THE GREAT DEPRESSION VS. THE CREDIT CRISIS: CHAOS & OPPORTUNITIES RICK TOBIN
which preceded the start of “The
Great Depression”, was a period of
time
when
investors
seemed
challenged to lose any money in the
stock market just prior to the financial
implosion back in 1929.
What was one of the primary causes
for the ending of the “Roaring 20s”
combined with the official start of “The
Great Depression” back in 1929?
that there have been numerous “Boom” and “Bust”
ANSWER: Banks and investment firms began to
housing markets over the past 100 + years, real
figuratively “slam the brakes” on the availability of
estate investors typically had more flexible forms of
capital by way of severely limiting access to
financing options back then if even at much higher
margin loans for stock investments, business
rates.
loans, and real estate loans.
Over the past century, the two (2) most well-known
Once margin loans were restricted or severely
and discussed sluggish or depressed economic time
limited just prior to the start of the stock market
periods were “The Great Depression” (1929 – 1939)
collapse, then margin loans were “called” as all
and “The Credit Crisis” (2007 – present day). In both
due and payable by the issuing lenders or Wall
eras, these negative financial event time periods
Street firms or financial institutions. As a result of
were preceded by “Boom” times related to easier
this massive “call” of outstanding margin loans that
capital access and wild speculative investments in
a high percentage of typical U.S. citizens were
stocks, real estate, and other investments prior to the
using to purchase stocks, investors were forced to
financial markets drastically tightening up access to
sell their stocks at any price possible, in order to
the more flexible capital sources. Many times, the
pay off their existing highly leveraged margin loans
“solutions” offered for negative situations, however,
which suddenly became “all due and payable” to
may later turn out to magnify the problems even
the issuing banks or investment firms.
more.
When there are more sellers for an investment
The Great Depression (1929 – 1939)
class such as a stock than there are existing ready,
willing, and able buyers, then prices tend to rapidly
Prior to the ongoing “Credit Crisis”, the USA had “The
fall. Sadly, some stocks ended up worthless due to
Great Depression” which adversely affected many
the massive panic selling.
banks, businesses, and citizens. “The Roaring 20s”,