Why did the stock market crash of 1929 happen?
The Wall Street Crash, also commonly referred to as "Black Thursday" took place on 24 Oct 1929, when the NYSE collapsed and continued to fall for a whole month. It is the worst market crash in history. The Dow Jones lost $30 billion in a week. The decade before the Crash [commonly known as the "Roaring Twenties"] was a time of lavish lifestyles, excessive consumer spending [and debt!] and wealth and plenty. This led to millions of Americans speculating in stocks with people borrowing money to buy more stocks. There was more money out on loan than the entire amount of currency circulating in the US at the time. The rising share prices encouraged more people to invest; people hoped the share prices would rise further. From 1921 to 1929, the Dow Jones rocketed from 60 to 400! Millionaires were created instantly. Soon stock market trading became America’s favorite pastime as investors jockeyed to make a quick killing. Investors mortgaged their homes, and foolishly invested their life savings in hot stocks, such as Ford and RCA. To the average investor, stocks were a sure thing. Few people actually studied the fundamentals of the companies they invested in. Thousands of fraudulent companies were formed to hoodwink unsavvy investors. Most investors never even thought a crash was possible. To them, the stock market “always went up”. Speculation thus fueled further rises and created a credit-inspired economic bubble. When the market turned downward suddenly, the "panic-selling" started, bringing the market to its knees. After this Crash, the differentiation between commercial banks and investment banks. There are still debates between economists about what caused such devastation and more than one reasons is given. It is however rather generally agreed that the "stock boom" of the 1920s went too far and caused the Crash.
What caused the stock market crash of 1929 ?
they were selling too many stocks and they weren't selling fast enough also people could buy things on credit and people would buy things and not have enought money to pay their loan back
How did the stock market crash in 1929?
People bought on margin during those days. This means you can take a loan out for a percentage of the trade. Today some brokers will let you buy on 2:1 margin, meaning if you have $10,000 they will let you buy $20,000 worth of stock. Back in those days people were able to buy with 10:1 margin, meaning if you have $10,000 you could have bought $100,000 worth of stock. In 1929 stock prices had risen way beyond their true value and were bound to pull back. When they did people paniced afraid that they were going to lose all of the money they originally invested with or more because of margin. So there was a lot of selling that took place, mostly because people were afraid of what would happen if they hung onto their positions.
What were the main causes of the stock market crash of 1929?
There were so many reasons but you’re asking for the “main” reason.Well if you’re an Elliott wave follower, the reason would be we reached the top of a multi-decade wave 3.There’s truth in that but there’s also truth in this:You could buy stock with just 10% cash in 1929. In other words, the exchange would let you borrow 90% of your stock purchase.In other words, the primary cause was OVER LEVERAGING - too much debt and liquidation when they couldn’t pay.Here are the mechanics:(1) As soon as you had a decline, you owed money to the exchange because your ‘equity’ was below 10% in your position..(2) They requested payment to bring your equity up to 10% (a “margin call”)(3) You don’t have the money to bring your account up to 10% equity(4) The exchange liquidates (sells) your position so they don’t lose any more money.(5) The selling of your positions means more the market goes down and there are more ‘margin calls’ to other over-leveraged people who bought with just 10% down(6) They don’t have the cash to bring their equity up to 10%(7) More “liquidation” (selling) occurs …And on and on it goes until... CRASH!In February, 2018 “margin” debt was at the highest level ever - even more than 2008 when the market declined 50%:Will the result of over-leveraging be ‘different’ this time?I doubt it.