The Effectiveness of the Securities and Exchange
Commission in solving the problems of the Stock Market
Crash of 1929
Mr. A. Thompson
I.S. 143 (athomps5@schools.nyc.gov
The Stock Market Crash of 1929.
What do you think happened when the
stock market crashed?
http://www.livinghistoryfarm.org/farminginthe30s/money_08.html
PPA Step 1: Define the Problem
The Stock Market Crash of 1929.
• An enormous decrease in
stock prices on the stock
exchanges of Wall Street
in late October 1929.
• This crash began the
Great Depression.
PPA Step 2: Gather the Evidence
Evidence of the Stock Market
Crash of 1929
• “When the market finally
closed, 9,212,800 shares
had been sold. The
Times index of 25
industrials fell from
367.42 to 318.29. The
whole list showed
alarming losses, and
margin calls were on their
way to those speculators
who had not already sold
out.”
Leonard, Jonathan Norton, Three Years Down (1944); Allen, Frederick, Lewis, Since
Yesterday: the 30's in America (1972).
PPA Step 3: Identifying the Causes
Causes of the Stock Market Crash of
1929
• Overvalued
Stocks. Some analysts
also maintain stocks were
heavily overbought;
• Low Margin
Requirements. At the
time of the crash, you
needed to put down only
10% cash in order to buy
stocks. If you wanted to
invest $10,000 in stocks,
only $1,000 in cash was
required;
http://rainbowwarrior2005.wordpress.com/2008/10/08/stock-market-historycauses-and-affects/
PPA Step 3: Identifying the Causes
Causes of the Stock Market Crash of
1929
• Interest Rate Hikes. The Fed aggressively
raised interest rates on broker loans.
• Poor Banking Structures. There were few
federal restrictions on start-up capital
requirements for new banks. As a result, many
banks were highly insolvent. When these banks
started to invest heavily in the stock market, the
results proved to be devastating, once the
market started to crash. By 1932, 40% of all
banks in the U.S. had gone out of business.
http://rainbowwarrior2005.wordpress.com/2008/10/08/stock-market-historycauses-and-affects
What policies were created to deal with
the problems of the Great Depression?
• The New Deal: A set of programs and policies
designed to promote economic recovery and
social reform introduced during the 1930s by
President Franklin D. Roosevelt.
http://www.thefreedictionary.com/Roosevelt's+New+Deal
Step 4: Evaluate an Existing Policy
The Securities and Exchange Commission
• Established by the Securities Exchange Act of
1934.
• Regulated stock market and restricted margin
buying.
• Example: If someone purchases more than 5%
of a company's equity, he or she must report to
the SEC within 10 days of the purchase because
of the takeover threats it may cause.
http://home.earthlink.net/~gfeldmeth/chart.newdeal.html
http://www.investopedia.com/terms/s/sec.asp#axzz2KRiQqVMW
PPA Step 5: Develop Solutions
Group task and assignment
Discuss and answer the following questions.
• Was the SEC effective in solving the
problems that resulted in the Stock Market
Crash of 1929?
• How can the SEC be improved?