investing in the stock market in the 1920s
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Investing in the stock market in the 1920s silver expected price

Investing in the stock market in the 1920s

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The volume of Western Union telegrams tripled, and telephone lines could not meet the demand, as investors sought any means available to dump their stock immediately. Rumors spread of investors jumping from their office windows. Fistfights broke out on the trading floor, where one broker fainted from physical exhaustion.

Stock trades happened at such a furious pace that runners had nowhere to store the trade slips, and so they resorted to stuffing them into trash cans. When the final bell rang, errand boys spent hours sweeping up tons of paper, tickertape, and sales slips. More margin! To put this in context, a trading day of three million shares was considered a busy day on the stock market.

People unloaded their stock as quickly as they could, never minding the loss. Banks, facing debt and seeking to protect their own assets, demanded payment for the loans they had provided to individual investors. Those individuals who could not afford to pay found their stocks sold immediately and their life savings wiped out in minutes, yet their debt to the bank still remained.

October 29, , or Black Tuesday, witnessed thousands of people racing to Wall Street discount brokerages and markets to sell their stocks. Prices plummeted throughout the day, eventually leading to a complete stock market crash. The financial outcome of the crash was devastating.

Any effort to stem the tide was, as one historian noted, tantamount to bailing Niagara Falls with a bucket. The crash affected many more than the relatively few Americans who invested in the stock market. While only 10 percent of households had investments, over 90 percent of all banks had invested in the stock market. Many banks failed due to their dwindling cash reserves. This was in part due to the Federal Reserve lowering the limits of cash reserves that banks were traditionally required to hold in their vaults, as well as the fact that many banks invested in the stock market themselves.

Eventually, thousands of banks closed their doors after losing all of their assets, leaving their customers penniless. While a few savvy investors got out at the right time and eventually made fortunes buying up discarded stock, those success stories were rare. Housewives who speculated with grocery money, bookkeepers who embezzled company funds hoping to strike it rich and pay the funds back before getting caught, and bankers who used customer deposits to follow speculative trends all lost.

While the stock market crash was the trigger, the lack of appropriate economic and banking safeguards, along with a public psyche that pursued wealth and prosperity at all costs, allowed this event to spiral downward into a depression. The crash of did not occur in a vacuum, nor did it cause the Great Depression. It also represented both the end of an era characterized by blind faith in American exceptionalism and the beginning of one in which citizens began increasingly to question some long-held American values.

A number of factors played a role in bringing the stock market to this point and contributed to the downward trend in the market, which continued well into the s. The Allies owed large amounts of money to U. Unable to repay these debts, the Allies looked to reparations from Germany and Austria to help.

The economies of those countries, however, were struggling badly, and they could not pay their reparations, despite the loans that the U. The U. When other countries began to default on this second wave of private bank loans, still more strain was placed on U.

Poor income distribution among Americans compounded the problem. In the s, this was not the case. Eighty percent of American families had virtually no savings, and only one-half to 1 percent of Americans controlled over a third of the wealth. This scenario meant that there were no new buyers coming into the marketplace, and nowhere for sellers to unload their stock as the speculation came to a close.

In addition, the vast majority of Americans with limited savings lost their accounts as local banks closed, and likewise lost their jobs as investment in business and industry came to a screeching halt. Finally, one of the most important factors in the crash was the contagion effect of panic.

For much of the s, the public felt confident that prosperity would continue forever, and therefore, in a self-fulfilling cycle, the market continued to grow. But once the panic began, it spread quickly and with the same cyclical results; people were worried that the market was going down, they sold their stock, and the market continued to drop.

Historically, markets cycled up and down, and periods of growth were often followed by downturns that corrected themselves. But this time, there was no market correction; rather, the abrupt shock of the crash was followed by an even more devastating depression. Investors, along with the general public, withdrew their money from banks by the thousands, fearing the banks would go under.

The more people pulled out their money in bank runs , the closer the banks came to insolvency. As the financial markets collapsed, hurting the banks that had gambled with their holdings, people began to fear that the money they had in the bank would be lost. This began bank runs across the country, a period of still more panic, where people pulled their money out of banks to keep it hidden at home.

The contagion effect of the crash grew quickly. With investors losing billions of dollars, they invested very little in new or expanded businesses. After the crash, both were hit hard. In November , fewer cars were built than in any other month since November Even before the crash, widespread saturation of the market meant that few Americans bought them, leading to a slowdown.

