The United States signaled a new era after the end of World War 1; an era of hopefulness when many people invested their money that was under the mattresses at home or in the bank. In the 1920s, the stock market reputation did not appear to be a risky investment, until 1929.
First noticeable in 1925, the stock market prices began to rise as more people invested their money. During 1925 and 1926, the stock prices vacillated but in 1927, it had an upward trend. The stock market boom had started by 1928. The stock market was no longer a long-term investment because the boom changed the investor’s way of thinking.
During 1928, the stock market was common among any class of the roaring twenties. Ordinary people talked about and many made millions off the stock market. Many people did not have money to pay the total prices of stocks; people bought stocks “on margin”, meaning that the buyer would put down some of his own money, but the rest the buyer would borrow from a broker. Thus the buyer borrowed about 80-90 percent of the cost of the stock and only 10-20 percent of his money.
This way of investing money was very risky. At times brokers issued a “margin call”. In this case the buyer had to pay back the money he borrowed earlier. Most ordinary people bought these stocks on margin and ignored the risk to buy stocks on margin. Most Americans were trying to get into the stock market by early 1929. Many companies also invested money in the stock market because the profits were guaranteed. Some banks invested their customers’ money (customers’ were unaware) which created more problems.
Everything seemed great with stock market profits guaranteed. Many people were shocked when the crash hit in October. There had been warning signs before the crash actually happened. On March 25, 1929, the stock market foreshadowed the “Black Tuesday”. That day the stock market suffered a mini-crash. As margin calls were issued a panic hit across the country and the prices began to drop. Banker Charles Mitchell stopped the panic by reassuring that his bank would keep lending money. Although, it did not stop the big crash in October when many others like Mitchell tried the tactic of reassurance.
There were additional signs by the spring of 1929 signaled a serious setback in the American economy. There were also a few trustworthy people warning about the future, big crash. As a month or two passed by, those people who warned the investors were labeled doubters and neglected. When the market surged forward throughout the summer of 1929, the mini-crash and the pessimists were both almost forgotten. The stock prices reached their peak from June through August of 1929. The constant increase of stocks was unavoidable to many. “Stock prices have reached what looks like a permanently high plateau,” economist Irving Fisher stated what many investors desired to believe. The stock market reached its highest with the Dow Jones Industrial Average closing at 381.17 on September 3, 1929....