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Summary: Speculations and more and more borrowing caused the 1929 crash; most of the stocks lost 80% of their value by the year 1933, and the collapse led to a reduction in consumer demand. The government intervened and helped the market stabilize.

Reason: It shows the series of events or a timeline of events.

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Stock Market Crash

1929 - The stock market crash ushered in the Great Depression.

What made the stock market crash? Here's a brief summary.

Capital is the tools needed to produce things of value out of raw materials. Buildings and machines are common examples of capital. A factory is a building with machines for making valued goods. Throughout the twentieth century, most of the capital in the United States was represented by stocks. A corporation owned capital. Ownership of the corporation in turn took the form of shares of stock. Each share of stock represented a proportionate share of the corporation. The stocks were bought and sold on stock exchanges, of which the most important was the New York Stock Exchange located on Wall Street in Manhattan.

Throughout the 1920s a long boom took stock prices to peaks never before seen. From 1920 to 1929 stocks more than quadrupled in value. Many investors became convinced that stocks were a sure thing and borrowed heavily to invest more money in the market.

But in 1929, the bubble burst and stocks started down an even more precipitous cliff. In 1932 and 1933, they hit bottom, down about 80% from their highs in the late 1920s. This had sharp effects on the economy. Demand for goods declined because people felt poor because of their losses in the stock market. New investment could not be financed through the sale of stock, because no one would buy the new stock.

But perhaps the most important effect was chaos in the banking system as banks tried to collect on loans made to stockmarket investors whose holdings were now worth little or nothing at all. Worse, many banks had themselves invested depositors' money in the stockmarket. When word spread that banks' assets contained huge uncollectable loans and almost worthless stock certificates, depositors rushed to withdraw their savings. Unable to raise fresh funds from the Federal Reserve System, banks began failing by the hundreds in 1932 and 1933.

By the inauguration of Franklin D. Roosevelt as president in March 1933, the banking system of the United States had largely ceased to function. Depositors had seen $140 billion disappear when their banks failed. Businesses could not get credit for inventory. Checks could not be used for payments because no one knew which checks were worthless and which were sound.

Roosevelt closed all the banks in the United States for three days - a "bank holiday." Some banks were then cautiously re-opened with strict limits on withdrawals. Eventually, confidence returned to the system and banks were able to perform their economic function again. To prevent similar disasters, the federal government set up the Federal Deposit Insurance Corporation, which eliminated the rationale for bank "runs" - to get one's money before the bank "runs out." Backed by the FDIC, the bank could fail and go out of business, but then the government would reimburse depositors. Another crucial mechanism insulated commercial banks from stock market panics by banning banks from investing depositors' money in stocks.

Related Links:

Program Segment 6

Interviews:
Kennedy
Brinkley

<< Back to Timeline

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The First Measured Century: Timeline: Events - Stock Market Crash

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Stock Market Crash 1929 - The stock market crash ushered in the Great Depression. What made the stock market crash? Here's a brief summary. Capital is the tools needed to produce things of value out of raw materials. Buildings and machines are common examples of capital.

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Summary: After the 2000 dot-com crash, The Federal Reserve. lowered rates to encourage borrowing and spending, which helped the economy to get back up. but low rates made people lose interest in bonds and savings, pushing the investors toward real estate. Banks capitalized by combining mortgages into investments, so they issued more and more risky subprime mortgages. When people defaulted on loans, housing prices collapsed, so banks had assets with little to no value which caused the 2008 financial crisis.

Reason: The video is short and crisp and explains it in layman's terms.

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For many, the stock market is something that they only hear about, but for some, it is their entire lives, they are just some virtual numbers, but they cause such a butterfly effect, causing the economy to sink.

How one small instance can ripple into something so huge.

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Summary: This image is of the 2008 stock market crash, and it shows how it can impact an individual, and how some numbers can shatter someone's world.

Reason: This image shows how some numbers virtually can change entire lives because of the money that no one can even touch.

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summary: This image shows how devastating a stock market crash can be for people and how so many lives can be ruined.

Reason: The reason I selected this is because of how emotional this image feels.

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Summary: The struggle between optimism (bulls) and pessimism (bears) is what actually drives the stock market, and crowd psychology plays a major role in market trends. Herd behaviour, fueled by emotions like fear and greed, is what leads to bubbles or panic-driven sell-offs, causing market crashes. Human psychology drives the ups and downs of the stock market.

Reason: It important to understand how human behaviour drives the stock market.

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How the Power of the Masses Drives the Market

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Market psychology is an undeniably powerful force. Find out what you can do about it.

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Summary: The stock market is very volatile now more than ever due to so many political changes globally, the website shows how to prepare for another potential crash. Investors should stay focused on long-term goals, diversify portfolios, avoid impulsive actions, buy the dip, remain calm and plan ahead.

