Vocabulary Activity

• Fold a paper in half twice to create four boxes

• Define each vocab term by creating a picture or series of pictures that represents the definition.

• After you have created your picture define the key terms in your own words in the box with the corresponding picture.

Only complete Ch.17 if you haven’t done it already

• Vocab for Ch. 17 page 384

• Industrial Revolution• Homestead Act• Monopoly • Urbanization• Populism• Progressivism• Sherman Antitrust Act• defraud

• Vocab for Ch. 20 page 448

• Herbert Hoover• Buying on margin• Great Depression• Hooverville• Franklin Delano Roosevelt• New Deal• Stockholder• Social Security Act

Stock Market Crashes

1929, 1987, 2008

• Who was President for the 1929 Stock Market Crash? • Who was President for the 1987 Stock Market Crash? • Who was President for the 2008 Stock Market Crash? • What rate was lowered in all three crashes? • What cause to the 1929 stock market crash is similar to

the 2008 crash? • Which year’s results compare with what is happening as

a result of the 2008 crash? • What governmental agency responded to the 1987 &

2008 crash?

1929 - Causes

• Speculation in the Stock Market

• People bought shares on margin and watched prices rise.

• Stock Market became saturated and prices slowly declined

1929 – Causes cont.

• Brokers called in margins and when they couldn't collect.

• They were forced to sell

• The bottom fell out of the market by the last week of October

1987 - Causes

• Computer Trading - Large companies used this to automatically order large stock trades when certain market trends prevailed.

• Insufficient liquidity (funds) -Specialist couldn't find enough buyers to purchase the amount of stocks that sellers wanted to get ride of at certain prices. Some trading was terminated.

• Overvaluation - Stock prices were highly overvalued (overpriced).

2008 Causes

• The Credit Market Collapse– People with poor credit allowed to take loans– Fall 2007 - Home sales started to decline – led to

foreclosures

• Bear Stearns' Collapse– Mortgage defaults started to rise– Stearns merged with JP Morgan – wiped out 90% of

market value

• Fannie Mae and Freddie Mac Fall– either owned or guaranteed nearly $6 trillion in

mortgage loans

2008 Causes

• Financial Instability Grows– On September 14, 2008, Bank of America

agreed to acquire Merrill Lynch– September 15, 2008, concerns over the ability

of financial institutions to cover their exposure in the sub-prime loan market led to further market instability

– On September 16, 2008, American International Group  would fall victim to a liquidity crisis

2008 Causes

• The Crash of 2008 Begins– Black Week began on October 6th and lasted

five trading sessions.  During that week, the Dow Jones Industrial Average would fall 1,874 points or 18.1%. 

– On October 24th, the Dow would fall 312.30 points to 8,378.95

1929 – Government Response

• Interest rate was lowered 4-6%

• Commercial banks in NY made loans to brokers

• They in turn provided funds corporations that financed brokers before the crash.

1987 – Government Response

• U.S. central bank supplied funds through the open market purchase of U.S. securities.

• Federal Reserve provided help to commercial banks

• Interest rates were lowered.

2008 – Government Response

• On September 7, 2008, the Federal Housing Finance Agency, placed both Fannie Mae and Freddie Mac under their conservatorship

• Emergency Economic Stabilization Act of 2008 (Bail out plan)

• Government also proposed a fiscal stimulus package designed to provide a boost to economic activity

2008 – Government Response

• The Federal Reserve – The Fed lowered its key federal funds rate to

provide additional liquidity to the financial system,

– expanded the range of collateral it would willing to accept in return for loans

– provided direct lines of credit to a broader variety of financial institutions

1929 – Regulation & Reform

• Securities & Exchange Commission (SEC) was established to protect people from fraud. It allows investors to get all the needed information before making trades.

1929 – Regulation & Reform cont.

• The Glass-Steagall Banking Act banned any connection between commercial banks and investment banking.

–Could not invest in stock market

1987 – Regulation & Reform

• Circuit Breaker - Restricted some forms of program trading (computer trading). Trading would be halted for one hour in the Dow Jones average fell more the 250 points in one day, two hours in fell 400 points.

• Margin Requirements - Reduces instability for stocks and stock options

• Computer Systems - Some exchanges changed their computer system in order to improve data management and increase accuracy, efficiency, and productivity

2008 – Regulation & Reform

• None as of yet

1929 - Results

• Factories close resulting in thousands of workers loosing their job or getting pay cuts.

• Banks closed and Allies stopped paying their war debts.

1987 - Results

• Many people feared recession (drop in business activity) but it never came.

• U.S. corporations announced that they would repurchase the stocks

• Wall Street suffered the biggest loss -15,000 jobs were lost.

2008 - Results

• Fed provided enormous amounts of liquidity to the financial system

• The government also increased its spending, thereby providing fiscal stimulus to the economy.

• Finally, the government took extraordinary measures to secure confidence in the financial system through a variety of guarantees, insurance programs, loans and direct investments.