Adithiya Vivek
Mrs. Peterson
US History
5/19/14
1. Target Audience- To the president of the United States of America Herbert C. Hoover.
2. Executive Summary- For every boom there is a bust. The economic prosperities of the
1920s caused the stock market to go upward exponentially. Everyday people now think as the stock market a no risk option and an easy way to get rich quick. This has also caused people to buy on margin sometimes even mortgaging there home and property to put in the stock market. Investors and people alike have now realized that the market is an exavergated market bubble and there has been a massive sell-off. In the last two days the market has shed 60 points or 12% of Dow value.
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Issue/Problem- How should the president respond to the massive sell-off of the stock market? 4. Background- America experienced an era of great peace and prosperity during the 1920s.
The Dow stock average soared throughout the Roaring Twenties and many investors aggressively purchased shares, under the ideology that share prices never went down.
Investors soon purchased stocks on margin, which is borrowing money from a brokerage to increase the amount of stock you own. For every dollar invested, a margin user would borrow nine dollars worth of stock. This meant if the stock went up 1% the investor would make 10%. Unfortunately, this also works the other way around and makes small losses turn big. From 1921 to 1929, the Dow Jones rocketed from 60 to 400, turning
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everyone paper rich. Very soon, stock trading became America’s favorite pastime as everyone saw stocks as easy money. Investors mortgaged their homes and foolishly invested their life savings into blue ticket stocks. To the average investor, stocks were an easy way to make money. Few people actually studied the companies that they invested in. Thousands of fraudulent companies were set up to cheat amateur investors. Most investors never even thought a crash was possible – in their minds, the stock market
“always went up.” In 1929, the Federal Reserve raised interest rates several times in an attempt to control the over expanding economy. By October, a powerful bear market had started. On Thursday, October 24th 1929, a panic selling occurred as investors began to realize that the market was just an over speculated bubble. Margin investors lost large amounts of money as numbers of stock investors tried to liquidate their shares to no avail.
Paper millionaires went bankrupt instantly as the stock market crashed on October 28th and 29th. During November of 1929, the Dow sank from 400 to 145. In just three days, over $5 billion vanished from the New York Stock Exchange. In the months after the crash over 16 billion was gone from the market. A number of large banks and firms have also heavily invested in the stock market losing depositor’s money. Bank runs soon occurred when bank patrons tried to withdraw their savings from banks all at the same time. Major banks and brokerage firms became bankrupt, adding more fuel to the stock market crash. The financial system is in shambles. Many bankrupt speculators, some who were once very affluent, committed suicide by jumping out of buildings. It is predicted that over 140 billion of depositor money will be lost and over 10,000 banks will fail.
5. On black Thursday October 24, 1929 several leading wall street bankers including
Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase
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National Bank; and Charles E. Mitchell, president of the National City Bank of New
York met together and decided to buy large quantities of blue-chip stock well above market value; a tactic that worked during the panic of 1907. The administration so far has tried to keep up the public