Reason: The website prepares us for potential crashes and helps us to be ready and cautious.

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One minute, the market's hitting record highs. The next - blammo - it can be in the throes of a stock market crash.

Is the stock market crashing?

Higher-than-expected inflation numbers - and fears of sharp interest rate increases to curtail inflation - caused another downturn Sept. 13. The Dow fell more than 3.5% that day, the S&P 500 fell more than 4%, and the tech-heavy NASDAQ-100 index fell more than 5.5%. Markets continued to drift downward for several more days.

What is a stock market crash?

While there's no specific number that indicates a crash, here's a bit of context. The S&P 500 stock index typically changes between -1% and 1% on any given day. Anything outside these parameters could be considered an active day on the stock market - for better or for worse.

If the S&P 500 drops 7% in a single day, trading may be halted for 15 minutes. This has only happened a handful of times in the market's history, and indeed marks a very bad day on Wall Street. A crash is marked by a sharp and sudden drop in stock prices, usually following an uptrend in the stock market, also known as a bull market.

Stock market crashes in history

Even though the stock market has its roller-coaster moments, the reality is that stock market crashes aren't that common. A few of the major U.S. stock market crashes of the past hundred years include:

1929: The stock market plunged in response to a contracting economy and investor panic, marking the onset of the Great Depression. The market bottomed out in 1932, more than 80% below peak prices, and took over two decades to recover.

1987: The market plunged 25% in response to market decline, investor panic and early computerized trading gone awry, on a day known as Black Monday. However, the market recovered within two years, and the Securities and Exchange Commission implemented trading curbs and circuit breakers to prevent panic selloffs.

2000: Following a surge of investing and speculation in internet-related ventures during the 1990s, the Dot-Com Bubble burst in March 2000. The S&P 500 dropped nearly 50% and took seven years to recover.

2008: In response to the housing bubble and subprime mortgage crisis, the S&P 500 lost nearly half its value and took two years to recover.

2020: As COVID-19 spread globally in February 2020, the market fell by over 30% in a little over a month. But by August 2020, the market had already rebounded, taking six months to recover.

Here's a look at what the S&P 500 is doing today compared with the previous trading day.

Stock market data may be delayed up to 20 minutes, and is intended solely for informational purposes, not for trading purposes.

If you have a long investment timeline and are properly diversified, it's often best to ride out the downturns. And understanding that a crash could happen means you can plan for it and react thoughtfully. Here's a five-step game plan for what to do when the market crashes.

A fear-driven reaction to a temporary slump isn't a good reason to dump an investment. But if you look back at your original stock research notes, you may find some good reasons to sell.

During a market downturn, this document can prevent you from tossing a perfectly good long-term investment from your portfolio just because it had a bad day. On the flip side, it also provides clear-headed reasons to part ways with a stock.

Ideally, before diving into stocks, you gauged your risk tolerance , or how much volatility you're willing to stomach in exchange for higher potential returns. Investing in the stock market is inherently risky, but what makes for winning long-term returns is the ability to ride out the unpleasantness and remain invested for the eventual recovery, which, historically speaking, is always on the horizon.

If you skipped this step and are only now wondering how aligned your investments are to your temperament, that's OK. Measuring your actual reactions during market agita will provide valuable data for the future. Just keep in mind that your answers may be biased based on the market's most recent activity.

If you've gone with a "set it and forget it" strategy - like investing in a target-date retirement fund , as many 401(k) plans allow you to do, or using a robo-advisor - diversification already is built-in. In this case, it's best to sit tight and trust that your portfolio is ready to ride out the storm. You'll still experience some painful short-term jolts, but this will help you avoid losses from which your portfolio can't recover.

" Seeking a safe investment option? Consider these low-risk ways to grow your money .

Market dips can also be a buying opportunity. Think of it as buying stocks on sale when the market crashes. The trick is to be ready for the fall and willing to commit some cash to snap up investments whose prices are dropping.

Here's how to tell if you might be ready to buy the dip: You already have an emergency fund, you've allocated money for retirement and you have cash available for everyday expenses. You've set aside some cash so you're ready for a flash sale when disaster strikes, and you keep a running wishlist of individual stocks you would like to own.

If you do buy the dip, you probably won't catch the stock at its low, but that's fine. The point is to be opportunistic on investments you think have good long-term potential.

For long-term investors, a market downturn can simply mean stocks and other investments are on sale. If you're not already investing, you can take advantage with one of our picks for the best investment accounts .

Being an investor is rewarding when the stock market's on a tear and your portfolio is going up in value. But when times get tough, self-doubt and ill-advised tactics can take root. Even the most confident saver-investor can fall victim to harmful short-term thinking. Don't let self-doubt sabotage your financial plans.

