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Causes of the Stock Market Crash?
Thank you! And if you have a good answer, I will be sure to answer your questions as well! :D
- Save The PlanetLv 67 years agoFavorite Answer
The stock market crashed because stock prices were overvalued. People invested in stocks and drove the value up above what they were actually worth. Then when reality set in, the wiser people quickly pulled out all their money before everyone else could. Many wealthy people that had invested in over-inflated stocks lost their money instantly. It happens today still.
Banks invested too much money in the stock market. Modern day banks do the same but now they can only invest a very small amount of their depositors funds because of the Great Depression. The cause of the Great Depression was because banks took the money that people put into their savings accounts and invested it heavily in the stock market. Then there was a thing known as 'Black Friday' (sounds racist if you ask me) where the stock market crashed. Because the stock market crashed, the banks lost all of their money that had been deposited by citizens. People went to the bank to check on their money and discovered that their savings were wiped out.
That was when Congress invented this thing called the FDIC (Federal Depositors Insurance Fund). Since people no longer trusted banks, Congress had to do something to make people trust banks again and to make sure that banks did not invest too heavily in the stock market so that they could not fail and lose peoples savings. Now the money that you save in the bank is insured by our government so if the bank goes under then you do not lose your savings.
Banks still go under. Recently, many banks had made mortgage loans to people who didn't really have the money to pay it back. When the people left their homes because they were being foreclosed, a lot of banks had to close up but nobody lost their savings money because the government paid it back. Now we have new laws that require banks to make sure that they do not give home mortgages to people who cannot afford to pay it back.
The bad mortgages were orchestrated by greedy mortgage lenders. They coordinated with wealthy investors who bought something known as a 'Hedge Fund'. A Hedge Fund is money you invest, kinda like a bet. You are betting that things will go bad. Because wealthy investors knew that many people were about to lose their homes, they invested heavily in hedge funds and when the housing crisis happened in 2008, rich people became richer because of hedge funds. Then they took the money they made in hedge funds and bought up a bunch of the foreclosed homes for pennies on the dollar.
So now the rich people in America are much much richer and the poor people in America are much much poorer. That is why something needs to be done. We had a very bad shopping year this year because people did not have the money to shop. The economy is slowing down because people do not have enough money to pay their bills or to buy the necessities in life. Also, companies used this opportunity to tell their employees that they needed to cut benefits and salaries because the economy was bad. But then the companies continue to report record profits every year so obviously they were not really hurting, they just wanted to pay people less and keep more money for their wealthy investors.
Wealthy people love to claim that poor people are lazy but it is not true. It takes money to make money and if you do not have enough money to pay your bills and buy food and medicine then you cannot save or invest. You cannot afford to buy Christmas gifts and that is what is happening now. People are going without medicine and dentistry because they do not have enough to eat. Most wealthy people are born into wealthy families or marry into a wealthy family. If you are born into a poor family as most people are, then there is little hope you can get out of poverty. Colleges are very very expensive and there aren't many jobs anyway. That is why there is so much talk about what should be done to help the poor in America. Many children go to bed hungry at night and do not have health insurance. President Obama tried to help but only wealthy people can be politicians. The wealthy people have control of our country and they are very greedy so it is going to be awhile before things improve.
- LindaLv 45 years ago
Joe, you make the rest of us from Texas look bad! Where were you in Texas when Bush was here ruining our State? Where were you when Bush caused the markets to crash? You're a poor excuse for a Texan and you're a traitor to the country and God should put McCain into office and ruin your life and the lives of others like you so that those of us who are smart can stand over you laughing at your choice of ignorance when you've lost all your pensions, 401k's and savings and are working at McDonalds and WalMart. Oh, that is if you can get a job and aren't trying to live on that welfare program and begging for that healthcare program.
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- ammianusLv 77 years ago
Greedy banks and financial institutions giving easy credit so as to make quick profits
Lack of government regulation of the financial sector.
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- Anonymous7 years ago
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