Afterward, very few could afford them. By , Stutz, Locomobile, Durant, Franklin, Deusenberg, and Pierce-Arrow automobiles, all luxury models, were largely unavailable; production had ground to a halt. They would not be made again until In construction, the drop-off was even more dramatic. It would be another thirty years before a new hotel or theater was built in New York City. The Empire State Building itself stood half empty for years after being completed in The damage to major industries led to, and reflected, limited purchasing by both consumers and businesses.

Even those Americans who continued to make a modest income during the Great Depression lost the drive for conspicuous consumption that they exhibited in the s. People with less money to buy goods could not help businesses grow; in turn, businesses with no market for their products could not hire workers or purchase raw materials.

Employers began to lay off workers. Unemployment tripled, from 1. By mid, the slide into economic chaos had begun but was nowhere near complete. For most Americans, the crash affected daily life in myriad ways. In the immediate aftermath, there was a run on the banks, where citizens took their money out, if they could get it, and hid their savings under mattresses, in bookshelves, or anywhere else they felt was safe. Some went so far as to exchange their dollars for gold and ship it out of the country.

A number of banks failed outright, and others, in their attempts to stay solvent, called in loans that people could not afford to repay. Working-class Americans saw their wages drop: Even Henry Ford, the champion of a high minimum wage, began lowering wages by as much as a dollar a day. Southern cotton planters paid workers only twenty cents for every one hundred pounds of cotton picked, meaning that the strongest picker might earn sixty cents for a fourteen-hour day of work.

Cities struggled to collect property taxes and subsequently laid off teachers and police. The new hardships that people faced were not always immediately apparent; many communities felt the changes but could not necessarily look out their windows and see anything different. They might be found keeping warm by a trashcan bonfire or picking through garbage at dawn, but mostly, they stayed out of public view.

As the effects of the crash continued, however, the results became more evident. Those living in cities grew accustomed to seeing long breadlines of unemployed men waiting for a meal. Companies fired workers and tore down employee housing to avoid paying property taxes. The landscape of the country had changed. As the Great Depression set in, thousands of unemployed men lined up in cities around the country, waiting for a free meal or a hot cup of coffee.

The hardships of the Great Depression threw family life into disarray. Both marriage and birth rates declined in the decade after the crash. The most vulnerable members of society—children, women, minorities, and the working class—struggled the most.

Parents often sent children out to beg for food at restaurants and stores to save themselves from the disgrace of begging. Many children dropped out of school, and even fewer went to college. Childhood, as it had existed in the prosperous twenties, was over. And yet, for many children living in rural areas where the affluence of the previous decade was not fully developed, the Depression was not viewed as a great challenge.

School continued. Play was simple and enjoyed. Families adapted by growing more in gardens, canning, and preserving, wasting little food if any. Home-sewn clothing became the norm as the decade progressed, as did creative methods of shoe repair with cardboard soles. By one estimate, as many as , children moved about the country as vagrants due to familial disintegration. Some wives and mothers sought employment to make ends meet, an undertaking that was often met with strong resistance from husbands and potential employers.

Many men derided and criticized women who worked, feeling that jobs should go to unemployed men. Some campaigned to keep companies from hiring married women, and an increasing number of school districts expanded the long-held practice of banning the hiring of married female teachers. Despite the pushback, women entered the workforce in increasing numbers, from ten million at the start of the Depression to nearly thirteen million by the end of the s.

This increase took place in spite of the twenty-six states that passed a variety of laws to prohibit the employment of married women. Others took jobs as maids and housecleaners, working for those fortunate few who had maintained their wealth. Unsurprisingly, African American men and women experienced unemployment, and the grinding poverty that followed, at double and triple the rates of their white counterparts. By , unemployment among African Americans reached near 50 percent. In rural areas, where large numbers of African Americans continued to live despite the Great Migration of —, depression-era life represented an intensified version of the poverty that they traditionally experienced.

Subsistence farming allowed many African Americans who lost either their land or jobs working for white landholders to survive, but their hardships increased. Life for African Americans in urban settings was equally trying, with blacks and working-class whites living in close proximity and competing for scarce jobs and resources.

Life for all rural Americans was difficult. Farmers largely did not experience the widespread prosperity of the s. Although continued advancements in farming techniques and agricultural machinery led to increased agricultural production, decreasing demand particularly in the previous markets created by World War I steadily drove down commodity prices.

As a result, farmers could barely pay the debt they owed on machinery and land mortgages, and even then could do so only as a result of generous lines of credit from banks. While factory workers may have lost their jobs and savings in the crash, many farmers also lost their homes, due to the thousands of farm foreclosures sought by desperate bankers.