When the stock market declines, it can be difficult to watch your portfolio's value shrink and do nothing about it. It can be especially hard to watch your portfolio shrink in a year when you might have gotten sick, grieved, or lost or changed jobs due to the COVID-19 pandemic. It's normal to feel pessimistic after a crash, but if you're investing for the long term, doing nothing is often the best course.

If you plan to reenter the market at a sunnier time, you'll almost certainly pay more for the privilege and sacrifice part (if not all) of the gains from the rebound.

Watching your carefully curated portfolio take some unpleasant dips can be painful. But making moves for future-you could help offset some of that discomfort. Financial planners often point out that market declines can be good timing for Roth conversions. Investors can take stock of the depreciated assets in their traditional IRA and transfer some of that money into a Roth IRA. Once the market begins to recover, you can happily watch those migrated assets grow tax-free.

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What to Do During a Stock Market Crash - NerdWallet

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One minute, the market's hitting record highs. The next - blammo - it can be in the throes of a stock market crash. Is the stock market crashing? Higher-than-expected inflation numbers - and fears of sharp interest rate increases to curtail inflation - caused another downturn Sept. 13.

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Summary: Another Black Monday happened on 19 October 1987 the international stock market collapsed, with the DOW dipping to 22.6%, this is the largest 1-day drop ever. A swift market growth was one of the contributing factors, and the widespread use of insurance portfolios was another factor that caused it. The US Federal Reserve had to quickly help stabilize the market.

Reason: The website is easy to understand and explains everything sequentially.

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The first contemporary global financial crisis unfolded in the autumn of 1987 on a day known infamously as "Black Monday." A chain reaction of market distress sent global stock exchanges plummeting in a matter of hours. In the United States, the Dow Jones Industrial Average (DJIA) dropped 22.6 percent in a single trading session, a loss that remains the largest one-day stock market decline in history. At the time, it also marked the sharpest market downturn in the United States since the Great Depression.

The Black Monday events served to underscore the concept of "globalization," which was still quite new at the time, by demonstrating the unprecedented extent to which financial markets worldwide had become intertwined and technologically interconnected. Black Monday led to a number of noteworthy reforms, including exchanges developing provisions to pause trading temporarily in the event of rapid market sell-offs. In addition, the Federal Reserve's response set a precedent for the central bank's use of "liquidity" to stem financial crises.

Events Leading Up to the Crash

Stock markets raced upward during the first half of 1987. By late August, the DJIA had gained 44 percent in a matter of seven months, stoking concerns of an asset bubble. In mid-October, a storm cloud of news reports undermined investor confidence and led to additional volatility in markets. The federal government disclosed a larger-than-expected trade deficit and the dollar fell in value. The markets began to unravel, foreshadowing the record losses that would develop a week later. Beginning on October 14, a number of markets began incurring large daily losses. On October 16, the rolling sell-offs coincided with an event known as "triple witching," which describes the circumstances when monthly expirations of options and futures contracts occurred on the same day. By the end of the trading day on October 16, which was a Friday, the DJIA had lost 4.6 percent. The weekend trading break offered only a brief reprieve; Treasury Secretary James Baker on Saturday, October 17, publicly threatened to de-value the US dollar in order to narrow the nation's widening trade deficit.

Even before US markets opened for trading on Monday morning, stock markets in and around Asia began plunging. Additional investors moved to liquidate positions, and the number of sell orders vastly outnumbered willing buyers near previous prices, creating a cascade in stock markets. In the most severe case, New Zealand's stock market fell 60 percent. Traders reported racing each other to the pits to sell. In the United States, the DJIA crashed at the opening bell and eventually finished down 508 points, or 22.6 percent. "There is so much psychological togetherness that seems to have worked both on the up side and on the down side," Andrew Grove, chief executive of technology company Intel Corp., said in an interview. "It's a little like a theater where someone yells 'Fire!'" (Glaberson 1987).

"It felt really scary," said Thomas Thrall, a senior professional at the Federal Reserve Bank of Chicago, who was then a trader at the Chicago Mercantile Exchange. "People started to understand the interconnectedness of markets around the globe." For the first time, investors could watch on live television as a financial crisis spread market to market - in much the same way viruses move through human populations and computer networks.

"You learn how interrelated we all are and how small we are," said Donald Marron, chairman of Paine Webber, at the time a prominent investment firm. "Nowhere is that exemplified more than people staying up all night to watch the Japanese market to get a feeling for what might happen in the next session of the New York market" (Cowen 1987).

What Caused Black Monday

In the aftermath of the Black Monday events, regulators and economists identified a handful of likely causes: In the preceding years, international investors had become increasingly active in US markets, accounting for some of the rapid pre-crisis appreciation in stock prices. In addition, a new product from US investment firms, known as "portfolio insurance," had become very popular. It included extensive use of options and derivatives and accelerated the crash's pace as initial losses led to further rounds of selling.

