Name: Class: U.S. History 2 Date:. Mr. Wallace. 1. is buying stocks with loans from brokers. (Buying on margin/buying short)

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1 Name: Class: U.S. History 2 Date:. Mr. Wallace Vocabulary Builder Section 1 DIRECTIONS: Read each sentence and fill in the blank with the term in the term pair that best completes the sentence. 1. is buying stocks with loans from brokers. (Buying on margin/buying short) 2. The is the total value of goods and services produced in a nation. (gross national product/goods and service index) 3. While the sell-offs of earlier days had affected mainly the stocks of second-rate businesses, collapse, on October 29, 1929, affected the value of even strong companies stocks. (Bloody Monday s/black Tuesday s) 4. The is the central bank of the United States. (Federal Reserve/United States Treasury) DIRECTIONS: On the line provided before each statement, write T if a statement is true and F if a statement is false. If the statement is false, write the correct term on the line after each sentence that makes the sentence a true statement. 5. Buying short contributed to the rise of stock market prices throughout much of the 1920s because the practice allowed many people to buy stocks with very little of their own money. 6. In the latter part of the 1920s the Federal Reserve decided to make it more difficult and costly for stock brokers to offer loans to investors. 7. Bloody Monday was the single worst day of the 1929 stock market crash. 8. Between 1922 and 1928, America s gross national product rose an impressive 40 percent. 9. Buying on margin is a specific way of purchasing stocks. 1

2 Daily Bellringer Chapter 21, Section 1 Test What You Know The following questions will test your background knowledge about the United States as the Great Depression began. You will learn more about these topics in Chapter 21, Section Why did so many ordinary Americans begin investing in stocks during the 1920s? 2. What was the Federal Reserve? 3. What was Black Tuesday? Preview Section 1 The Inside Story How did Americans behave on the eve of disaster? For many Americans in the 1920s, it seemed like making money on Wall Street was a sure thing. As stock prices steadily rose, it was easy to ignore the warning signs in fall of The economy had begun to slump. Consumers weren t buying as much. Products were piling up on the factory floor. On Thursday, October 24, rumors of trouble reached Wall Street. By the end of the day, the value of the stocks traded on the New York Stock Exchange had plunged by four billion dollars. Years of investment gains were wiped out in a few hours. 1. What economic warning signs began to appear in the fall of 1929? 2. Why do you think the economic warning signs were ignored? Review Answers: 1. They wanted to get rich off the rise of stock prices fueled by the robust economy. 2. the U.S. central bank; 3. October 29, 1929, the worst single-day sell-off during the stock market crash Preview Answers: 1. the economy had begun to slump, people weren t buying as much, products were piling up; 2. possible answer People didn t want to believe that the economic good times were coming to an end.

Name: Class: U.S. History 2 Date:. Mr. Wallace Biography Jesse Livermore 1877 1940 WHY HE MADE HISTORY Jesse Livermore was one of the most successful stock market traders of all time.

As you read the biography below, consider Jesse Livermore s approach to trading stock. Would you say Jesse Livermore was greedy? Is the buying and selling of stock simply gambling?

But he is usually remembered for the fact that during the stock market crash of 1929 he made a fortune of $100 million, worth roughly $3 billion today.

3 Name: Class: U.S. History 2 Date:. Mr. Wallace Biography Jesse Livermore WHY HE MADE HISTORY Jesse Livermore was one of the most successful stock market traders of all time. His idea was to sell stock quickly after its price rose. In this way he actually made a fortune in 1929, when so many other people were losing everything they owned. As you read the biography below, consider Jesse Livermore s approach to trading stock. Would you say Jesse Livermore was greedy? Is the buying and selling of stock simply gambling? What can we learn from a person who made and lost so much money? Bettmann/CORBIS Jesse Livermore made and lost four fortunes. But he is usually remembered for the fact that during the stock market crash of 1929 he made a fortune of $100 million, worth roughly $3 billion today. Like so many of the self-made rich men of the early twentieth century, Jesse Livermore left home early, in his mid teens. He took with him very little money and a great deal of ambition. He got a job in a brokerage house, where he quickly learned to read the information about stock sales that was coming off the ticker tape machines. With this knowledge and the pay he was earning, he started to buy stock in the bucket shops of Boston and New York. Bucket shops were operations that sold stock outside the legal world of reputable brokerage houses and stock exchanges. These operations allowed buyers to purchase stock with very little money down. Young Jesse s idea was to buy a stock when it was cheap and sell that stock quickly if it rose in price. Eventually Livermore made so much money in these places that he was banned from them. Then he turned to the world of Wall Street, where he also thrived. To Jesse Livermore, the stock market was a subject for deep, intense study. Although he came up with rules for what worked and what did not work in the stock market, his belief was that stock speculation was more of an art than a science. Nevertheless, Livermore devoted much hard work to analyzing the market and studying various theories of speculation. He learned from his mistakes. One of the lessons he learned was not to keep holding on to stocks waiting for their prices to go higher and higher. Once he made enough money for his investment, Livermore sold his stock and moved on. He finally came to believe that psychology plays an important role in the stock market. He wrote, Wall Street never changes. The pockets change, the stocks change, but Wall 4

