Stock Market Crash

The stock market crash was, has and will always be an important cycle in the stock market history.

Most people considered it as the end of an elitist run and the beginning of the Great Depression. To best understand what actually happened when the stock market took a dive so long ago you must realize how the economy works.

We should start with the explanation of what capital is and how it effects how we live. Capital, in the simplest terms, is the expression of the tools we need to produce things of value. Buildings and machines are the most common examples of these tools. A place where goods of value are produced consists of machines and a building.

Throughout the twentieth century, stocks represented much of the capital in the United States. Typically, a corporation owned capital. In turn this ownership took the form of stocks in shares of these corporations.

Each share of stock reflected a piece of the corporation. When the stock exchange was compromised ultimately so were the corporations that supported the nation. Before the stock market crash every stock sold or bought by stock brokers on the stock exchange managed to be significant in the financial infrastructure of a then booming nation.

All through the 1920's, also known as the roaring `20's, stock prices rose and eventually peaked like never before. Within the decade spanning 1920 to 1929 it was not uncommon for stock prices to quadruple in value. And here again within this comfortable wake of financial security many investors were easily convinced stocks were a certain way to get rich quick.

These investors borrowed large quantities to invest more money in the stock markets. In 1929 an unbalance occurred.

By 1932 and into 1933 the bauble of wealth and carefree energy the nation had adjusted to burst wide open. Stocks began a downward spiral that would land the economy in dire straits. There began a vicious cycle that perpetrated the length and depth of a nationwide depression like few had ever known.

The demand for goods steadily declined, due to the fact that people in general felt spent because of their losses in the stock market. A once carefree and frivolous nation suddenly cared a whole lot how their money was spent.

New investments in the stock markets did not seem like an intelligent thing to do. Another page in stock market history was made. The stock market crash would have been monumental in and of itself.

To add to the insecurity the nation was gripped in, the chaotic effect of the banking system also occurred. Banks ultimately tried to collect on loans that were happily made only a few years prior to stock market investors. Unfortunately these investors and stock brokers now owned stocks that were, for all intensive purposes, worthless.

Money was withdrawn from banks in large amounts. Unable to raise fresh funds from the Federal Reserve System banks began to fail. In what is now referred to as a "bank holiday" President Roosevelt closed every bank. With great concern banks were re-opened and strict limits were set on all withdrawal amounts. Ultimately the nation recovered but many lessons were learned. The government set up the Federal Deposit Insurance Corporation and banks are now banned from investing depositor's money in stocks.