The History of the Modern U.S. Stock Market
Ryan Tag
Economic History of the U.S.
10/07/18
Professor Gregory Shrout
The History of the Modern U.S. Stock Market
The Modern U.S. Stock Market
The Modern U.S. Stock market has gone through many periods of ups and downs throughout the years. The History begins with the signing of the Buttonwood Agreement on May 17th, 1792 on Wall Street. This Buttonwood agreement was signed by twenty for stockbrokers from New York City, and with only 5 securities being traded at first, it was a small beginning for a huge marketplace.
Black Thursday
During The 1920s, also known as the Roaring Twenties, Americans had a newfound positive outlook on life. People had money, and many items became more and more attainable for average people due to the introduction of different forms of financing. Advertising was refined, and new forms resulted in increased sales for goods. Financing, while making it easier for many Americans to buy things, caused the average consumer debt to double. This is fine, because everything was going well, and Americans were easily able to pay off all this debt, right? Well, That’s the way it would seem, however with consumers taking on increasing amounts of debt, and the prices or stock and real estate doubling, the economic situation of the United States was getting a bit out of hand. Herbert Hoover was a candidate for the republican party during these times, and after being elected to office it seemed as if everything was fine, and the economy couldn’t be in better shape. Very shortly after, things really took a turn for the worse. The economic situation the United States had on its hands was getting worse at a very rapid pace, with Hoover having an increasingly hard time controlling the worsening state of the economy. The Day that marks the beginnings of the stock market crash is widely known as Black Thursday. On this day, The Market opened at 305.85 and immediately fell 11 percent. Many people believed the market to just be correcting itself, but by Tuesday the very next week, the DOW had reached 230.07. As a result, Major stockholders began selling stocks left and right. These stocks were being sold at such a rapid pace that the system was not able to properly compensate, causing a significant crash in 1929. The entire United States economy was destroyed overnight. Many Banks, Factory’s, and other Large corporations began to close as millions of Americans were laid off and unemployed. “There is no cause to worry. The high tide of prosperity will continue.” Said Andrew W. Mellon, Secretary of the Treasury. Prosperity, however, did not continue, as this crash spiked a decline into the great depression. Aside from just the stock market crash, there were many weaknesses structurally with the American economic system. There were few regulations in place for banks, and no financial security was offered for customers. This caused banks to loan out money unregulated to individuals who took it and invested recklessly in the stock market. This was not a good time for America, and the roaring twenties have ended abruptly.
Federal Insurance
With the entire American financial system on the verge of collapse, something had to be changed in order to prevent these kinds of things from happening. In 1933, The Federal Deposit Insurance Corporation was created as a part of the Glass-Steagall Act, passed by president Franklin D. Roosevelt. The main goal of the FDIC was to prevent bank failure during a great depression. With many banks having invested funds in the stock market, when it crashed people rushed to their banks to withdrawal everything. The stock market crash did end up causing quite a few banks to go out of business. Many depositors panicked and went to withdrawal their money, and proceeded to stuff it away in a safe place, under their mattresses, etc. What this did, however, is take most of the money out of circulation, which in turn made the effects of the great depression much worse. The FDIC would insure checking, saving and other deposit accounts up to 250,000 per account, and this limit was made permanent in 2010 from the Dodd-Frank Wall Street Reform Act. This Federal Insurance Affected the Economy in a Very good way, preventing widespread panic by restoring the people’s confidence in the banking system.
Movements during the Great Depression
After the Stock market Crash, It seemed as if The United States was falling apart. Current President Franklin D. Roosevelt and his new administration attempted to give people hope during the times of poverty, unemployment, and the crumbling economy. The Depression of the 1930’s had a very conservative impact on all of American Society, Teaching people of all social classes the value of economic security, and survival skills during hard times. The Virtues of Democracy were rediscovered, and the decency of ordinary people were celebrated in Roosevelts speeches. New forms of cultural expression came as a result as well, with American Museums where many people created and put their work on display really becoming popular. This was a very creative period for the United states, with arts like theatre becoming more and more popular as well as writing and art.
Conclusion
The roaring 20’s was a time of optimism and joy, where the stock market just seemingly always went up and money seemed never-ending. But, after the crash, many people have come to realize that the stock market was not a game, and was something to be taken seriously. With everyone investing recklessly, no one really thought of the consequences and the possibility of it even crashing. Everything that goes up must come down eventually, right? The great depression caused the creation of the Federal Deposit Insurance Corporation, which helped restore peoples faith in leaving money In the bank, And slowly but surely, the US economy was back in working order.