In Layman's Terms
In Layman's Terms
World War I Victory in 1919
So, back in 1919, the United States won a really big war called World War I against Germany. It was a really devastating war, with millions of soldiers and civilians losing their lives (together around 15 - 16 million people died, 9 million soldiers and 7 million civilians).
After the war was over, Germany was made to sign a treaty called the Treaty of Versailles, which said that Germany was the one who started the war and that they had to pay for the damages caused by the war and lose some of their land.
This victory in the war was a really important moment for the United States. It helped establish the U.S. as a really powerful country in the world, and showed that it could lead other countries on the global stage.
In the 1920s, America saw a lot of progress and fortune. Electricity changed the country and led to new innovations to airplanes, radios (radio in cars was a big deal), and better food. These things became important parts of everyday life. The car industry grew a lot too during this time.
The economy was doing really well, and people were spending a lot of money on things like cars, electronics, and home appliances like fridges and washing machines. They also bought entertainment gadgets like phonographs.
Not just big items, but smaller things were popular too. Women bought many beauty products like makeup. People started using the "Buy Now Pay Later" services that companies offered, which allow them to buy things they wanted right away instead of waiting to save up for them. This meant they could get things they couldn't afford immediately and pay for them little by little over time.
Investing in Liberty Bond & Stocks
People had more money to spend and could get credit easily, so they looked for ways to grow their wealth. Many Americans decided to buy liberty bonds to do this. These bonds were first used by the U.S. government during World War I to help pay for the war. Buying them was seen as a patriotic act. Plus, people who bought the bonds could earn extra money from the interest they got on the bond's value.
This led to a lot of people in America becoming interested in investing. Regular folks saw the chance to grow their wealth by buying liberty bonds, which they thought were safe and dependable.
Bankers on Wall Street noticed this change and saw new chances to do business with more people. Charles Mitchell, who led National City Bank, was one of these bankers. He wanted to sell things like company bonds and stocks to everyday people. Mitchell tried to show that investing in these items could make money and was a good thing to do.
So, buying stocks wasn't just for rich people anymore. By the mid-1920s, over three million Americans had joined the stock market. People thought that anyone could make easy money by investing in stocks.
Everyone felt hopeful and excited about the economy, thinking that the good times would keep going. They believed that investing in the stock market was the key to a secure financial future.
Lots of new investors joined the New York Stock Exchange (NYSE), ready to be part of this growing investment trend. They could buy stocks with borrowed money, called "buying on margin." This was like the "Buy Now, Pay Later" model that people were so familiar with to buy things like appliances, except now they were buying stocks instead of a mattress, for example.
Because of all these new investors, the stock market became very active, and buying and selling reached new highs. By the late 1920s, a huge 90% of stocks were bought on margin, with almost 40 cents of every borrowed dollar used to buy stocks. This showed how excited everyone was about investing. In 1928, the stock market even grew by nearly 50% in just 12 months.
In autumn, things happened on Wall Street that changed American history forever. The stock market had been doing really well for a long time, but it was clear that many stocks were worth more than they should be.
Wall Street's stock ticker was also problematic. Due to lack of technology the stock ticker was falling behind. It took 4 hours for the stock ticker to print all of the stock trades after the market had already closed. So many days it was playing catch up.
On October 24th, 1929, the market experienced a sudden and dramatic drop in prices, causing panic among investors. This day became known as "Black Thursday." No one actually knew what triggered the stock market crash but despite efforts by bankers and government officials to stabilize the market, the selling of stocks continued. On October 29th, 1929, the market suffered its worst day in history, known as "Black Tuesday." During a period of 5 days its estimated that 25 billion dollars worth of personal wealth was loss.
The effects of the crash were felt throughout the country, as businesses closed their doors. The confidence in the U.S. economy sanked, and as a result by 1931 over 2,000 banks failed. Unemployment soared and the economy entered a period of deep recession known as the Great Depression.
The Wall Street Crash of 1929 remains one of the most significant events in American financial history, a cautionary tale of the dangers of unchecked speculation and the importance of financial guidelines.