1929 Stock Market Crash Essay Research Paper — страница 2

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stocks were overvalued and that speculation hurt the economy. Hoover?s statement suggested to the public the lengths he was willing to go to control the stock market. These kinds of statements encouraged investors to believe that the market would continue to be strong, which could be one of the causes of the crash. (1929?) The Crash and The Depression After the crash, production fell nearly 50% from the business cycle peak in August 1929 to March 1933. Meanwhile, the overall price level of stocks dropped by about 1/3. Many people blamed the crash for the economic collapse. Some people held responsible, fairly or not, were President Hoover, brokers, bankers, and businesspersons. The cause of the depression cannot be linked to one individual or even a group of people. It is also

unlikely that the crash of the market would have been large enough to lead the US economy into the depression by itself and to sustain the downward spiral in business activity. (1929?) Why People Invested in the Stock Market During 1929, people invested in the stock market for five major reasons. The first was that the market was considered an easy way to get rich quick. Although about four million Americans, a small amount, invested in the stock market at one time, the constant influx of new investors coming in and old investors moving out ensured that new money was always flowing around. (1929?) Another reason was the higher wages of the ordinary workers. This meant that everyone in America had extra money to put into savings or invest in the market. The third reason was that

at this time, money was made more readily available from banks, at a lower interest rate, to more people. Some economist debated that this influenced the stock market, and it is conceivable that people took loans to buy more stock. (1929?) The fourth reason is that industry was over-producing products, in anticipation of selling the surplus. Profits were put right back into the industry, by investing in factories, new machinery, and more people. This led to even more surplus. An aura of financial soundness was created by this, and Americans were encouraged to buy more stock. (1929?) Lastly, there were no guidelines or laws concerning the market. Investors began buying on ?margin? or buying stock on credit. Investors had high expectations that they would receive large returns in a

few months, so they could pay the balance and have money left over in return. In reality, most of the money that was being invested in the market was not actually being put into the market. (1929?) Government Reaction After the crash there was criticism of the Federal Reserve policy. Between October 1929 and February 1930 the interest rate was lowered from 6% to 4%, and the money supply increased immediately after the crash. Commercial banks in New York made loans to security brokers and dealers, which in turn provided liquidity to the non-financial and other corporations that financed brokers and dealers prior to the crash. (1929?) Monetary policy became ambiguous between February 1930 and 1932. Government security purchases in the open market continued to decline until 1932.

This reduced liquidity by lowering non-borrowed reserves. Although the interest rate was reduced between March 1930 and September 1931, it was raised twice in late 1931. This made loans more expensive and deterred people and corporations from borrowing. (1929?) Government Regulations After the Crash Before the crash, investors were not protected at all from fraud, hype and shoddy stocks. Investors did not know if a company actually doing as well as it was said to be doing and if the financial reports were reliable. After the crash, the Securities and Exchange Commission (SEC) was established to lay down the law and to punish those who violated the law. (1929?) Also during the crash 4,000 banks failed, for the simple reason that the banks ran out of money. Four years later,

Congress passed the Glass-Steagall Act, which essentially banned any connection between commercial banks and investment banking, to ensure that this would never happen again. The Federal Reserve and other banking regulators have softened some of the Act?s separation of securities and banking functions by letting banks sell certain securities through affiliated companies. (1929?) 1. Black Thursday: The 1929 Stock Market Crash. www.letsfindout.com. 2. 1929 Stock Market Crash. www.arts.unimelb.edu. 3. 1929-1931. Annals of America. Encyclopaedia Britannica Inc. Volume 15: 32-39