A number of structural flaws in the market exacerbated the Black Monday losses; in the years that followed, regulators would address these structural flaws with reforms. At the time of the crisis, stock, options, and futures markets used different timelines for the clearing and settlements of trades, creating the potential for negative trading account balances and, by extension, forced liquidations. Additionally, securities exchanges had been powerless to intervene in the face of large-volume selling and rapid market declines. After Black Monday, regulators overhauled trade-clearing protocols to bring uniformity to all prominent market products. They also developed new rules, known as circuit breakers, allowing exchanges to halt trading temporarily in instances of exceptionally large price declines. For example, under current rules, the New York Stock Exchange will temporarily halt trading when the S&P 500 stock index declines 7 percent, 13 percent, and 20 percent in order to provide investors "the ability to make informed choices during periods of high market volatility." In the wake of the Black Monday episode, risk managers also recalibrated the way they valued options.

The Fed's Response

In a statement on October 20, 1987, Fed Chairman Alan Greenspan said, "The Federal Reserve, consistent with its responsibilities as the Nation's central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system" (Carlson 2006, 10). Behind the scenes, the Fed encouraged banks to continue to lend on their usual terms. Ben Bernanke, writing in 1990, noted that "making these loans must have been a money-losing strategy from the point of view of the banks (and the Fed); otherwise, Fed persuasion would not have been needed. But lending was a good strategy for the preservation of the system as a whole" (Bernanke 1990). According to Bernanke, the 10 largest New York banks nearly doubled their lending to securities firms during the week of October 19 even though discount window borrowings didn't themselves increase (Garcia 1989).

Some experts argue the Fed's response to Black Monday ushered in a new era of investor confidence in the central bank's ability to calm severe market downturns. Unlike many prior financial crises, the sharp losses stemming from Black Monday were not followed by an economic recession or a banking crisis. Former Fed Vice Chairman Donald Kohn said, "Unlike previous financial crises, the 1987 stock market decline was not associated with a deposit run or any other problem in the banking sector" (Kohn 2006). On the other hand, some argue that the Fed's response set a precedent that had the potential to exacerbate moral hazard (Cecchetti and Disyatat 2010).

Stock markets quickly recovered a majority of their Black Monday losses. In just two trading sessions, the DJIA gained back 288 points, or 57 percent, of the total Black Monday downturn. Less than two years later, US stock markets surpassed their pre-crash highs.

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                      by 
Donald Bernhardt                 and 
Marshall Eckblad

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The first contemporary global financial crisis unfolded on October 19, 1987, a day known as "Black Monday," when the Dow Jones Industrial Average dropped 22.6 percent.

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Summary: In the video Warren Buffet a seasoned and famous investor talks about the 2008 financial crisis he explains that the cause of the crisis was the housing bubble. When the bubble burst, it resulted in panic, which made the market fall and collapse, this affected millions of people.

The U.S. government had to step in and bail out many institutions to help the economy; this has led to economic hardships and many lasting effects.

Reason: The reason I chose this video, is that the explanation is made by the legend Warren Buffet.

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Warren Buffett Explains the 2008 Financial Crisis

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Summary: The Wall Street Crash of 1929 was the starting point of the Great Depression, the cause of this crash was risky financial practices, which included buying on margin. During the late 1920s, the stock market was at its peak and going high because anyone and everyone invested in great numbers, some even took loans to invest. But, due to widespread panic and overburden on the market, people started selling due to panic, and on October 24, 1929 which is known as Black Thursday, which resulted in a continuous fall and as a result, the market fell 23% in two days. This led to a lot of unemployment and loss of confidence in people, the ripples of the crash can still be felt to date.

Reason: The way the video dives into the crash of 1929 using the animation makes it more interesting to learn and understand.

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The 1929 Stock Market Crash - Black Thursday - Extra History

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Summary: The 2008 Financial Crisis was an economic meltdown, which was caused due to the crisis in the U.S. housing bubble. They started giving risky loans, such as subprime mortgages and collateralized debt obligations and the sale of mortgage-backed securities that were rated as safe investments. As borrowers defaulted on the loan payments, housing prices fell down, which caused a series of financial failures for many institutions. The crisis exposed many things, which included issues like moral risks, unnecessary taking of risk, and non-regulation. In response to this, the government implemented many emergency measures, including the Troubled Asset Relief Program, stimulus packages, and financial reforms under the Dodd-Frank Act, to stabilize the economy and prevent any future crises.

Reason: I chose this video because of the way the video is explained by the narrators, it very easy to understand and follow.

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How it Happened - The 2008 Financial Crisis: Crash Course Economics #12

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On my wall, we will learn about the stock market and financial collapses. we will go into some detail about the causes and effects of stock market collapses.