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STOCKS
Finance: the management of money
Stock: ownership of a small piece
(share) of a company
Advantage
The company selling stock is able to raise
money needed for the business
The person buying the stock makes
money as long as the stock’s value goes
up
Dividend: profits made by stockholders

-
-
Disadvantage
 The Company is selling off pieces of
ownership to other people
 This ownership gives stockholders a part
in the major decision making about the
company
 Stockholders loose money if the company
is not doing well

Stock Prices Affect
on the Economy…..
1. Consumption:
 --Increase means shareholders are making
money
 --Increased wealth leads to increased
consumption
 --Decrease in prices means people have
less money and buy less

2. Investments
 --Increase in price means the value of the
corporation has increased
 --When the corporation is more valuable,
more people invest and business expands
 --Decrease in price means the value of
the company decreases
 --Could lead to lost jobs and possible the
company might close

3. Expectations
 --When prices increase, investors feel
optimistic about the future of the
economy
 --Optimism may lead to more spending
and production
 --When prices fall, pessimism can lead to
not spending and slow down in
production

4. Prices = Indicator of Economic Activity
 --Increases in prices = rise in GDP and
economic expansion
 --Decreases = declining GDP and
recession

Recession: a temporary depression in
economic activity or prosperity
 1. loss of jobs
 2. businesses close
 3. less money being spent

New York Stock Exchange
Stock Market Crash

Sudden dramatic decline of stock prices
across a significant cross-section of the
stock market resulting in a significant loss
of paper wealth
Stock Market Crash of 1921
The 1920’s was a
“technological golden age”
 Radio, automobiles, aviation, telephone
and the power grid
 1929, 2 out of every 5 dollars a bank
loaned were used to purchase stocks

Dow Jones Industrial Average rose from a
value of 63.9 in 1921 to 381.2 in 1929
 Then the market began experiencing a
series of price declines
 The declines fed investor anxiety
 In the last hour of trading on Thursday,
Oct. 23, 1929, stock prices suddenly
plummeted

Dramatic Drop in Prices
“Black Tuesday” 10/29/1929

Dow Jones fell 38 points in 1 day

Because of the time period and
information was not easily available, this
led to more fear and panic

Thirteen million shares changed hands —
the highest daily volume in the exchange's
history at that point — and

As the story goes, the opening bell was never heard
on Black Tuesday because the shouts of "Sell! Sell!
Sell!" drowned it out.

In the first thirty minutes, 3 million shares changed
hands and with them, another $2 million disappeared
into thin air. Phone lines clogged. The volume of
Western Union telegrams traveling across the
country tripled.
Stock Brokers of the 1920s

Because of limited information like
rumors of investors jumping out of
buildings spread through Wall Street;
although they weren't true, they drove
the prices down further

When the market closed at 3 p.m., more
than 16.4 million shares had changed
hands, using 15,000 miles of ticker tape
paper.

In total, $25 billion — some $319 billion in
today's dollars — was lost in the 1929 crash

World War II helped pull the country out of
a Depression by the early 1940s, the stock
market wouldn't recover to its pre-crash
numbers until 1954

By July of 1932, the Dow Jones had lost
89% of its value which resulted in the
Great Depression

The Great Depression is recognized as
the worst economic crisis of modern
times
The Great Recession….

The late-2000s is considered by many
economists to be the worst financial crisis
since the Great Depression
It resulted in:
1.
Collapse of large financial institutions
2.
Bailout of banks by the federal
government
3. Downturns in stock markets around the
world
Job seekers line up to register at a City of Miami job fair in Miami, Tuesday, Jan.
26, 2010. Florida's unemployment rate hit 11.8 percent, the highest in Florida in
almost 35 years. Nearly 1,087,000 workers were searching for a paycheck in
Florida
Levin-Coburn Report:
Causes of Recession
High risk, complex financial products
 Undisclosed conflicts of interest
(you scratch my back, I will scratch yours)
 Failure of regulators, the credit rating
agencies, and the Market itself to rein in
the excesses of Wall Street

Triggers for the Recession
1.
Housing Market- the combination of easy
credit and increased purchasing
2.
Increased Lending- loans of various types
(mortgage, credit card, auto) were easy to
obtain and consumer assumed an
unprecedented debt load
3.
Deregulation by the Government- failure
to stem toxic mortgages, financial firms taking
on too much risk
U.S. Stock Market peaked in October
2007 when the Dow Jones exceeded
14,000 points
 By March 2009, the Dow had dropped
averaging 6,600 points
 It has since recovered most of the decline,
exceeding 12,000 points for most of the
1st half of 2011

Great Recession Mirror
Great Depression?

While the decline of March 2009 is
similar, the rate of decline was not as
steady and there have been stages of
growth