The Great Depression Part 2 - The War to End All Wars Is Over

The Great Depression Part 2 – The War to End All Wars Is Over

Wall Street was booming, “the war to end all wars was finished”, the GDP rose, the almighty dollar was buying ones needs and wants, unemployment was non-existent, the United States had no national debt, thus lending millions to various countries in need.

Good day to each of you reading this column on the depression and its effects.

You may be asking what this has to do with Christianity or why bring this up?

When reading the New Testament in particular, Jesus teaches us about money and about economics from a Biblical view and provides the model for each individual, each family and the government.

When reading the Old Testament, God provided the principles of how the Israelite tribes were to build a Godly economy for present and future countries to follow, but man disobeyed God and the economy of the country was destroyed.

It is so true that history repeats itself and that Satan wishes to control all facets of the human life while on earth for he knows of man’s love for money and for power.

As you read the beginnings of the Industrial expansion of the United States in the 1920’s or as they were called “the Roaring 20’s”, the cracks in the dam had begun to show during the first world war.

Who cared? Wall Street was booming, “the war to end all wars was finished”, the GDP rose, the almighty dollar was buying ones needs and wants, unemployment was non-existent, the United States had no national debt, thus lending millions to various countries in need. The “Roaring 20’s” ushered in fun and frolic everywhere from the ball parks to Hollywood to Broadway and to backdoor saloons.

Fred Flintstone said it best, “We’ll have a gay ole time” and everything became turning up roses including playing the stock market for that was the way to make “easy money”. Businesses, Politicians, and Individuals were getting in on the “buying stock shares on margin”.

So what is “buying stock shares on margin”? Buying on margin simply means borrowing money from a broker to purchase stock. This technique allows you to purchase more stocks than you would normally do. You only invest half the value of stocks while your broker lends you the remaining half. This way you can purchase double the stocks than you can afford.

What a grand technique—for merely 10% of the stock price.

The question lends whether savvy investors took the time to research the company they were buying stock or were they buying on margin, thus gambling in hopes the stock would go up.

How prominent was “inside trading”?  ALBERT H. WIGGIN

Albert headed the Chase National Bank in the 1920s. Following the famous Wall Street Crash in 1929, Albert was revealed to have shorted over 40,000 shares of his company. To conceal the trades, he used companies owned by his family. That put him in a position to run the company into the ground. At that time, there were no regulations in place to restrict company owners from short selling their company stocks. Now, after the 1929 crash, many investors quit their positions in the Chase National Bank stock and Mr. Wiggin legally made a whopping $4 million as profits from the short-selling deal.

Over and above the profits, Wiggin went ahead to accept a $100,000 annual life pension from the bank, which he later declined after public protests and media outcry. Due to this and other extreme fraudulent incidents during the crash, the 1934 Security and Exchange Act was passed to enhance transparency and decrease manipulation in the financial markets. In fact, Section 16 of the Act, which addresses insider trading news, was nicknamed the “Anti-Wiggin section.”

Courtesy of: The Most Notorious Insider Trading Incidents In The Stock Market History (dailyvanguard.com)

This is right off the web—the head of the Chase National Bank who took full advantage of so many and got away with inside trading.

The outcome leading up to the October 1929 was wild stock market speculation, weak regulations inside Wall Street, margin buying, securities “subsidiaries”, inside trading among financial institutions, and market shares selling for more money than the company’s actual earnings.

October 24, 1929—Black Tuesday or the day the dam burst and over the next four days the Stock Market prices fell 22% and cost investors 30 billion dollars. Americans throughout the land saw the amount lost was more than the First World War and fear spread the land.

And where was the Federal Reserve during this time? They were nowhere to be found for they showed their reluctance not to increase the money supply thus causing a money shortage.

As for the timetable, this would last ten years. Ten years of growth, ten years of industrial prosperity, ten years of financial prosperity and ten years of good times turned into ten years of depression, fear, poverty, and homelessness.

According to Britannica, between 1929 and 1933 industrial production fell nearly 47 percent, gross domestic product (GDP) declined by 30 percent, and unemployment reached more than 20 percent. Mass unemployment declines in industrial machinery, deflation, small banks closing and the money shortage became the iron yolk around the head of the American.

So was the Stock Market the determining factor of the Great Depression? The answer is yes and no for we must analyze the shock waves of what was happening after the four Black Days of the Stock Market Crash.

I hope you are enjoying this as much as I am researching and writing this informative piece.

Now, on to Chapter three and the causes of the Great Depression of 1929.