I try to watch the ABC Evening News each night, and tonight I succeeded. Reporting from across America, Charlie Gibson intoned a phrase I liked: "the economy trumps all." But after a week of steady discussion about the economy, I am filled with concern about America--and Americans.
Back in elementary, middle, and high school, and later in college, I learned a lot about the Stock Market Crash of 1929 and Great Depression that followed. The economic crisis that sunk Americans into a decade of poverty followed years of irresponsible speculative investment in the late 1920s. Hundreds of thousands of Americans put their money into stocks, with a significant number even borrowing money to purchase shares. By August 1929, brokers were routinely lending small investors more than 2/3 of the face value of the stocks they were buying--a neat opportunity called "buying on the margin."
In light of rising sales, the stock prices rose far above their potential earnings, creating an economic bubble (price of stock was greater than its value in earnings) that eventually caused stock prices to fall, and once the selling started, the crash was inevitable. Without government regulation in place to protect our savings, the American economy fell apart.
A closer look at the mind of the American investor of 1929 reveals the weakness of human nature: people saw others investing and building fortunes on paper, and they wanted to do the same. Unfortunately, they couldn't see the flaw of their actions: they were putting their hard-earned money into stocks inflated with value that did not exist. Taken in by greedy brokers, who were looking for more investor dollars but ignorant of the economic bubble they were creating, many Americans lost their money, their homes, their families, and in some cases, their lives.
Americans have done the same thing again, only this time they did it with the housing market, not the stock market. Granted adjustable rate mortgages on homes far above the price they could actually afford, the buyers were simply looking for a good investment that they could flip for a profit. When the adjustable mortgage inevitably adjusted to the true value of the home, few could afford their dream investment. Real estate brokers, few of whom really understood the potential impact of adjustable rate mortgages, used them as a selling point to move houses in a market that just a few years ago was booming.
Is anyone to blame? Maybe human nature and greed. Could we have stopped it? Yes, as a nation, we have the education and the understanding to control the housing market. Did we? No.
Scratch the surface of most Americans and you'll find a rugged individual, a person who believes that he or she knows what best for them and wants the government to stay the hell out of their lives. That worked fine when our population was 2 million, or 5 million, or even 50 million.
Today the U.S. is well over 300 million, and like it or not, we are all in this economy together. When a few of us make mistakes driven by human nature or greed, the rest of us -like it or not-will pay for it. We have reached a time where it IS the government's responsibility to regulate our banking industry, our investment firms, and the markets that keep the American family fed, clothed, educated, working, productive, and satisfied.
After the the Wall Street Crash of 1929, Americans lived through the Great Depression. My parents told me stories of hungry men willing to work for food, of families taken in by other families when their homes were lost, and of terrible tragedies that ruined families. Falling in line after it was too late, the government instituted work relief programs like the WPA, the CCC, and NYA to bring us back.
The end result of the Great Depression, however, was a nation where people recognized the need to support one another, to work together as a community and a nation for the good of all, and to opt for real value in their investments.
On October 29, 2008, it will be 79 years since the Stock Market Crash: perhaps it's time that we be reminded again that we are only human, and that greed will always be America's downfall.
Mrs. B
Back in elementary, middle, and high school, and later in college, I learned a lot about the Stock Market Crash of 1929 and Great Depression that followed. The economic crisis that sunk Americans into a decade of poverty followed years of irresponsible speculative investment in the late 1920s. Hundreds of thousands of Americans put their money into stocks, with a significant number even borrowing money to purchase shares. By August 1929, brokers were routinely lending small investors more than 2/3 of the face value of the stocks they were buying--a neat opportunity called "buying on the margin."
In light of rising sales, the stock prices rose far above their potential earnings, creating an economic bubble (price of stock was greater than its value in earnings) that eventually caused stock prices to fall, and once the selling started, the crash was inevitable. Without government regulation in place to protect our savings, the American economy fell apart.
A closer look at the mind of the American investor of 1929 reveals the weakness of human nature: people saw others investing and building fortunes on paper, and they wanted to do the same. Unfortunately, they couldn't see the flaw of their actions: they were putting their hard-earned money into stocks inflated with value that did not exist. Taken in by greedy brokers, who were looking for more investor dollars but ignorant of the economic bubble they were creating, many Americans lost their money, their homes, their families, and in some cases, their lives.
Americans have done the same thing again, only this time they did it with the housing market, not the stock market. Granted adjustable rate mortgages on homes far above the price they could actually afford, the buyers were simply looking for a good investment that they could flip for a profit. When the adjustable mortgage inevitably adjusted to the true value of the home, few could afford their dream investment. Real estate brokers, few of whom really understood the potential impact of adjustable rate mortgages, used them as a selling point to move houses in a market that just a few years ago was booming.
Is anyone to blame? Maybe human nature and greed. Could we have stopped it? Yes, as a nation, we have the education and the understanding to control the housing market. Did we? No.
Scratch the surface of most Americans and you'll find a rugged individual, a person who believes that he or she knows what best for them and wants the government to stay the hell out of their lives. That worked fine when our population was 2 million, or 5 million, or even 50 million.
Today the U.S. is well over 300 million, and like it or not, we are all in this economy together. When a few of us make mistakes driven by human nature or greed, the rest of us -like it or not-will pay for it. We have reached a time where it IS the government's responsibility to regulate our banking industry, our investment firms, and the markets that keep the American family fed, clothed, educated, working, productive, and satisfied.
After the the Wall Street Crash of 1929, Americans lived through the Great Depression. My parents told me stories of hungry men willing to work for food, of families taken in by other families when their homes were lost, and of terrible tragedies that ruined families. Falling in line after it was too late, the government instituted work relief programs like the WPA, the CCC, and NYA to bring us back.
The end result of the Great Depression, however, was a nation where people recognized the need to support one another, to work together as a community and a nation for the good of all, and to opt for real value in their investments.
On October 29, 2008, it will be 79 years since the Stock Market Crash: perhaps it's time that we be reminded again that we are only human, and that greed will always be America's downfall.
Mrs. B
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