4 Name: Class: U.S. History 2 Date:. Mr. Wallace Biography Street never changes because human nature never changes. Livermore believed people acted in the stock market out of greed, hope, fear, and ignorance. People who expected to get rich quickly, he said, should not be in the stock market. Livermore s money bought a life that only the richest could afford. Even after the stock market crash of 1929, he and his family maintained several fully staffed mansions around the world. They had yachts, jewels, and fashionable clothing. They traveled in luxury. Their home on New York s West Side looked out on Central Park, but Livermore also kept one complete floor in a luxury building on the East Side so his wife, Dorothea, could change clothes no matter which side of town she was on. Livermore certainly enjoyed his riches, but he also showed he had strong principles. On three occasions when he had so much debt that he had to declare bankruptcy, instead of walking away from the debt, as he was legally allowed to do, he repaid in full all those people he owed. But all was not perfect. For most of his life, Livermore suffered from periods of deep mental depression, often followed by great good spirits until the next bout of depression. (Today some speculate that he may have suffered from bipolar disorder, a now-treatable condition thought to be caused by a chemical imbalance in the brain.) In 1940, with another bankruptcy on its way, he took his own life. It was a tragic ending to a colorful life. WHAT DID YOU LEARN? 1. Identify: How can you tell that Livermore was not one of those people who traded stock in order to get rich quick? 2. Analyze: Review the As You Read section at the beginning of this biography. In 1929 Jesse Livermore was among the very few to make money in the stock market; the great majority of investors lost money. After learning about Livermore s successes, why do you think so many others failed? 5

Name Class Date Section 1 MAIN IDEA The stock market crash of 1929 revealed weaknesses in the American economy and helped trigger a spreading economic crisis.

5 Name Class Date Section 1 MAIN IDEA The stock market crash of 1929 revealed weaknesses in the American economy and helped trigger a spreading economic crisis. Key Terms and People gross national product the total value of all goods and services produced in a nation Herbert Hoover Republican president elected in 1928 buying on margin buying stocks with loans from stockbrokers Federal Reserve System the nation s central bank Black Tuesday October 29, 1929 the worst day of the stock market crash Section Summary AN APPEARANCE OF PROSPERITY Between 1922 and 1928 business boomed, and the U.S. gross national product grew quickly. Gross national product is the value of goods and services produced in the nation. Unemployment was low, and many people now felt wealthy. However, farmers and certain other workers did not prosper. Stocks are bought and sold in the stock market. A share of stock is a share of ownership in a company. As business boomed, the stock market rose sharply. The value of the stocks sold on the stock market increased by four times between 1920 and Ordinary Americans began to buy stocks. Republican presidents Harding and Coolidge both favored business growth, and most Americans agreed with this policy. Coolidge decided not to run in the 1928 elections. His replacement, former secretary of commerce Herbert Hoover, won easily. Which groups did not prosper during the 1920s? What is a share of stock? ECONOMIC WEAKNESSES In spite of the boom, there were still problems in the economy. The wealthiest people saw their incomes grow sharply, but the average worker saw only small gains. Rising prices wiped out increases in wages, especially for farmers and coal miners. By percent of the nation s families did not earn enough for a good standard of living. Circle the percent of people who did not earn enough to have a good standard of living in Interactive Reader and Study Guide

6 Name Class Date Section 1 Many new goods were introduced in the 1920s, and people often bought them on credit. By the end of the 1920s, people had used up their credit. Spending dropped sharply, and warehouses filled with products that no one could afford to buy. Stockbrokers loaned people money to buy stocks. This was called buying on margin. This was very risky. If the value of the stock dropped, people could not pay back their loans and lost the money they had put in. The Federal Reserve System is our nation s central bank. It took steps to reduce buying on margin but was only partly successful. What caused spending to drop sharply at the end of the 1920s? THE STOCK MARKET CRASHES Rumors started that big investors were going to pull their money out of the stock market. This caused many to sell their stock. There were many sellers and not many buyers, so stock prices fell. Some leading bankers bought stocks, trying to prop up the market. On October 29, 1929, the market collapsed. This day became known as Black Tuesday. Why did stock prices fall? THE EFFECTS OF THE CRASH Many investors were ruined. Those who had bought on margin could not pay back their loans. Many banks also lost money that they had loaned to businesses and to stockbrokers. Frightened people rushed to take their money out of the banks. Businesses were forced to lay off workers. With no income, people could not buy things, so spending and sales dropped further. The trouble spread to Europe because America had been Europe s banker. World trade dropped, which made everything worse. CHALLENGE ACTIVITY Critical Thinking: Evaluate Write two paragraphs evaluating how the two weaknesses of overuse of credit and buying on margin caused the stock market crash to weaken the entire economy. 79 Interactive Reader and Study Guide

The Great Crash Ch 21-1

The Great Crash Ch 21-1 The Main Idea The stock market crash of 1929 revealed weaknesses in the American economy and trigger a spreading economic crisis. Learning Goal/Content Statement Content Statement