Market Watch: Regulation of the Stock Market

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Market Watch: Regulation of the Stock Market The Enrons and Worldcoms made it clear that the financial markets cannot be left under the auspices of corporate directors and officers, without oversight authority. "The corporate abuses and fraud that Enron exemplified, while not a first in the financial markets, they were certainly a first in terms of the magnitude of the losses to stockholders and the confidence the public reposed in the financial sector (Bequai 2003)." As a result of the stock market crash of 1929 regulations such as the Securities Act of 1933 and Securities Exchange Act of 1934 were established to prevent such practices as those that contributed to the downfalls of Enron and Worldcom. In this report, I will briefly explore some popular reasons why the market crash of 1929 happened, events leading the market crash and regulations the government instituted in order to protect investors. The 1920's, after the end of World War I, was considered a time of prosperity and technology with innovations such as the car and radio ushered in the . The economy was strong and millionaires were being created daily. But soon this economical bubble was about to burst. Like the markets of the 1990's, the Dow Jones Industrial Average rose to tremendously heights. Many investors quickly purchased shares of stocks in the hopes of making loads of money. Stocks were seen as extremely safe by most economists, due to the powerful economic boom. Investors purchased stock on margin. For every dollar invested, a margin user would borrow 9 dollars worth of stock. Because of this leverage, if a stock went up 1%, the investor would make 10%! This also works the other way around, exaggerating even minor losses.

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