Presentation on theme: "Market Speculation Too Great A Risk?. The American Dream Goal: Achieve permanent prosperity Belief: Everyone can be rich by investing money in the stock."— Presentation transcript:
Market Speculation Too Great A Risk?
The American Dream Goal: Achieve permanent prosperity Belief: Everyone can be rich by investing money in the stock market Result: Thousands poured savings into the market Downfall: They wanted to make their fortune immediately
Speculation Buying stocks they thought would quickly rise in price After stock price rises, sell for a quick profit Very profitable venture b/n 1927-29 See Chart pg 419 Very attractive gamble
Buying on the Margin Common practice Perks To buy $500 worth of stock, you didnt need $500 up front Down payment of as little as 5% ($25 in our example) Borrowed the rest from a stockbroker (loan) With $500, you could buy $10,000 worth of stock Stock rises, Sell, Pay broker back, Make a profit
Buying on the Margin Risks Stockbroker can make investor pay off loan at anytime If investor could not pay, broker keeps the stock (collateral)
Saturation of the Market 1929: $6 billion in margin loans Brokers called in investors Investors could not pay, so they sold their stocks What happens to the market? Other investors see the downturn of the market, panic, and sell their stocks Domino effect: by October 29, 1929 the bottom fell out of the market
Great Depression Begins Millionaires were in debt Banks lost their reserve money as debtors could not repay loans Money invested in a savings account at a bank vanished to pay off bank notes Banks were not federally insured Millions of innocent Americans lost all their savings