History 167: The New York Stock Market Crash

HISTORY 167 5. banks foreclose on the mortgages

THE NEW YORK STOCK MARKET CRASH 6. banks are stuck with land worth only a fraction of the
Speculative Boom mortgage
Installment Plan: buying automobiles, radios, appliances Stock Market
with a small down payment in cash and the rest of the Stock: represents capital paid into or invested in a
cost plus interest over a period of time business; also called share
Significance: o Stockholder/Shareholder : person who owns stock or
1. merchants had to overcome ingrained habits of traditional share of a company
American ethics o Stock Certificate: legal document that certifies
2. made possible for a person to drive home an automobile ownership of a certain number of stocks/shares
with only $60 instead of saving $600 to buy an automobile o Dividend: payment made by a company to its
3. made buying/spending painless stockholders/shareholders representing the portion of
Traditional American Ethics company profits
1. thrift and frugality o Stock Market/Stock Exchange: a loose network of
2. preached in churches economic transactions for the trading of company stock
3. taught in schools and derivatives at an agreed price
4. enshrined in the writings of Benjamin Franklin o New York Stock Exchange located in Lower Manhattan
Benjamin Franklin Period (financial district) of New York City
VALUES: Calvin Coolidge Period
thrift and frugality Roaring twenties:
1. that people should avoid debt people of modest means began buying stocks in companies:
2. that people should do without goods they could not afford 1. to acquire dividends
3.that money not needed should be saved 2. to sell their stocks when prices of stocks rose
Calvin Coolidge Period Playing the Market: when stockholders sell their stocks
VALUES: when the price of stocks rise in order to acquire a profit
1. encouraged people to spend Dow Jones Industrial Average: index showing how large
2. discouraged people from saving money publicly owned companies have traded during a standard
Real Estate Deals trading session in the stock market
Significance: encouraged Americans with a few hundred Bullish Stock Market: when more people buy stocks,
dollars to turn their money into thousands and thousands of 1925-1929
dollars Weakness:
Florida: Sunshine State;advertised as the perfect place for 1. Artificial Rise in Stock Values (stock prices rise because
retirement ; sunshine all year round of the belief that there are people willing to buy stocks at a
Florida Real Estate Attractions higher price)
Purpose: 2. Empty Values of Stocks
1. retirement homes a. few companies paid dividends
2. businesses too serve retirement homes b. companies did not use the money raised by selling shares
Florida Orange Groves: divided into subdivisions to improve their productive capacity
Speculator: 3. Speculative Buying: investors borrow money to buy more
1. buy real estate stocks
2. make a down payment 4. Buying on Margin: entailed buying on credit; buying on
3. pay the monthly installments credit becomes easy because stock brokers lend small
Real Estate Deals investors more than two-thirds of the face value of the stocks
Unscrupulous deals: alligator-infested swamplands; ten-feet that they are buying
deep floodplains and beachfront lots Inevitable Bust
o Escalation of speculation: original speculator sold the Result: when there are no more people to bid the stock prices
real estate at a profit; next buyer sold the real estate for higher
a bigger profit September 3, 1929
Real Estate Deals Dow Jones Industrial Average: 381;average price of share
Advantage: as long as there were people willing to buy real in the New York Stock Exchange dip sharply; prices of stocks
estate spur up and down
Disadvantage: some people begin to lose money
1. when there are no longer people willing to buy real estate Stock Market Crash
2. when the last speculator did not have enough cash to OCTOBER 29, 1929: sudden dramatic decline of stock
make the payments prices across a significant cross-section of a stock market
3. when the last speculator was forced to sell the property at o New York Stock Market Crash
a reduced price Immediate Effect:
Real Estate Deals 1. people rush to the banks to withdraw their money
1. property prices drop 2. banks go bankrupt (lose their money on loans made to
2. drop in property prices causes panic speculators)
3. speculators hasten to unload their properties 3. people lose their lifesavings when the banks close their
4. speculative balloon bursts doors
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