Keeley Aird Mark Shouldice CHC2Df June 13th 2017 America’s economy was booming after World War I, this era was fondly dumbed the Roaring Twenties, a wonderful time to be alive. The middle class was growing and new inventions such as the automobile, radio and telephone were making lives easier for people. Everyone was in a spending spirit and the stock market was making new millionaires every day! This feeling of euphoria was soon to be replaced with devastation as the Stock Market crashed on Black Tuesday, October 29, 1929. It took America 30 years to recover from this catastrophic event where a total of $25 billion dollars were lost. (www.cs.mcgill.ca) This essay will share three underlying causes of the 1929 Stock Market Crash, which are …show more content…
Many people were familiar with War Bonds and putting money down and getting paid later. For the first time, people would be able to get into the stock market by purchasing the stock on margin. This meant, putting 10-20% down on the actual cost of the stock and then once the stock hopefully doubled, you would sell it and pay off the margin (or loan) and keep the profits. Carole D. Bos stated that “Ninety percent of the purchase price of stock was being made with borrowed money.” The stock market was meant for long term investing, but when the profit margins kept going up and the ability to purchase on margin made people believe it was the way to get rich overnight. People invested their life savings not considering the stock could actually go down. One article on the website www.thoughtco.com mentioned, “Confident in what seemed a never ending rise in prices, many of these speculators neglected to seriously consider the risk they were taking.” In the end, the ability to purchase stocks on margin was not a good thing for naïve investors, it led to them losing …show more content…
As stated in www.law.harvard.edu, “The elite fed dreams of riches to the masses, engaging in insider trading, front running, pyramid and Ponzi schemes, and other manipulations that altered the playing field.” During the 1920’s, there were very little government regulations on banks. Many banks used investor’s money to purchase stocks. The people who put their savings in the bank would have no clue that the bank was using their savings on the stock market. When the crashed happened, these banks went out of business and the people who trusted their savings with the banks lost everything. Due to lax regulations on the stock market, brokerage firms were legally allowed to perform insider trading. This meant boosting a stock up higher than it should be and getting individual naïve investors to purchase the stocks at the high, leaving the individual investors with a terrible loss. Huge fortunes were made by this technique. For example, J.P. Morgan and Joseph P. Kennedy created their family wealth this way, truly making them American dynasties. David Stickman of the Artificial Boom of 1914-1929 said it best, “Laissez-fair economic approach by the government let shady banking contribute to speculation and other expansions of credit.” There were so many new investors attracted to the stock market.