Stock Market Crash

1
Stock Market Crash

• Lucian Pop
• Travis Smith

2
The Causes of the 1929 Stock Market Crashed

• The dust-bowl
• Stocks were over-priced
• Massive fraud and illegal activity
• Margin buying
• The Federal Reserve Policy

3
Dust Bowl
The Grapes of Wrath accurately describes
conditions during the dust bowl for many families
in the 1920s.
The dust bowl ruined farmers crops for years
giving them nothing to eat and no money to pay
the bank with. This caused runs on the bank.
4
Run on the bank!

• Banks have only 5-10 of their total deposits in
  cash, the rest of the money is loaned out.
  People were not able to pay off their loans on
  modernized equipment so people knew banks were in
  trouble. People then made a run on the bank
  and demanded their money when the bank had loaned
  it out.

5
Over Priced Stocks

• During the late 1920s stocks had gone up a
  tremendous amount, so much so that they were
  over-priced.
• Many people believe that the 1929 crash brought
  the prices of stocks back to there normal level.

6
PE Ratios
The PE ratio also known as the price-to-earnings
ratio, is a ratio that compares price to earnings
telling you basically how much time it will take
for the company to earn the money that its
currently trading for.
7
Insider Trading/Fraud
Having privileged knowledge of future stock
activity. Over-inflating stock prices to make
your company look more attractive to
investors. When earnings are released the stock
falls drastically and many investors loose a
great deal of money.
8
Margin Buying

• Margin buying is borrowing money against the
  value of your stocks. Usually the money you
  borrow is reinvested in stocks. You pay a 4
  interest rate but expect a 10 return on your
  stocks.
• When your stock goes down you loose money plus
  the interest paid on it and often have to sell
  stocks at a bad time.

9
Margins
If a margin call comes in that means that you owe
on the money you lost from trading on the margin
and you then must sell your stocks for a
loss. When the market is down you usually just
wait it out, but if a margin call comes in it
forces you to sell stocks at a bad time and you
loose large amounts of money or can go
bankrupt. In the years leading up to the 1929
crash, the stock market went up everyday and
margin buying was a good idea but there is always
a risk of a crash and loosing everything to make
an extra 6.
10
Federal Reserve

• Created in 1913
• Federal Deposit Insurance Corporation was created
  in 1933, in order to bring confidence back into
  the banking system. It insures deposits up to
  100,000 so a run on the bank will no longer
  occur.

11
National Debt

• The national debt is how much money our country
  has issued compared to how much gold we have. We
  dont actually owe money to other countries. The
  federal reserved issued to much paper money and
  didnt have the gold to back it. People then
  wanted cash and not just money in the bank.