March 27, 2011

Stock Market History: Great Depression Era

During the Great Depression, President Herbert Hoover and his administration were under fire from the American public. The Stock Market Crash of 1929 wiped out the entire life savings of Americans across the country. Many had bought stocks on margin which meant they borrowed from their brokers to buy even more shares. When stock declined, the losses were amplified by brokers selling out a customers position to make up for the losses on the borrowed money. This selling created even sharper declines in stock prices. There were a few savvy investors who "Shorted" stocks and made fortunes during the Declining markets of 1929-1933. President Hoover targeted the "short sellers" as unpatriotic and urged for an investigation to be conducted connecting, them to the Crash.

The Currency and Banking Committee was tasked with this assignment. Led by South Dakota U.S. Senator Peter Norbeck, the Committee would go further than Hoover wanted and investigate large securities issuers, Stock Pools, and fraudulent investing practices. The Committee appointed several lawyers to act as chief counsel but would settle on Ferdinand Pecora. Mr. Pecora and his ensuing investigations brought to light the unscrupulous business practices carried out by major commercial banks including the largest, National City Bank. His prosecution mastery battled head on with the wits of men like J.P. Morgan, Charles Mitchell, and New York Stock Exchange President, Richard Whitney. Pecora's work and thorough investigation gave congress the anecdotal evidence they had been seeking to begin to lay the groundwork for establishing the foundation for the federal governments future involvement in the securities markets. The federal securities laws, establishment of the SEC, and Federal Insurance Corp. largely was due in part to Pecora's work. See More about: the effects of the great depression.

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