Personal Finance

Want an overview on the stock market basics? You have come to the right place. The basics of the stock market are that companies who wish to raise capital will take their company public and issue shares to be sold to any buyer. It is possible for a company to issue shares in private, so they can select who they sell parts of their business to, however, only when a company takes themselves public can anyone buy stock in their business.

The first company ever recorded was the Dutch East India company. This company wasn’t exactly a moral and good company as much of their wealth came not from “trading”, but from raiding and pillaging spanish ships and stealing their gold. However those who owned the company enjoyed a 17% dividend as the company shared it’s earnings and continued to multiply and grow in value.

Since then, there has been more of an official stock market with stock exchanges available all over the world. Of course this will naturally cause many questions about stocks to be asked. Who bennefits from the stock market? How are depressions related to stock market crashes? How are depressions and collapses caused, how is the stock market related to the economy, etc? Other stock market basic questions are asked such as “what is a share, how much is a share worth, how can I determine what’s a good price to buy stock?” Some of these will be addressed.

America was probably the main beneficiary of a stock market and they were in perfect position to capitalize off of it. Aside from the largest stock exchange in the world being founded in New York, US was once a nation of full oportunity, sound money backed by gold, and 0 taxes. It was not until after 1940 that more than 5% of the population in america was taxed to pay for the war. This meant that all sorts of wealth for not only the businesses and entreprenuers, but the consumers were rich with cash and able to spend and prosperity boomed. This massive growth allowed for prosperity to continue without the need for slaves and discrimination. Jobs became available for all races, and around the early 1900′s Industrialization spurred a new boom and new growth in jobs and soon this allowed more opportunities for women in the work place. Eventually globalization began to take off as the US coninued to boom.

All throughout history as resources flocked to the most productive areas of the world, and jobs were available, soon even the common worker could become a business owner and businesses were all too eager to take advantage of this leverage as they could reinvest investors capital and earn additional interest.

As businesses looked for ways to prosper, they discovered that they could take advantage of the patriotism of americans who became investors in the US as they bought US bonds to help pay for the world wars, and publisize stocks as a similar investment. However, the US had full faith and credit as well as a lot of gold to back their spending. The US wasn’t a “Fad” and wasn’t in jeopardy of competition. Sure bonds had lower yields than what some stocks would offer, but there certainly is risk. So as businesses prospered, so did their employees and that resulted in more resources and money to spend on additional inventions and products. And now the commonman or woman could now become a business owner and a new boom was on.

As this growth made it possible for more businesses to succeed, more first time entrepreneurs entered in looking to strike it rich. In an ever growing field of a competative business market place, businesses offered buy now pay later and the first form of “credit” was offered to artificially keep business going at a faster rate. This created better earnings than was rational. Additionally investors would rush in and buy stocks. They caught onto the mania and began buying stocks on margin. Since the business was good, they continued to buy more.

This boom did not come without a price.  Soon investors got detatched from a companies dividend and no longer were interested in a steady increase and sharing in the earnings. Additionally the federal reserve hiked rates to curb growth. Herbert Hoover regulated farm pricesand although he was considered “less laizze faire than coolidge, many say that he should have intervened and tried to stop the speculation sooner. Others blame the federal reserve first for not hiking rates sooner, then for hiking rates, then for hoarding their gold. Whatever the reason this era became infamous and was labeled “the great depression”. There had been several moments that people considered a “depression” however all of those lasted very shortly. The crash of 1907 resulted in a rebound quickly after. The depression of 1920 lasted less than a year. Some people point to 1920 as “the depression that you were never taught” and believe that the solution to an economic crisis is to get the government out of the way and stop spending, while others say thae exact opposite, and that the solution is to get the government involved so that the businesses don’t have the ability to create extreme mania and panics. For example prior to the collapse of 2008, the glass steagle act was repealed by the clinton administration, more specifically Larry Summers and Robert Rubin, allowing investment banks to sell derivatives, which are said to be the main culprit which accelerated the collapse. Of course, only a few people are aware that Robert Rubin then stepped down from the treasury of secretary and was immediately made vice president of Citigroup, a company which would have been considered illegal if not for the actions of Rubin. That company recently went on and after the derivative crisis received billions of dollars in bailout money and soon after, Obama was advized to higher Rubin and Larry Summers as part of their team. Prior to that, Bush also engaged in subsidizing farming, spending more than any president prior to him combined