Between and , nearly , family farms disappeared through foreclosure or bankruptcy. Even for those who managed to keep their farms, there was little market for their crops. Unemployed workers had less money to spend on food, and when they did purchase goods, the market excess had driven prices so low that farmers could barely piece together a living.

These boom times were an invitation to risk, fed by capitalist innovation centered around technological inventions, and the general economic boom. Prohibition helped make Americans susceptible, as thugs like Al Capone became millionaires. The average citizen felt few qualms when buying booze from these people, as people crossed the moral line and sold booze to those who were willing to buy.

The grandfather of a friend of mine, for example, made and sold bathtub gin created in his tenement apartment, and he was an honest and religious man. In the s, investors generally did not know that wealthy investors were manipulating the market. For example, the Radio Pool was a particularly notorious scam, in which the price of RCA was manipulated upward.

Those manipulating the price of the stock, took their profits, while the bulk of the shareholders watched as their shares decreased in value. People sometimes lacked sufficient financial literacy to understand the difference between investing in a Ponzi scheme or in a legitimate company. Charles Ponzi claimed to use buying Spanish mail coupons to redeem them for U.

Another example of these schemes was used by Leo Koretz to sell shares in nonexistent Arkansas rice plantations and a logging company with oil supposedly beneath it. He ran his Bayano Syndicate scheme for 20 years, in which he promised high returns long enough to keep his pyramid scheme alive, while he managed to convince many investors to reinvest. There were other schemes, including land speculation to investors, many whom never visited Florida, a sort of money migration to the Sunshine State.

Oil drilling schemes flourished with chartered buses to drive the investors to the oil fields. One particular con merchant, C. Julian, fled the country under a cloud of mail fraud allegations, and committed suicide in China. The proliferation of these schemes caused some industry moguls to worry that these con artists would have an adverse impact on the capitalist systems , as these frauds ate away at legitimate business and undermined public confidence in the market and capitalism.

Eventually, when the Wall Street bubble crashed in , the prosperity funded by these dubious schemes went up in smoke. While investors should invest carefully, stocks are not usually risky investments if investors do their due diligence. This is true worldwide, not just in America. Stocks can be volatile short-term , but long-term stocks can provide a high rate of return.

However, watching the stock market can be nerve-wracking, so investors should take a careful long-term approach, something more easily said than done. Corporate scandals and bubbles are not unique to the s. Since the stock market crash, we had a housing bubble, a crash in , and the flash crashes of and September 24, was the Black Friday when investors unsuccessfully tried to corner the gold market.

During through , stocks crashed, but there was no strategy to avert the disasters. Bonds tanked, owning gold was illegal , and ditto with money in the bank. In retrospect, the government lacked concern in the gold-dollar during the s. Eventually, the government intervened in the early s with taxes, confiscation, and tariffs, and spending increases. Stock market mania helped trigger the Great Depression, but the collapse had many fathers, while the government was reluctant to admit its share of the blame.

What helped cause the collapse of the economic, mainly the stock market bubble, reflects why people continue to invest in the stock market today. This is because the conventional means for savings that kept up with inflation was largely not available. It explains why people will sometimes make somewhat risky investments in every era and we see that during every stock market bubble.

We should not be so smug that we can label the investors in the stock market in s as unsophisticated fools who were there just ripe to be harvested by dishonest financial criminals. We are not much smarter than those who came before us. Many investors bought shares in questionable companies, because the people around them were doing the same thing Group think , and for quite a while they were making significant returns on their investments. I remember the nearly worthless shares in companies my friend's grandfather owned and I recall all the stocks friends held mainly in Canadian cannabis companies for way too long.

After all, they were well-educated with many years in the business world, and yet they lost thousands of dollars. The s was an era long before the Internet, so finding information from Internet resources could not be done. Financial theft continues, but the instruments for con merchants have changed and perhaps gotten more sophisticated.

Bernie Madoff was a modern version of earlier fraudsters and his investors were arguably more sophisticated and better educated than those in the s. In the 21 st century, the criminals fleece their victims crossing interstate borders, and often steal money internationally. Law enforcement and regulatory agencies have surprisingly limited tools as they decide if they have jurisdiction to pursue and prosecute the criminals.

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Throughout the s a long boom took stock prices to peaks never before seen. Stocks on the installment plan, stocks via investment clubs, stocks bought with capital rather than income, stocks on margin. The s were marked by frenetic celebration, amazing stock market returns — and, ultimately, one of the worst crashes and most devastating.