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The effects of a Stock Market Crash

Updated on November 4, 2010

The Effects of the Stock Market Crash

*** Exciting update 4th November 2010 ***
Please read to the end of this article for an exciting update.

What was the impact of the stock market crash of 1929 on the individual? Firstly, consider the mood of the twenties. The world had survived the 1914-18 war, known as the Great War, and widely thought to be the war to end all wars. Now, with hindsight, we simply call it the World War I.The “Roaring Twenties” featured industrialization and new technologies that promised a bright future. Automobiles were becoming more common, and air flight was in its infancy, but was another presage of a prosperous new world. Unemployment was low, and production high, which meant that most companies were booming, and stocks and shares were soaring. Between 1924 and 1929 the New York Stock Market quadrupled in value. Even the shoeshine boys would give you hot tips.

Economists of the day regarded stocks as extremely safe, because of the economic boom. Many investors bought stocks “on margin”, basically borrowing money from their broker to leverage their investment. This was the smart thing to do, as it multiplied the income you received from your investment. Some went as far as mortgaging their homes to raise more money for investment. It was so obvious that it was a sure thing, most people didn’t even check the fundamentals of the companies they were putting their money in. In fact, thousands of fraudulent companies were formed for the purpose of taking money from naïve investors.

There were some signs of a slowdown, but many people did not see or heed them. In England, John Maynard Keynes, one of the world’s leading economists, was caught unawares and lost heavily in the crash. Irving Fisher, a leading U.S. economist, lost everything, including his house. Those people who warned the public about the overheating of the economy, such as the President of the American Bankers Association, reported in the Financial Times on October 7, 1929, were generally ignored.

There were a few days when stocks declined before the fateful days which are identified as the stock market crash, “Black Thursday” (October the 24th) and “Black Tuesday” (October the 29th), but it still came as a shock and surprise to most investors that the Dow declined 23% on these two days alone. In three days, the New York Stock Exchange lost over $5 billion in share value. This only provided a kick start to the Great Depression, which continued through the thirties, the market bottoming out in 1932 having lost 89% of its value.

Of course, this meant that people felt, and indeed were, poor, even if they had no exposure to company financials, and this decimated the demand for goods and fueled the company losses. However, many people were affected more directly, even without having invested, because the banks of the day had put so much of the deposits in the stock market. This meant that they had no money to pay back depositors. They were left with almost worthless stock certificates and uncollectible loans, and hundreds of banks failed leaving their depositors with nothing.

The panic selling which characterizes a stock market crash and the torment suffered by those people broken by the event was evidenced by the number of suicides. Winston Churchill was visiting New York less than a week after the crash, and noted in his diary “Under my window a gentleman cast himself down fifteen stories and was dashed to pieces”. This was not unusual, many bankrupt speculators committed suicide by jumping out of buildings. In fact, in downtown hotels it is rumored that the clerks were asking the guests whether they wanted the room for sleeping or jumping! The head of Rochester Gas & Electric Company gassed himself, and another investor doused himself in gasoline and set it alight. In all, 23,000 Americans committed suicide in the following year.

As a result of the Stock market crash and the following depression, 20,000 companies went bankrupt. 12,000 people were made redundant every day. A total of 12 million people became unemployed, and 1616 banks, which were not, as today, insured by the FDIC, went bankrupt.

It is said that the poverty which spread across the world, resulting from the stock market crash and its consequences, aided the rise of the Nazis. Indeed, the economy only finally recovered with the production required for the Second World War.

These are the effects at a personal level of a stock market crash. Interestingly, Bear Stearns, the investment bank, which has just succumbed to the current crisis in the financial markets, survived through the 1929 stock market crash.  

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    • profile image

      true 

      5 years ago

      fiend

    • profile image

      kelsey 

      6 years ago

      Thanks. This helped me a lot. I am doing an essay and this website was perfect.

    • profile image

      Arnold 

      6 years ago

      Thanks for the article! Much appreciated. Is there any way for me to give any donations?

