Stock Market Crash Of 1929

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    28-Nov-2014

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  • 1. STOCK MARKET CRASH, 1929
    The Global Financial Crisis
    Odon Bat-Erdene
  • 2. Roaring 1920s (economy)
    Annual income increase: more than 15% (1923-1929)
    Real income rose: 10.5% per year from 1921 to 1923
    3.4% from 1923 to 1929
    1919-1929, total factor productivity increased by 5.3%
    1928-1929, GNP increased about 6.6%
    Technological developments: radio, telephone, automobile, air-condition, refrigerator, washing machine.
  • 3. Welcome to the Stock Market
    Eight straight years rise in stock values: 218.7%
    Mid 1920s real growth and prosperity
    Boundless hope and Optimism
    New American Characteristic
    (get rich quickly with a minimum of physical effort)
    Consumer Credit:
    $2.6billion (1920)
    $7.1billion (1929)
    Buying on Margin
  • 4. Black Thursday(Oct 24th, 1929)
    Major Panic
    The nations most powerful financiers met to stop the panic
    Thomas Lamont: There has been a little distress selling on the Stock Exchange due to a technical condition of the market
    12.8 million shares had been sold
    DJI: 21 percent decline from the high of 381.2 (Sept 3rd,1929) to 299.5.
    Drop of 9% from Oct 23rd
    President Herbert Hoover said that the economy was fine on Friday, Oct 25th
  • 5. Black Tuesday(Oct 29th, 1929)
    The most notorious day in American financial history
    16.4 million shares were sold
    Dow Jones lost another 12 percent
    Nearly $16 billion in market value (about $121 billion in 2007) evaporated
    Twenty-nine public utilities lost $5.1 billion in the month
    The market closed down 12.8 percent on Monday, Oct 28th
  • 6. Allied Chemical & Dye
    General Electric
    Montgomery Ward
    Radio Corp. of America
    U.S. Steel
  • 7. A Catalogue of NINE Causes
    Stock market value was too high
    Real downturn in business activity
    The subsequent raising of interest rates in London and liquidation of English investments in the United States
    Actions of the Federal Reserve
    Media and government figures
    Buying on margin and margin-call
    Excessive leverage used in utility sector
    Setback in the public utility market
    Overreaction by the market
  • 8. Federal Reserve Actions
    Before the crash
    Raised interest rate (loan to brokers and buy on margin)
    During the week of the crash (final week of October)
    Expand credit and bolster shaky financial positions
    Added almost $300 million to the reserves of the banks
    Doubled its holdings of government securities:
    - adding over $150 million to reserves
    Discounted about $200 million more for member banks
    Lowered its rediscount rate from 6 to 4.5% (by mid-Nov)
  • 9.
  • 10. THE PROBLEM: The Cluster of error
    Errors in forecasting
    Capital-goods industries fluctuate
    Increase in the quantity of money in the economy
    Central bank
    • Lowered loan rate of interest
    • 11. Businessmen invest in longer process of production especially in the higher order