Fear sells. Few groups know that better than the media.
News groups seem to be in a contest to outdo each other by means of the next grim prediction and headline.
A news organization recently went as extreme to refer to the economy as teetering on a Great Depression.
Let’s put the record straight.
Historians refer to the date of October 24, 1929 as Black Thursday. On this day, people began getting rid of their stocks as quickly as they could. Sell orders swamped market exchanges and the bull market unexpectedly shifted to a bear market.
Bank deposits were uninsured and as a result as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, stopped being as ready to make new loans. Bankers were reportedly urging joined interests to buy stocks at current levels. In addition to banking support, considerable buying was reported from investment trusts, utility operators, big individual investors, and a few smaller investors.
Black Tuesday - October 29th, 1929 - is that date that a large amount of historians agree gave the last blow to the Roaring 20s and was the starting time of the Great Depression. On Black Tuesday, a record 16.4 million shares changed hands.
Black Tuesday marked the launch of the Great Depression, a time of economic hardship in the United States lasting from 1929 to 1939. On Black Tuesday the Dow Jones Industrial Average lost nearly 12% of its value after having lost almost 13% the preceding day on Black Monday. The Great Depression contributed to the formation of a large amount of regulation still in force nowadays.
Stocks started to drop sharply, leading to more dumping. Stock traders could not pay the interest on their margin accounts causing the banks which had loaned the money to go out of business. Stock prices dropped to new lows. All through the day, Seattle stock exchanges and local stockbroker’s offices were heavily packed with stressed stockholders witnessing the crash. Stock prices were run up to very high levels prior to Black Thursday, which everybody knew (so we are told) were unsustainable. It also was the first time in investing history that masses of stock traders were allowed to borrow on margin in order to purchase stocks.
Stocks dropped so much, that at numerous times during the day no buyers were available at any price. Stocks lost practically $16 billion during the month of October or 18% of the beginning of the month value. Twenty-nine utility companies lost $5.1 billion in the month.
Four Particulars Media Loves To Overlook About Why There Will Be No Great Depression
1 - Bank account deposits are insured. In actuality, one of the first things President George Bush did at the beginning of the slump was to increase the amount your bank account is insured. People will never just lose all their money for the reason that a bank fails like they did in the Great Depression.
2 - Margin accounts are now regulated. There are margin call restrictions now that prevent extreme risk in the stock market by regular stock traders. Banks limit margin borrowing. A person has to fill out a special application for a margin account and show some knowledge of trading first.
3 - Banks that are large are not allowed to fail as they were in the Great Depression. Government action saved all the biggest banks from failure.
4 - The stock market is not permitted to go down too much in a given period of time. Trading halts or breaks are imposed in times of panic dumping like right after 911. Furthermore breaks are placed on SHORT selling like how the Securities and Exchange Commission briefly restricted short-selling on more than 790 financial stocks on September 19th, 2008.
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Tags: finance, investing, investor, stock market, stock trading