Partielo | The wall street crash

Définition

Stock Market Crash

A stock market crash is a sudden and severe drop in the value of stocks across a significant section of the stock market. It is often triggered by panic selling, economic instability, or investor speculation, and can lead to widespread financial losses and long-term economic consequences

Historical context

In the Roaring Twenties (1920s), the U.S. experienced a period of unprecedented economic prosperity. Stock prices were rising, consumer spending was high, and the stock market was seen as an easy path to wealth. This sense of economic euphoria led to speculation and irrational exuberance.

However, beneath this surface prosperity lay structural weaknesses:

Overproduction in agriculture and manufacturing.
Uneven distribution of wealth.
Weak banking regulations.
A fragile global economic system still recovering from World War I.

Causes of the crash

1. Speculation

Investors bought stocks expecting prices to rise continuously.
Many engaged in day trading without understanding the companies behind the stocks.

2. Buying on Margin

Investors borrowed money (sometimes up to 90%) to buy stocks.
When prices fell, they couldn’t repay their loans.

3. Lack of Regulation

No centralized system to oversee stock exchanges.
Insider trading and market manipulation were common.

4. Bank Weaknesses

Many banks had invested depositors’ money in stocks.
When the market collapsed, banks failed, and people lost their savings.

Définition

Speculation

Risky investment in the hope of high profits. Stock bubble: A rapid increase in stock prices far beyond the company’s actual value.

Stock bubble

A rapid increase in stock prices far beyond the company’s actual value.

Buying on margi:

Purchasing stock by paying a small part of the price and borrowing the rest.

Margin call

Demand by a broker that an investor deposit more money or sell shares to cover potential losses.

The crash

24 October 1929 – Black Thursday: Investors begin panic selling; 12.9 million shares are traded.

28 October – Black Monday: Market falls by 13%.

29 October – Black Tuesday: A record 16 million shares are traded. The market crashes.

The consequences of the crash

Immediate:

$30 billion was lost in stock value in a few days (equivalent to hundreds of billions today).
Thousands of investors were financially ruined.
Banks closed, unemployment rose sharply.

Long-term:

The crash marked the beginning of the Great Depression.
It caused a global economic crisis due to America's influence on world finance.
Massive social unrest and poverty followed.

Définition

Bank run

When many people withdraw their money from a bank fearing its collapse.

Foreclosure

Losing your home due to unpaid debts.

Breadline:

A line of people waiting for free food during hard times.

Great depression

was a worldwide economic crisis that began in 1929 and lasted throughout the 1930s. It started in the United States after the stock market crash of October 1929 and quickly spread to other countries. The crisis led to massive unemployment, poverty, bank failures, and a sharp decline in industrial production and global trade.

Key figures

Herbert Hoover (President, 1929–1933): Often blamed for not reacting quickly or strongly enough.

Richard Whitney (Vice-president of NYSE): Tried to stop the crash by buying large volumes of stock—but failed.