Video:The Stock Market Crash of 1929with David Wilson
The Stock Market Crash of 1929 was an unexpected catastrophe that led to the Great Depression. In this history video from About.com, learn what caused Black Friday and what it's repercussions were for the nation.See Transcript
Transcript:The Stock Market Crash of 1929
Hi, my name's David Wilson. I'm an historian and a teacher of U.S. and World History, here today for About.com to talk about the stock market crash of 1929.
What Factors Lead to the Stock Market Crash of 1929?
The 1920s in the United States of America was a time of booming prosperity, changing of social norms, wide leverage investing in the stock market, and was nicknamed the Roaring 20s. Very few people during the 20s foresaw the impending disaster which would occur with the fall of the Wall Street markets.
What was the Stock Market Crash of 1929?
The stock market crash of 1929 was the single largest stock market crash in the history of the country. In one day, Tuesday, October 29th, 1929, known as Black Tuesday, the Dow Jones Industrial Average plummeted. The ensuing panicked sell-off would lead to a dramatic 40 percent decrease in the Dow by the week of November 11th.
Causes of Stock Market Crash of 1929
What is interesting about the crash of 1929 was that the optimism and confidence that fueled its initial success was, ironically, the causation for the fall. As America moved into the mid- to late-1920s, the American general public began to take their savings and invest in the stock market. By 1928 a bullish market became a full-fledged boom, where people invested with an eye towards quick money from short-term results, as opposed to stable, long-term market growth.
As the stock buying frenzy increased, buying on margin became a normal practice on Wall Street. Margin buying refers to borrowing up to 90 percent of the stock purchase, and only providing ten percent of money out-of-pocket. This occurred through brokers, and this left the assets of many investment houses and banks dangerously exposed to the event of a crash. The fatal flaw, and the reasoning of the many financial institutions and speculators involved in the market at that time, was that rising stock prices were a never-ending proposition; and thus, many didn't give the risk they were taking the weight it fully deserved.
After the Stock Market Crash: The Great Depression
Ultimately, the stock market crash of 1929 led to the Great Depression. In the United States of America, unemployment rose to a startling 25 percent, and almost half of the banks in the country failed. In the end, it would take a combination of President Franklin Delano Roosevelt's New Deal programs, and reforms on the onset of World War II to bring the country out of the ten-year-plus Depression brought on by the crash of 1929.
Thanks for watching. To learn more, visit us on the web at About.com.