Financial Crisis Causes Deja Vu

Commentary Editor

       Is it just me or I have I heard of this before? The stock market in the United States and around the world took a nose-dive. The United States is bailing-out corporations and financial institutions. Europe and countries around the world are doing its best to save its financial institutions.

   What does this remind me of?

   The date Oct. 24, 1929 comes to mind, the day when the stock market began its downward decent and crashed over a period of five days. The infamous three days in the fall  of 1929; Oct. 24,  Oct. 28 and Oct. 29,  ended a time of prosperity known as the “Roaring 20s” and started the downward slope to what became the Great Depression.

   According to Money-Zine.com, the United States experienced a broad economic expansion fueled by new technologies and improved production processes, following World War I. Industrial production output also increased 25 percent between the years of 1927 and 1929.  Electricity became more widespread and the purchases of electrical appliances, as modern convinces, became popular. Ford also created assembly lines, which allowed cars to be produced at a lower cost. So the Roaring 20s became an age of rebirth.

   The stock market also benefited from this expanding economy. From 1926 to 1929, the market indices moved up nearly 400 percent. Investors talked about the “great wealth” that could be made in the stock market and relaxed credit terms from banks and stockbrokers fueled the buying frenzy.

    The market declined sharply over the next month after the crash and did not hit bottom until July 1932.  Panic selling brought the stock market to it's knees. Apart from the panic selling in those few days in October of 1929, which caused sharp price decline in common stocks.  The stock prices appeared to have nothing unusual about the them and didn't  become “inflated” in the days preceding the crash. The laws of supply and demand came into place with no one willing to buy stocks and everyone trying to sell at the same time, the market went nowhere but down.

   Does any of this sound familiar yet?   If any of this sounds familiar, it is because history repeated itself. The situation and circumstances may not be exactly the same, but who says the United States will not go into another “Great Depression?”  I really hope we don’t.

   The Crash of 1929 partially happened due to panic and so did this crisis, which the world and the United States feel the pain of the situation  in its pocketbook now. Like the 1929 crash, the market came tumbling down again due to bad decisions by people who think that money grows on trees and the panic and selling of stocks at a very fast rate .

 
   Some of these factors and players include:

• The Federal Reserve
• Home buyers
• Congress
• Real estate agents
• The Clinton administration
• Mortgage brokers
• Former Federal Reserve chairman Alan Greenspan
• Wall Street firms
• The Bush administration
• An obscure accounting rule called mark-to-market
• Collective delusion

   For more information on these factors, go to the link and the links in the list.

   Many factors caused the instability of the 2008 Financial Crisis, one being the dramatic change in the ability to create new lines of credit. This extension dried up the flow of money, slowed new economic growth and the buying and selling of assets.   These factors hit hard and hurt individuals, businesses and financial institutions. Many financial institutions held mortgage-backed assets, which dropped in value and didn’t bring in the amount of money needed to pay the loans. This drop in value dried up reserved cash and restricted credit and the ability to make new loans.  

   Other Factors like greed, cheap credit, irresponsible borrowing and spending and other factors also caused this financial instability.
   According to Money Under Thirty.com, the 2008 Financial Crisis teaches us four lessons.

1.  It started with easy credit

2.  Banks are not invincible

3.  Home prices can go down

4.  Don’t trust anybody   

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