Good Research Paper About Stock Market Crash Of 1929
The Stock market is a financial market where local and privately incorporated bodies sell their shares to the general public and in return use their money in productive ventures. The Stock exchange has their stringent rules and listing regulations that are binding on all listed and traded parties. In the past, trading was conducted on the floor by shouting orders and instructions but now; trades are conducted over the telephone or online.
All exchanges are ‘auction exchanges’ where buyers get competitive bids while sellers enter competitive orders in a trading day. There are three stock exchanges of the world which are termed as the largest exchange of the world namely New York stock exchange (NYSE), Tokyo stock exchange (TSE) and London stock exchange (LSE).
New York stock exchange has seen various highs and lows since its beginning, but there are few crashes that have left devastating effects on the whole world. One such crash occurred eighty-six years ago; on October 29, 1929 which created a financial panic in the country, and it took ten years to stabilize the situation. The crash of 1929 is also known as ‘the great crash’ because of the depression it created in the country and in other parts of the world.
Economist presents various reasons for the crash of 1929, and they think the crash to be a result of various economic imbalances and structural failings. Starting from 1920, there was an avid growth in bank credits and loan to strengthen the US economy. Seeing the growth and strength of the economy, people invested heavily in the stock market which resulted in the rise in prices of shares.
As share prices rose, more people invested money in the urge to earn and in this way the market was caught in a speculative bubble. Shares kept on rising, and people believed this will continue. The problem was stock prices got divorced from the real potential earning of the share prices, and it was not the economic fundamentals that resulted in the price rise but it was mere optimism of the investors.
Reports show that in the period of 1923 to 1929; average earning per share rose by 400%. In March 1929, mini panic was faced in the market but it was overcome. On Thursday 24 October, some companies posted disappointing results which created panic in the market, and people started selling shares.
The panic selling caused steep fall in the share prices, and financers rushed to restore confidence by buying shares but it failed to alter the rapid change in the market sentiment. Share prices fell by $40 billion on Tuesday 29 October, which transformed the bull market into a bear market.
Economists also consider buying shares on margin to be one of the reasons behind the crash. After the inauguration of President Herbert Hoover in 1929; every single person of general public invested their savings in the stock market with a dream to earn millions. People bought shares on margin which means they paid 10% to 20% value of the shares.
It meant they borrowed 80% to 90% of the value of the shares. There were numerous margin millionaire investors in the market who made huge profits by buying on margin and watching the share prices rise. When the prices fell, all such investors were exposed, and they all got wiped out due to the crash. The banks and institutions were also badly affected who lent money to those buying on margin.
A lot of stock market crash can be blamed on false expectations and over exuberance. America was on its way towards growth with cheaper automobiles and new inventions such as radio. People bought goods on installment plans, and the stock exchange was seen as the best resource to earn money.
The beginning of the events of historical crash started in October 1929 when the economic bubble which was building from 1920s finally popped. Although the signals of downfall were seen from September, but the real panic began from the ‘Black Thursday’. In a period of five days starting from 24 October to 29 October; the market crashed completely.
In the last hours of Thursday; stock prices suddenly plummeted, and traders realized that the stock boom was merely a speculative bubble and they were fools to invest all their wealth in stocks. Huge panic was noticed on every face and in a single Thursday evening; a record 12.9 million shares were traded. Every investor was making effort to save its money, but all their efforts seemed to go in vain.
Investment companies and major bankers jumped to stabilize the market by buying shares and soothe the situation. President Herbert Hoover played his part by giving a reassuring speech the following day. He consoled people by saying the economy was prospering, and the business were going well but no calm therapy could control the panic.
Monday morning began as a nightmare for New York stock exchange. As soon as the morning bell rang; share prices began to drop. Huge trading took place with the market closing down to 12.8%. The traders were not successful to make all stock entries in the day; therefore they spent their night in the exchange working and were preparing themselves for the next day.
Tuesday morning brought a big disaster for US. The black Tuesday started with the shouts of ‘sell’, ‘sell’, ‘sell’ instead of the usual morning bell, and the trading was done at an endless level. Phone lines were clogged, and the volume of western union telegrams tripled.
