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Black Thursday: The 1929 stock market crash
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True or false? A stock represents a small portion of the ownership of a company.
New York City, 1928. “Wall Street Spirits Soaring!” “Stock Market Invincible. Buy, Buy, Buy!” People snatch up newspapers telling them the good news: there’s a way to get rich quick. The secret? Investing on the stock market. On the stock market, people buy small portions of the ownership of companies — stocks.
The buyers are called investors, and the trading takes place inside offices called stock exchanges across America. The biggest is on Wall Street, New York City. Investors hope the company whose stocks they buy will grow, and increase in value, so the value of the stocks will increase, too. Then they can sell their stocks for a higher price than they originally paid. The more stocks they buy, the more money they can make.
Through the 1920s, investing on the stock market seems like a foolproof way to make money. Economist Irving Fisher declares that “Stock prices have reached what looks like a permanently high plateau... ...I do not feel there will soon be if ever a [...] break from present levels.” People from all walks of life decide to tap into the stock market’s promise of riches. Factory workers, restaurant owners, shoe-shine boys spend their savings on stocks, and often borrow money to buy more stocks. Some people trade stocks on behalf of others. They are stockbrokers.
And many stockbrokers become very rich. Nothing can halt the thriving stock market, or slow the growing prosperity of Americans. Or so it seems... Stocks start out tied to the value of a company. But as people keep buying and selling them for ever increasing amounts, the stocks become worth more than the companies themselves.
The stocks are overvalued. When enough stocks are overvalued, there is said to be a stock market bubble. In 1929, stocks have increased in value by 120 percent in just four years. At the same time, businesses are beginning to struggle, and shrink their operations. In many industries, there is too much being produced for too few buyers.
Companies aren’t making the profits they expected. The rising stock market is out of step with the declining American economy. A stock market bubble has formed. Can it last? October 24th, 1929.
The New York Stock Exchange. Shouting starts right after the opening bell. The price of stocks is falling fast. Investors worried about being left with worthless stocks are trying to sell them quickly. Minutes into the trading day, the stock market loses a lot of value: 11%.
Panicked investors sell stocks over the day, many for just pennies. Millions of other stocks go unsold. In a matter of hours, stock prices drop so drastically that any gains made over the previous year vanish. The stock market bubble has burst. The day will come to be called Black Thursday.
Over the next few days, stocks continue falling. Large banks try to help the market recover, buying up stocks that no-one else wants. But their efforts make no lasting difference. And over the next few months, the stock market’s overall value shrinks to almost half what it was before the crash. Millionaire stock brokers go bankrupt.
Regular people who had poured their savings into the stock market lose everything. Those who had borrowed money to buy stocks owe their brokers more than they can afford to pay. It is the start of much deeper problems in the American economy... and beyond.