Stock Market Crash
Many things could be blamed for the stock market crash. Stocks lost more than 75% of their value, wiping out about $45 billion in wealth. (Bolden)
To begin, many investors engaged in speculation. Speculation is
when stocks and bonds are bought in the hope of making a quick, large profit. People ignored the risk speculation entailed, and kept buying, which caused the stock
market to rapidly increase. The value of money decreased because of this rapid increase in the stock market. When the value of money decreases it is called deflation.
There were also many insider trading scandals that led to the Stock Market Crash.
"Insiders" were involved with companeis and were aware before-hand about new products
before they were released to the public. These people would judge the success of a product and make money by investinga lot of money into the product if they pressumed it would do well, or they would not invest in stocks
for that company with the belief it would not be financiallly beneficial. "illegal insider trading raises the cost of capital for securities issuers, thus decreasing overall economic growth" (Bhattacharya).
Investors began buying on margin, which is paying
a small amount for the stock and borrowing the rest. People only had to pay 10%
up front and they could pay the other 90% in payment plans, known as the
installment plan. This worked as long as the prices continued to increase
because investors could sell their inflated stocks to make a profit. However, if
the stock ever decreased significantly, the value of the stock would fall below that of the loan
and the bank would send a margin call the fill the price gap. But, speculators didn't have the money to
pay off their loans and this contributed to the economic decline.
The Federal Reserve (banking system) was also to blame for the
stock market crash. They were giving out loans without checking to see if the
people would be able to pay them back. The Fed's set interest rates very low and
custumers were buying into this selling technique. Although they could afford the
down payment, they did have the money to purchase the full product. With low interest rates,
came an quick economic boom, many people were buying when the prices were right. But with a boom,
came a bust.
The government failed to supervise the Stock Market, and the irresponsible buying and selling of stocks continued until the market tragically crashed.
Once the stock market began to decline, it fell beyond repair. The decline began in late
October. On October 23 prices began to fall and the stock values that took months to build
up were lost in a single morning. Stockbrokers panicked and frantically traded and sold their stocks.
Tuesday, October 29, otherwise known as Black Tuesday all hope of recovering stocks was
lost.
To begin, many investors engaged in speculation. Speculation is
when stocks and bonds are bought in the hope of making a quick, large profit. People ignored the risk speculation entailed, and kept buying, which caused the stock
market to rapidly increase. The value of money decreased because of this rapid increase in the stock market. When the value of money decreases it is called deflation.
There were also many insider trading scandals that led to the Stock Market Crash.
"Insiders" were involved with companeis and were aware before-hand about new products
before they were released to the public. These people would judge the success of a product and make money by investinga lot of money into the product if they pressumed it would do well, or they would not invest in stocks
for that company with the belief it would not be financiallly beneficial. "illegal insider trading raises the cost of capital for securities issuers, thus decreasing overall economic growth" (Bhattacharya).
Investors began buying on margin, which is paying
a small amount for the stock and borrowing the rest. People only had to pay 10%
up front and they could pay the other 90% in payment plans, known as the
installment plan. This worked as long as the prices continued to increase
because investors could sell their inflated stocks to make a profit. However, if
the stock ever decreased significantly, the value of the stock would fall below that of the loan
and the bank would send a margin call the fill the price gap. But, speculators didn't have the money to
pay off their loans and this contributed to the economic decline.
The Federal Reserve (banking system) was also to blame for the
stock market crash. They were giving out loans without checking to see if the
people would be able to pay them back. The Fed's set interest rates very low and
custumers were buying into this selling technique. Although they could afford the
down payment, they did have the money to purchase the full product. With low interest rates,
came an quick economic boom, many people were buying when the prices were right. But with a boom,
came a bust.
The government failed to supervise the Stock Market, and the irresponsible buying and selling of stocks continued until the market tragically crashed.
Once the stock market began to decline, it fell beyond repair. The decline began in late
October. On October 23 prices began to fall and the stock values that took months to build
up were lost in a single morning. Stockbrokers panicked and frantically traded and sold their stocks.
Tuesday, October 29, otherwise known as Black Tuesday all hope of recovering stocks was
lost.