Bull Market Bear Market Stock Speculation- Why Problem? Margin Buying- Why Problem? Security Broker Investor Equity

$15,000 = pay $1,500 down and borrow $13,500. Example: $15,000 = pay $1,500 down and borrow $13,500. Stock Value drops to $13,500 Two decisions. 1. Sell and take your loss of $1,500 down. 2. Pay $1,500 margin + interest on loan. Stock Value rises to $16,500 Two decisions. 1. Keep it and gain equity 2. Sell, pay loan/interest, keep profits. Stock Value drops to $9,800- 2 decisions. 1. Sell and take your loss of $5,200. 2. Pay $3,700 margin + interest on loan. -- Margin goes to bank to maintain the value of the loan. You have now paid $5,200, but you still own the stock. Goes up to $18,000- same decisions.

Bull Market Government had Laissez Faire approach Record for most trades March 12, 1928- 3,875,910 Mini Crash March 25, 1928- rebounded for a good summer.

Black Thursday- October 24, 1929 12,894,650 shares traded Communication Problem ticker tape- couldn’t handle all the incoming trades. This created large crowds forming at the NYSE which created a frenzy to sell more. Lunchtime slowed selling- but “bargain grab” continued By closing time- large companies had rebounded.

Friday October 25 Monday Most companies were continuing to recover 9,250,000 + shares traded Many bought because of low prices, but the prices continued to drop

Black Tuesday- October 29, 1929 16,410,030 shares traded Investors continue to drop stocks, as more stocks are sold, the more the price drops. Brokers needed investors to cover margins or sell the stock at the loss. Brokers frantically trying to contact investors. Investors had 2 options: ????

The Effects of the Crash Investors Investors couldn’t pay the margins to keep the loans. Investors couldn’t pay the loans. The Investors lose everything. Brokers Brokers needed the money from the investors to pay the bank. Even if the broker gets the stock as collateral, it isn’t worth as much as the loan. Brokers lose everything. Banks Lose money they invested in the market. Bank needs the money given for loans to cover deposits. If the bank loses their money, they close and lose everything. Companies They lose investor money. They lose money invested themselves People stop purchasing products, this they lower production and lose money. Companies lose everything. Depositors Many are laid off and aren’t making any money. They need their money because they are unemployed, and they are worried about bank failures. Depositors lose everything.

Economic Factors (Rising interest rates, slowing prod Economic Factors (Rising interest rates, slowing prod. and consumer demand, and inflated stock prices) Investors sell stocks Stock Prices Plunge Heavy sales continue-investors worry about prices and continue to sell CRASH

Surplus- Deficit- Durable Goods- Tariff- Bank Runs- Recession- Gold Standard-

What causes a Depression/ Recession? Usually caused by the up’s and down’s of the market. Companies over produce goods and consumers stop purchasing them, this leads to slow production and laid off workers. Which in turn leads those workers to have less money to spend in other service industries. Business Cycle What ends a Depression/Recession? Eventually the goods wear down and the surplus is extinguished and companies have to increase production and rehire workers. What is an easy phrase for this? CONSUMER SPENDING!!!!!

Consumers’ purchases decreased- no need for goods Led to laying off workers Consumers don’t have any money.

Business Cycle- Consumers stopped buying products- factories lowered production and laid off workers. Stock Market Crash- People lost money which prevented them from purchasing goods. Businesses lost money in both the market and in their shares values, which led to closings. Bank Crisis- When people and businesses defaulted on their loans, the banks couldn’t repay the deposits. This causes people to worry about their life savings, bank runs ensue. Banks close or don’t have money to loan to others which limits purchasing power. Global Depression- European countries began going to the gold standard. Some countries didn’t have enough gold so their banks couldn’t give any more loans. No purchasing power, businesses had to cut production which led to a recession. People begin defaulting on their loans which meant banks began failing. The first was the National Bank in Austria. Other Europeans began bank runs. More European banks closed and Europe was in their own depression.

Bank Crisis and Federal Reserve- Banks continued to close and people continued to lose their money. The Federal Reserve didn’t do it’s job of lending banks money to pay off depositors. Credit failures (Consumer Debt)- People who purchased goods on credit defaulted on their loans which meant less money in circulation. Those that could afford their payments had less money to put into the struggling economy. Income Gap- There weren’t enough wealthy people to spend money to help in the recovery. Government- unable to give enough people jobs and money. Federal Reserve- Kept interest rates high which hindered businesses opportunity to borrow money to break the recession. Global Depression- High tariffs that were to help American industries prevented foreign countries from making money, which led to them making less purchases of American made goods.

Europeans couldn’t afford to buy U.S. exports Led to European Industries losing money Wanted to protect U.S. Interests

Lower wages, no consumer spending, unemployment, and foreclosures.