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Swampyville's - The Stock Market Crash of 1929!
Ask the Politically Correct!
What is Fractional Reserve Banking and Fractional Investing and how did they effect the Stock Market crash in 1929? (Part of the Second Age of Globalization, 1919 to 1945)
The Politically Correct Resolution:
Federal Reserve Banking.
Fractional Reserve Banking is a type of banking whereby the bank does not retain all of a customer’s deposits within the bank. Funds received by the bank are generally lent to other customers. This means that available funds are only a fraction of deposits at the bank. As most bank deposits are treated as money in their own right, fractional reserve banking increases the money supply, and the banks create money out of thin air.
Basically how it works: It begins when an initial $100 is deposited into a savings account at a Bank. The Bank takes 20 percent of it, or $20, and sets it aside as reserves, and then loans out the remaining 80 percent, or $80. At this point, the money supply actually totals $180, not $100, because the bank has loaned out $80 of the depositor's money. When this bogus loan is paid back at 3% interest, the bank will receive $82.40. The bank will pay back l% of the original $100 to the depositor, leaving the bank a false profit of $81.40.
The Fractional Investment Scam of the 1920s was similar to the Fractional Reserve Banking Scheme; but, in this case it involved the Stock Market. After World War One there was a minor recession and Wall Street needed a new "Gimmick" to create more bogus money out of thin air. They came up with "Buying on Margin". Buying on Margin is where an individual can buy stock certificates with only 10% down and pay the remaining 90% by a certain date. I will use a factitious company called "The Amalgamated Tiddlywinks Company" (AT) as an example. AT decided to go public and began offering stock at $1.00 per share. Fred the cab driver bought one share for one dollar. He only had to put up a dime to purchase one share. The investment bank put up the remaining 90 cents, after Fred offered collateral for this loan and a promise to pay back the 90 cent within a specified date. Soon the value of Fred's stock doubled to $2.00, then tripled, then quadrupled. Fred thought to himself, hey this is great! He mortgaged everything he owned and bought more stock placing 10% down. The stock continue to rise and so did his (false) personal worth. Soon everyone else was buying stock by mortgaging every thing they owned to the banks.
Stock prices were seriously over-priced, when measured in the actual productivity of the companies they represented, making a market correction inevitable. In October 1929 the New York Stock Exchange's house of cards collapsed in the greatest market crash seen up to that time. Many are often surprised to learn that the stock market crash itself did not cause the rest of the economy to collapse; but, because smaller banks had loaned so heavily for stock purchases, falling stock prices began endangering these smaller banks whose stock-buying borrowers began defaulting on their loans. Thousands of these banks failed, of course the bigger Wall Street banks didn't!
When the people were suckered in and the stock market started to contract (on purpose), many individuals received margin calls. They had to deliver more money to their brokers or their shares would be sold. Since many individuals did not have the equity to cover their margin positions, their shares were sold, causing further market declines and further margin calls. This was the major contributing factor which led to the Stock Market Crash of 1929, which in turn created the Great Depression. All sources indicate that beginning in either late 1928 or early 1929, "margin requirements (purposely) began to rise to historic new levels (the Wall Street Monopolistic Banks through "THEIR" Federal Reserve System). The typical peak rates to Investment bank loans were raised to 40-50 percent. Investment banks (owned by the Wall Street Banks) followed suit and demanded a higher margin from investors." When investors couldn't pay back what they owed the banks, through their investment banks, the Wall Street bankers took all the investors collateral and the people were left with nothing! The Wall Street Investment bankers insulated themselves and made huge profits with this scam. Many smaller banks (big bank competitors) closed and there were people committing suicide by throwing themselves out of high rise buildings. Thus, the direct cause of the deep depression of the 1930s were the Monopolistic Wall Street bankers who created a false economic balloon and when the time was ripe, burst that economic balloon! The major banks won this match in this "Global Chess Game" and the people lost, because the banks had the government as their pawns!
Question and Answer: Who gains the most from Fractional Reserve Banking?
A. Tax Payers! B. Small Business! C. Financial Interests (banks)! D. Cab Drivers!
Question and Answer: Who gains the most from Fractional Investing?
A. Tax Payers! B. Mom and Pop Investors! C. Financial Interests (banks)! D. Cab Drivers!
"SEMPER IN EXCRETIA SOMUS SOLIM PROFUNDUM VERIAL" (We're always in manure; only the depth varies)