    • profile image

      stock market tips 

      7 years ago

      Very good post, I was really searching for this topic, as I wanted this topic to understand completely and it is also very rare in internet, that is why it was very difficult to understand.

      Thank you for sharing this.

      regards:

      stock market tips

    • profile image

      Double D 

      7 years ago

      really like article ,but it doesn't tell me want i wanted to know. i'm doing a project in school and needed to know how many people wre efected from the stock market crash of 1929 and how. again great article and gave me some info

    • profile image

      Sharae Market 

      7 years ago

      very good post, i was really searching for this topic as i wanted this topic to understand completely and it is also very rare in internet that is why it was very difficult to understand

      thank you for sharing this.

      Regard

      Share Market

    • profile image

      dan 

      7 years ago

      sure more people lost their jobs then than now but you also need to take into account people aren't even getting jobs because the government is just feeding them money

    • profile image

      Pumkin Dunk  

      7 years ago

      I love this artcile

    • profile image

      jim 

      8 years ago

      Doug is correct in what he says. Obama and the Dems and GS and the rest is a conspiracy. Do your homework and you will find the truth. Theres gonna be a stock market crash soon also, probably late next year is my thinking, so be ready America! The Bible also says America will lose its superpowerness, all things are ripe BUT the exact time-only God knows that answer for sure.

    • profile image

      jim 

      8 years ago

      Doug is correct in what he says. Obama and the Dems and GS and the rest is a conspiracy. Do your homework and you will find the truth. Theres gonna be a stock market crash soon also, probably late next year is my thinking, so be ready America! The Bible also says America will lose its superpowerness, all things are ripe BUT the exact time-only God knows that answer for sure.

    • profile image

      Doug 

      8 years ago

      Don't be fooled again. Wall St, especially Goldman Sachs

      own the govt. This selling of houses with no qualifications were a planned sham from the beginning. They knew the borrowers couldn't afford their "dream house," but the mortgage brokers encouraged the buyers, saying "you qualify for the loan, so you must be able to afford it. The mortgage brokers made million in commissions. Then the banks and Wall St. packaged these deadbeat loans for a big profit oversees. They also hedged their bet by selling short, and buying insurance in case houses prices went up assuring a profit. betting both sides. Then the group from Goldman Sachs, who now had over 10 employees of the high Fed Govt, including the Sec'y of the Treasury and his predecessor. The chairman of the Fed and the New York Fed

      "convinced" a piss-poor President, Obama to bail out these companies, such as Goldman and Sachs, Bank of America AIG, in a rush deal to "save the economy. What a scheme. What about bailing out the poor and middle class? Protect your assets, if you have any left, as best you can. Our "recession." a misnomer. Conspiracy is a better word. The banks, Wall St. and the Federal Govt are in cahoots. Don't ever forget, Obama campaigned as a black man, but he is whiter than 90% of the caucasions. BEWARE!!!!! It will only get worse as the greedy always want more.

      Privatize Social Security to put your money on Wall St.

      WHAT A CRUEL JOKE!!! You've been warned.

    • profile image

      Amanda 

      8 years ago

      This article helped me tons. I am doing a project on it. (=

    • profile image

      jk 

      8 years ago

      this info is so awesome

    • profile image

      Jim Morrison 

      9 years ago

      I've lost almost everything. Unemployment is still on the rise despite 'trillions' being given away. I've lost so much money that I realize the best thing to look forward to is embracing the afterlife sooner rather than later.

    • profile image

      mary 

      9 years ago

      i think that this sittuation is worse than what is happening now.. many people lost their jobs and not much did now. yes many people loose their jobs now but back in the great depression millions and trillions lost their jobs. they had nothing no nothing.

    • profile image

      mary 

      9 years ago

      look i think that the great depression affected a lot of people, as ypu can see

    • Toronto12 profile image

      Toronto12 

      9 years ago from Toronto

      I believe that the current situation would have been (still could be) worse than the great depression, although it's still difficult to say - I guess we'll have to wait and see if all this fiscal and monetary stimulus will work. It never has before, but who knows this time.

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