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Recommended: Reasons for the stock market crash of 1929

Khaled Bitar

What were the causes of the 1929 stock market crash and the 1987 stock market crash? What are the differences between the causes?

In the 1920s stock was first issued by companies. Companies issued stock after they went public in order to make money. When traders buy stock, they were buying from the company and a stake in the company.
On October 24, 1929, (a.k.a. Black Thursday) the stock market fell 9% and five days later the market fell an unprecedented 17.3%. About 29 million shares of stock changed owners causing, at the time, the biggest stock market crash in the history of the United States.
In the decade before the crash, America was thriving and production was soaring. The GNP increased by 40% and average income grew 30% throughout the decade. There was an abnormally high level of investment and traders were overwhelmed with confidence.
When the stock market crashed on Black Thursday, traders were still confident because of President Hoover’s declaration that a recovery was imminent.
Despite the general optimism, the market crashed again causing the great depression. The effects were devastating. Over the next three years, the unemployment rate rose to 13.6 million people and GNP decreased 45 million dollars.
There are many causes to the 1929 stock market crash including speculation, WWI, Foreign investment, and a scandal that could have played a minor role.
The 1929 stock market was a bull market fueled by speculation. Speculation inflated stock prices beyond what they were worth because of the large amount of traders. Speculation is when traders think that a stock has much more value and potential then it really does. Traders would buy a stock that they think is thriving and when they realize that the company is losing money, they sell causing the market to decrease. (i.e. people investing in ebay and then selling after seeing ebay’s earnings.)
Many investors were not very experienced and they believed that whenever their stock went down, they felt selling was the best option which fueled the crash even further.
Because of the thriving market, many loaned money from banks and invested in the stock market. When it crashed, they could not pay back the loans and the banks lost money. The market misled the banks as they thought loaning traders money would be very lucrative.

The Federal Reserve was a cause of the 1929 stock market crash because it essentially owned the government and fueled the speculation.

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