Stock worth $5 million was traded in just the initial half hour. People panicked badly, and many exhausted in the exchange due to depression. Horrifying ‘Black Tuesday’ came in the rest with the closing of the stock exchange with the trade of more than $16.4 million shares.
It is estimated that around $319 million in today’s value were lost in the stock exchange crash of 29 October 1929. The crash brought a great depression, and it took 10 years for the country to come out of the pain of the severe attack.
Talking about the depression in detail, the depression was not only felt in US but virtually in all parts of the world and is marked as one of the greatest economic disasters in history. US faced depression earlier in 1870 and 1890 but the country was successful in coming out of the circle within five years, but the crash of 1929 devastated the country so badly that the real per capita GDP remained below the 1929 level even after a whole decade.
After the crash, all sectors of the economy suffered badly. The industrial production of the country fell by fifty percent, and the value of property along with the stocks became equal to zero. After the world war, the country was successful in making high economic growth but the crash led the real GDP to fell by more than twenty-five percent; thus erasing all the previous growth of the country.
As almost every other individual had invested their savings and wealth in the stock exchange; the crash swiped away all their valuables and took jobs of many people. The rate of unemployment rose from twenty-five percent. One of the reasons behind unemployment was the closure of many banks and firms. Most of the banks were unable to survive the panic before and after the crash, and it was estimated that the banking sector shrinks by thirty-five percent.
The country faced a horrified period of poverty, despair and hopelessness. Many people believed that country will not be able to survive after the crash, and they feared in investing the left over wealth in any sector of the economy. Thus, spending power of the people was badly hurt due to the crash.
The government has to face great criticism after the crash. They were abused and cursed for the loss. President Franklin Roosevelt tried to control the situation by introducing numerous new programs, but every citizen blamed the federal government for worsening the situation by shrinking the money supply.
The biggest effect of the stock market crash was on the psychological health of the people. Many were disturbed due to loss of wealth while many lost their jobs. The self-confidence of the people was shattered, and they did not saw any hope of improvement in next few years which further worsened the situation. Those who were employed after the crash always lived in the fear of being fired on pettiest issues due to lack of job security and restlessness in the country.
Along with the rise in mental problems, physical violence also touched its peak. People found violence as the only way to take out their frustration. Due to the economic condition of the country, the rate of marriage also faced a downfall, and the psychological disturbance badly affected the birth rate. Suicide rate also picked pace after the crash as people found death an easy resort to their troubles.
Another interesting fact of the crash was the female unemployment rate was higher than the male because the strategy was adopted by firms to give preference to male. The main reason behind the logic was male were the breadwinners; therefore they deserved preference. Gender inequality was yet another consequence of the crash.
Moreover, the racial difference could not be forgotten. The whites were given preference over the blacks in the country which created an air of hatred and differences in the country.
The international market was yet another place which was badly disrupted by the crash. Due to the monetary contraction in the country, there was a huge decrease in foreign investment flows. Exports of the country lost competitiveness in the market, and the imports were minimal due to the financial setback. The balance of payment underwent negativity for many years, and the downfall of America also hurt other countries.
Majorly affected countries were Germany and Canada, which suffered great economic hardships. Moreover, Europe also came in the circle of financial setbacks. Many third world countries had their dependency on the exports, but the crash caused the markets to dry up. The countries retaliated to the crash of US by imposing heavy tariffs in order to increase the money supply in their own country and reducing the dependency on imports.
Not only third world countries imposed tariffs but developed countries also played their part. The countries took the action in retaliation and to boost their economy, but it resulted in the unemployment of export-oriented sectors and the reduction in the efficiency of the global economy.
Thus, the volatile stock market brought great destruction in the whole world and the devastation caused by the crash still gives shivers to America. This was one of the worst incidents faced by US in her whole period.
Blumenthal, Karen. Six Days in October: The Stock Market Crash of 1929. New York, N.Y.: Atheneum for Young Readers, 2002. Print.
Brennan, Kristine. The Stock Market Crash of 1929. Philadelphia, PA: Chelsea House, 2000. Print.
Lange, Brenda. The Stock Market Crash of 1929: The End of Prosperity. New York: Chelsea House, 2007. Print.
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