What is a Stock Market Crash?
What is a stock market crash? Investopedia says “A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles.”
So to sum it up, a stock market crash is when everyone is selling their stocks at the same time and when they do that the stock market crashes.
History.com tells us in the 1920s people would invest more money than they even had. They believed that the stock market would go up forever but that was not the case. And when the stock crashed in 1929 the banks lost a lot of money. People would find out that the bank lost a lot of money so people would go to their banks and get their money. Most of the time banks would not have money to give to the people so many banks closed. People that would save up to retiring would go to their bank and find out that they would have no money. That is called a bank run.
When President Roosevelt was elected he declared a “bank holiday”. The bank holiday was so the Federal Government could assess which banks were worth saving. Roosevelt also added depositor insurance which means when people put money in the bank and their bank fails, they will get there money back and that helps people confidence to not take their money out of the bank. Also known as the FDIC.
How does this help contribute to the “Great Depression”? Let's say a company sells 50 percent of their company. When that person buys that part of the company (the “stock”) they can sell it right after they buy it and they could make more money. But when the stock went down, everyone with that stock are like “crap, I need to sell this right now!” But when everyone is trying to sell and that people knows that that stock is going down so no one probably is going to buy that stock. That company stocks goes down, then the value does as well. Companies start to sell off their assets and conserve what money they do have. Many may not have enough money anymore to pay their workers and then they have to let go of workers. This happens on a large scale. Then those former workers can’t buy stuff from other companies and those companies lose their value. This leads to a “domino effect” nationwide. This is partly how the “Great Depression” started. http://moneymorning.com/2014/02/13/stock-market-crash-history-dows-10-biggest-one-day-plunges/ http://www.history.com/topics/1929-stock-market-crash http://www.investopedia.com/terms/s/stock-market-crash.asp http://www.investopedia.com/ask/answers/042115/what-caused-stock-market-crash-1929-preceded-great-depression.asp http://cdn.history.com/sites/2/2013/11/stock-market-crash-of-1929-newspaper-AB.jpeg
