans </li></ul></ul><ul><ul><ul><li>Helped decrease borrowing from banks </li></ul></ul></ul><ul><ul><ul><li>But large corporations began loaning </li></ul></ul></ul>
  9. 10. <ul><li>“ Sooner or later a crash is coming, and it may be terrific.” </li></ul><ul><ul><li>Roger Babson </li></ul></ul><ul><li>“ I see now reason for the end-of-the-year slump which some have been predicting.” </li></ul><ul><ul><li>Charles E. Mitchell </li></ul></ul>
  10. 11. <ul><li>1928 - market value increased 50% </li></ul><ul><li>1929 – market value increased 27% </li></ul><ul><li>People in financial world saw trouble </li></ul><ul><ul><li>Sales down </li></ul></ul><ul><ul><li>Fears up </li></ul></ul>
  11. 12. <ul><li>Thursday October 24 th 1929 </li></ul>
  12. 13. <ul><li>Friday, October 25, 1929 </li></ul><ul><ul><li>Market returned to normal </li></ul></ul><ul><li>Monday, October 28, 1929 </li></ul><ul><ul><li>Market sank </li></ul></ul><ul><li>Tuesday, October 29, 1929 </li></ul><ul><ul><li>BLACK TUESDAY </li></ul></ul><ul><ul><li>Markets in panic </li></ul></ul><ul><ul><li>Investors tried to sell 16 million shares </li></ul></ul><ul><ul><li>Even best companies collapsed </li></ul></ul>
  13. 14. <ul><li>October 1929 – stock market value drops by $16 billion (1/2 of its value) </li></ul>
  14. 15. <ul><li>EFFECTS ON INDIVIDUALS </li></ul><ul><li>EFFECTS ON BANKS </li></ul><ul><li>Investors lost huge fortunes </li></ul><ul><ul><li>Especially people who bought on margin </li></ul></ul><ul><ul><li>Forced to sell shares for far less than what they had paid </li></ul></ul><ul><ul><li>People lost entire savings making up the difference </li></ul></ul><ul><li>Lost jobs </li></ul><ul><li>Pay decreased </li></ul><ul><li>Stopped buying </li></ul><ul><li>Triggered banking crisis </li></ul><ul><li>People freaked out, withdrew money and drained banks of funds </li></ul><ul><li>Lost money from own investments </li></ul><ul><li>Banks absorbed losses from stocks sold on margins </li></ul><ul><li>Drove many banks out of business </li></ul>
  15. 16. <ul><li>EFFECTS ON BUSINESS </li></ul><ul><li>EFFECTS OVERSEAS </li></ul><ul><li>Banks and investors unable to provide industry w/ money needed to grow </li></ul><ul><li>Consumer spending down </li></ul><ul><li>Laid off employees </li></ul><ul><ul><li>People w/o jobs have even less money to spend </li></ul></ul><ul><li>Lowered wages </li></ul><ul><li>American banks called in loans from European nations/businesses </li></ul><ul><ul><li>Couldn’t pay back loans </li></ul></ul><ul><li>Foreign businesses couldn’t sell products in U.S. </li></ul><ul><ul><li>Laid off workers </li></ul></ul><ul><ul><li>Less money pumped into their economy </li></ul></ul><ul><li>Tariffs passed – made things worse </li></ul>
  16. 17. <ul><li>Terms </li></ul>
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