Wall Street Crash

By the 1920’s, the stock market started making “loans’ to companies, thinking that this would bring great wealth. People were making money through shares and stocks, basically because there was no regulation of stock exchanges. In other words, people would buy shares with the expectation of making more money by borrowing and investing in the stock market when they could sell their goods at a good profit.

Companies could price fix their stocks thus charging more for them than they were actually worth. Most of the people were buying stocks, or consumer goods, on what was known as a margin, with credit to promise to pay later. The margin allowed speculates to sell off shares at a profit before paying what they owed.

There came a moment in which the market became too heavy with too many overvalued stocks, and basically the market shares started to fall. Stock prices separated from the real earnings of the share prices, getting in a speculative bubble. Stockholders started selling their stocks because they started to panic because they could not meet the margin call. There were so many stocks for sale, and not enough buyers, the prices got lower and lower until they were hardly worth anything at all.

All the people who bought on margin suddenly found themselves having to pay for failing stock, and most went broke. There was even no confidence in the economy, and people felt poor as they lost their money in the market.

In an article entitled Everybody Ought to be Rich, John Jaskob claimed that by investing $15 a month in stocks and shares it would be possible to make $80,000 over the next 20 years. Another investor, Will Payne, stated in 1929 that it had become so easy to make money on the Wall Street Stock Exchange that it had ceased to become a gamble. He went on to say that a gambler wins only because someone loses, when you invest in stocks and shares, everybody wins. 

On October 29, also known as Black Tuesday, was the official day of the Crash. Almost 14 billion dollars were lost, and all the prices began to decline. People found themselves in many debts, and banks closed down because people could not pay back these loans. The Wall Street Crash opened up the great depression in America.

Although less than one per cent of the American people actually possessed stocks and shares, this crash had a huge impact on the whole population. It was very difficult to raise the money needed to run the companies, so many were forced to close. There was unemployment, so the purchasing power of the people fell, and turned into even more unemployment.