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LI5 means friendly, simplified and layman-accessible explanations - not responses aimed at literal five-year-olds. Perform a keyword search, you may find good explanations in past threads.

ELI5: What caused the stock market crash? : explainlikeimfive

You should also consider looking for your question in the FAQ. Stock Market Crash of and the Great Depression vs Recession of and the future of the US economy self.

My understanding of the crash in is solely from what I learned in history class back in high school. We had the roaring twenties which saw several technological advances such as radio, cars, planes, and phones were developed. The stock market grew at an insane rate and with it came investors who flooded the market trying to ride this wave.

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Eventually, market growth began to plateau and people started getting scared so they sold their shares. This started a snowball where speculation led to everyone selling their stock which led to share prices rapidly dropping which gave us the crash. What caused the recession of from an economic and psychological stand-point? Was it something similar to the crash? Were there any significant players involved such as well known companies, investors, figure heads, etc that caused a negative mob mentality to panic and sell?

For both and Were there any mechanisms in place to prevent something like this? If so, why did they fail? If not, are there any now to prevent another fiasco and why did they not prevent the recession? Are stock market crashes something "natural" given our capitalist economic system? Companies will continue to grow, but there's gotta be some stopping point where you cannot maintain a steady growth rate. Then people panic and sell, then we have another crash.

There is some speculation of the government setting us up for another crash sometime this year. What with the budget cuts, increased taxes, the sequester, massive debt, etc. Is there any substance behind these speculations? All this sensationalism will only lead to unnecessary panic and looks to repeat all over again.

Is another market crash real? Why or why not? What factors will play into it and what should we pay attention to as key-players? What is currently in place and what is currently being done to prevent such a crash? How is our government working towards the recovery of our economy?

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Can we implement a "New Deal" similar to what President Roosevelt made in to solve our current problems? The recession was caused by a lot of people making bad bets that house prices would never stop rising; the recession was caused by a lot of people making bad bets that stock prices would never stop rising.

You don't need to artificially create a negative mob mentality in a market crash; it happens even if you try your hardest to prevent it. Once you're at the point of a crash, it's too late.

There weren't many effective mechanisms in place to prevent the crash. There were a lot put in place after, and they worked; nobody lost all the money they had in their bank account like they did in Had they not been in place, might have been as bad as We simply don't know. We're pretty sure that some kind of cycle is natural, but we don't know if the down parts of the cycle ever have to be as severe as a crash.

There's no reasonable speculation that the government is setting us up for another crash sometime this year. You can make reasonable arguments that budget cuts and the sequester are bad for the economy massive debt is neither new nor a big problem, and there have been almost zero tax increases , but there's no way they would cause a market crash.

The business sector has mostly recovered from the crash, so the government isn't doing much to work towards the recovery of our economy. It's known that unemployment can lag behind other economic recovery a bit, and people are just kinda hoping that it'll catch up.

Regulations have been put in place to prevent the specific kind of lying that created the housing market crash basically, you could pretend that people weren't likely to stop paying, even if they were. Use of this site constitutes acceptance of our User Agreement and Privacy Policy. By signing up, you agree to our Terms and that you have read our Privacy Policy and Content Policy.

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