Module 4: The Story Of The Crash

All of these pressures on banking and business started to cause BIG problems in early 1929. There was a mini crash (BIG drop in value) in the STOCK MARKET (where shares of stock are sold) in March of 1929, but the values quickly went back up. Values of stock kind of bounced up and down all through 1929, until it got to October.

Think of the word PANIC. That is what happened. Panic is a word that describes a very strong, fear that spreads from person to person like a sickness.

You may have seen a friend acting very goofy in a loud way. They bounce around the room or the hallway. This is frenzy. Panic is far more serious than frenzy. One week in October 1929, there was a true panic, and many rich people became poor people in one single day. This is what happened.

On Thursday, October 24, 1929, people saw danger signs in the value of stocks. They were afraid the values would FALL a lot. That means the value of their investments would drop A LOT. In order to try to make their losses as small as possible, many people began to sell. In fact, they competed in a frenzy to sell.

This made the prices drop even more (The more of a stock that is available to buy, the lower the price is pushed.)

In fact on that day there were 12,894,650 shares sold that day. That is 4 TIMES the previous one day record of 3,875,910 shares.

There was so much excitement that police had to be called in to control the crowds growing in the street outside where the stocks were sold. The crowds kept growing as word spread of how bad the stocks were doing (The Values of the stock kept dropping.). .

In the middle of the day the stocks of some companies had lost almost half (½ or 50% ) of what they were worth (value) . EXAMPLE: The stock of a store like J.C. Penny’s started the day at $83. By lunch time it had FALLEN to $50 for each share.

By the end of the day it had climbed all the way back up to being worth $74 for each share. Most, but not all the way. People lost money, but not TOO much. However, all was NOT well.

On Monday, October 28, 1929 the amount sold was huge again. It was over 9,250,000 shares sold. Once again people lost a lot of money. Unlike Thursday, there was no big recovery (rise) in values.

This set the stage for the next day, which would go down in history as “Black Tuesday.”

At the start of trading on Tuesday, October 29th, 1929 many people started trying to sell their stocks. They figured it was better to sell at a loss now instead of waiting for the value of their stocks to drop even lower. In fact on this day a new record was set as to the number of stocks sold in one day. It was 16,410,030 shares.

The problem now was that so many people were trying to sell that there was no one who wanted to actually buy them. Think of it, if you have something to sell, and nobody wants to buy it, how much is it worth??? Right, NOTHING. People now started to panic. Worse than last time

The Panic spread... People, getting nervous as the word of falling stock values spread, started going to their banks to get their money out so they had it.

But there was a problem….. The banks had invested most of that money ( the savings money of their customers) in the stock market, or loaned it to others who wanted to buy stocks. So the banks started calling the people who had borrowed that money from them to buy stocks. (They call this a MARGIN CALL. A Margin call is when you have to pay all the loan back immediately.) They wanted them to pay the loan back RIGHT AWAY. ALL OF IT. No waiting to make monthly payments,, but pay it ALL back RIGFHT NOW.

This caused a problem as the people did not have that money, and there was no way to get it. Even if they could sell the stock it was now worth LESS than what they had borrowed.

All the money those people did have was invested in stocks, and now that was ALL gone. When people found their hard earned savings was gone, the panic spread. When people found their hard earned savings was gone, the panic spread. https://www.youtube.com/watch?v=mRKGsLCowyg

https://www.youtube.com/watch?v=5IIPig-kx4M

The Stock Market had CRASHED. As bad as the “Black Tuesday” crash was, it would get worse. Much worse. By the time it stopped crashing and started a slow climb back up, 3 years later in 1932, it had lost 89 % of the average value of ALL stocks.

What this means that a stock valued at $100 in 1929 before the crash was worth only $11 in 1932. People were ruined.

This means that from the Great Crash in 1929, when the average value of a stock was $388 per share until the time it stopped dropping in 1932 at about $42 per share,the stock market average had lost $346 in value which added up to 89% of its total value .

You are a fly on the wall of the place where the stock selling happened, or at a bank. Tell us what you saw, and heard, from all of your fly buddies who were also watching at other banks and stock trading places.