The farming class was the first group to feel the effects of the great depression. Before the stock market crashed, the framers had already experienced economic hardships. The farmers had a surplus of materials they borrowed money to purchase in order to keep up with the demand during World War I. However, when WWI ended, they were in debt with banks and could not pay back their loans. As a result, banks foreclosed and started going out of business.
The stock market boomed when industries became increasingly successful. Materials could be massed produced and there seemed to be more money to spend on items such as cars, radios, kitchen appliances, and televisions. The development of new technology was enticing to all and caused many to invest in the stock market. More people invested and stocks began to climb and skyrocketed by 1927.
As stock prices rose, many people could not afford to buy stocks. As a result, buying on the margin then developed. Buying on the margin allowed people to borrow money in order to pay for a stock. According to buisnessdictionary.com buying on the margin is "purchasing an asset by making a down payment (called a margin) and financing the balance amount through a loan by using the asset as the collateral (such as a mortgage loan)" (buisnessdictionary.com). In other words, the person interested in buying a stock would use what money he had, but then would borrow the rest of the money needed to pay for the stock from a broker. According to about.com, the buyer only had to have about 10-20% of the money needed to buy a stock, and the broker would pay for the rest. However, buying on the margin was extremely risky. If the stock price sank at all, a "margin call" could be issued. This means that the broker who lent money could demand the buyer to come up with the money to pay back the loan immediately. It is evident that huge loans were being made and an enormous amount of money that did not exist was being invested.
The stock market seemed flawless. Stock prices were on the rise and there seemed to be no harm in investing. However on October 24, 1929, the stock market prices plummeted; this day became known as Black Thursday. People rushed to sell their stocks as margin calls were made. Panic rose as 12.9 million shares were sold. Four days later, the stock market plummeted again, this day becoming Black Monday. Finally, Black Tuesday hit. This became the "worst day in stock market history". Companies were ruined and banks devastated along with peoples faith in banks. The damage was unimaginable and it would take years for the economy to recover. The Great Depression had struck.
The stock market boomed when industries became increasingly successful. Materials could be massed produced and there seemed to be more money to spend on items such as cars, radios, kitchen appliances, and televisions. The development of new technology was enticing to all and caused many to invest in the stock market. More people invested and stocks began to climb and skyrocketed by 1927.
As stock prices rose, many people could not afford to buy stocks. As a result, buying on the margin then developed. Buying on the margin allowed people to borrow money in order to pay for a stock. According to buisnessdictionary.com buying on the margin is "purchasing an asset by making a down payment (called a margin) and financing the balance amount through a loan by using the asset as the collateral (such as a mortgage loan)" (buisnessdictionary.com). In other words, the person interested in buying a stock would use what money he had, but then would borrow the rest of the money needed to pay for the stock from a broker. According to about.com, the buyer only had to have about 10-20% of the money needed to buy a stock, and the broker would pay for the rest. However, buying on the margin was extremely risky. If the stock price sank at all, a "margin call" could be issued. This means that the broker who lent money could demand the buyer to come up with the money to pay back the loan immediately. It is evident that huge loans were being made and an enormous amount of money that did not exist was being invested.
The stock market seemed flawless. Stock prices were on the rise and there seemed to be no harm in investing. However on October 24, 1929, the stock market prices plummeted; this day became known as Black Thursday. People rushed to sell their stocks as margin calls were made. Panic rose as 12.9 million shares were sold. Four days later, the stock market plummeted again, this day becoming Black Monday. Finally, Black Tuesday hit. This became the "worst day in stock market history". Companies were ruined and banks devastated along with peoples faith in banks. The damage was unimaginable and it would take years for the economy to recover. The Great Depression had struck.
The stock market crash of 1929 was the worst economic event to date. However in 2008, the United States experienced a second huge stock market crash. According to an article written by Kimberly Amadeo on cnn.com, the Dow Jones reached an all time high on October 9, 2007, and less than 18 months later, it had dropped 50% (cnn.com). Although it was not as bad as the stock market crash of the Great Depression when the market dropped 90%, this was still one of the largest drops in history. CNN dubbed this most recent stock market fall as "the worst financial meltdown since the 1930s" (cnn.com).
Early September of 2008, the housing crash led to the government taking over mortgages. The Lehman Brothers declared bankruptcy due to "the weight of its bad mortgage-backed bets" (cnn.com). The Federal Reserve then announced that it was bailing out AIG, an insurance company, with a loan of $85 billion. The DOW continued to sink. Congress passed a bailout bill but the damage had already been done and panic had been aroused. By December of 2008, the Federal Reserve had dropped the Fed funds rate to zero which was the lowest level in history it had reached.
Although the stock market crash of 2008 was not nearly as severe as that of 1929, it is evident that history repeats itself. Luckily, the United States has learned from the past. People have done their best to prevent severe outcomes, "historians, economists, and others continue to study the Stock Market Crash of 1929 in the hopes of discovering the secret to what started the boom and what instigated the panic" says Kimberly Amadeo, for the US wants to keep the damage as little as possible (cnn.com). Luckily, people have learned enough and there have been placed regulations on buying stocks on margin as well as the roles of banks have been adjusted. Because of these actions, the crash of 2008 was not as severe. However, there still need to be adjustments made in order for any future stock market crashed to be made completely avoidable.
Early September of 2008, the housing crash led to the government taking over mortgages. The Lehman Brothers declared bankruptcy due to "the weight of its bad mortgage-backed bets" (cnn.com). The Federal Reserve then announced that it was bailing out AIG, an insurance company, with a loan of $85 billion. The DOW continued to sink. Congress passed a bailout bill but the damage had already been done and panic had been aroused. By December of 2008, the Federal Reserve had dropped the Fed funds rate to zero which was the lowest level in history it had reached.
Although the stock market crash of 2008 was not nearly as severe as that of 1929, it is evident that history repeats itself. Luckily, the United States has learned from the past. People have done their best to prevent severe outcomes, "historians, economists, and others continue to study the Stock Market Crash of 1929 in the hopes of discovering the secret to what started the boom and what instigated the panic" says Kimberly Amadeo, for the US wants to keep the damage as little as possible (cnn.com). Luckily, people have learned enough and there have been placed regulations on buying stocks on margin as well as the roles of banks have been adjusted. Because of these actions, the crash of 2008 was not as severe. However, there still need to be adjustments made in order for any future stock market crashed to be made completely avoidable.