The Stock Market Crash: The start of the Great Depression

Today, what are some ways people keep and save their money?

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During the 1920’s there was an economic boom. Innovations such as the assembly line and mass production allowed people to own items that they could not afford to before. With this, people had more leisure time and a great deal more disposable income then before.

Some people, instead of spending all of it on leisure activities, some decided to invest in the stock market. The stock market was a place where people would invest in companies in order to make money. As a result of investing in a company, the person they would receive a stock in it. A stock is a piece of the company that a person owns. A person would own a share of a company if they owned more then one stock in the company.

As more and more people invested in the stock market, the price of stock started to rise. Stock market prices started to increase in 1925. The stock market boom occurred in 1928. As a result, there was the thought that investing in the stock market would make you rich fast, instead of gradually collecting money. As a result, the stock market became a popular topic of discussion.

Investing in stocks had become a very popular thing to do during the 1920s. However not everyone had enough money to do so. As a result, these people would buy on the margin. To do so, people would pay roughly 10-20% of the stock price, and the rest would go through a broker through a loan. This was a very risky practice. As stock prices decreased, people would have a hard time paying back the loan, even mortgaging their homes to get money to invest or pay back the broker. There was the fear that these brokers would call a margin call, where the loan would be called in. If that happens, the borrower would have to come up with the money owned quickly.

Things started to change in 1929. Everyone was so confident in the stock market that more and more people wanted to participate. Even some companies and banks would invest money into the market. Since there was no significant drop in stock prices, everyone assumed that it would continue to rise.

There were signs that the stock market would be heading into a decline. Stock prices depended on the economy. On March 25 1929, the market suffered a ‘mini’ crash, but bounced back after a summer boom.

Dow Jones Industrial Average, in the U.S. had climbed from 190 points in 1928 to 381. The Dow Jones Industrial average examines a combined average of stocks. By January 1929 in Canada, you could buy 100 shares of oil in march and sell it for as much as $1575.

On September 6th 1929, there was a wave of buying and selling. Investors were starting to get worried. On October 4th, the Toronto stock exchange reported 200 million losses on that day. This worry continued throughout the month. On October 24th (Black Thursday), many stock broker called in margin calls. People did not have the money, so the brokers sold their stocks to cover what they were owed. This mass selling caused the market to crash. This caused mass riots outside the worlds stock exchange centers.

The market steadied over the weekend through political reassurance, but fell again on Monday. By Tuesday October 29 1929, the market fell straight down. Investors were selling stock for anything that was offered. This day was known as Black Tuesday. Some people lost a great deal of money as a result. Some lost everything they had. This was an Immediate cause of the Great Depression and the start of the Dirty 30’s.

Questions: Answer in full sentences.

1)What is a stock? What was it used for?

2)Why was it so popular to invest in the stock market?

3)What is a margin call?

4)Why was it so risky to buy on the margin? Explain

5)What was Black Tuesday?

6)Why were their mass riots outside the world’s stock exchange centers?

7)If a stock market like the one in 1929 happened today how do you think citizens would handl
e it? Would citizens be affected as greatly as they were in the 1920’s? Explain.

8)Examine this cartoon, what is it trying to say?

The Stock Market Crash Key Terms

Word / Definition
Stock / A portion of a company a person owns. A person purchases part of a company
Stock Market / A particularmarketwherestocksandbondsaretraded
Shares / A piece of paper that gives a person ownership of a portion of a company.
Black Tuesday / Black Tuesday occurred on October 29th 1929. This was the date that the stock market crashed in New York City. This is considered the start of the Great Depression
Buying on the margin / A buying technique that requires purchasing stock with borrowed money using the shares as collateral.
Essentially taking out a loan
Investors / Someone that invests in the stock market.
Dow Jones Industrial Average / An average of different amounts of traded stock. The DJIA is calculated by adding the prices of each of the 30 stocks and dividing by a divisor. The DJIA is one of the most widely quoted stock market averages in the media.
Word / Definition
Stock
Stock Market
Shares
Black Tuesday
Buying on the margin
Investors
Dow Jones Industrial Average