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The worldwide stock market and stock exchange is an extraordinary concept in which users which include both individuals and companies alike both invest their money into different organizations, so in due time the amount of investment will increase. This world altering development was first implemented in the year 1602 by the Dutch East India Company, when they officially issued out the first ever documented paper shares, which allowed shareholders in the company, which are essentially the members of a corporation in which they own one or more shares in the companies stock to buy, sell, and trade their stock with each other and investors, which are people are people who input their own money into the stocks of corporations in hopes of future financial gain. This revolutionized the way both people and companies gained money. And one of the best things about the Stock Market is that you don’t necessarily be in any business in order to be a part of it. Anybody above the age of 18 can open their own private stock portfolio and even if you’re a minor and you’re interested in the buying and selling of stocks you can open a so-called custodial account with the permission of the custodial parents. But even though there are many positives of the stock market there are many negatives as well and some which could possibly land you in large amounts of debt or even long sentences in jail.
A very common danger of inputting money into stocks is the constant threat of the value of the stock dropping. Stocks may drop for a variety of reasons. One way which can be seen a lot in the news nowadays is due to customers intentionally refusing to buy the goods and services that a certain company is putting out. For example, the air transportation company known as Boeing has had significant and noticeable decreases in its stock due to two very tragic crashes of one of its most popular models the Boeing 737 Max in the last five months which has left hundreds of customers dead/ or injured. Due to these two crashes customers have since flown less with this plane model which has caused the company to lose a significant amount of revenue. And the loss of this money has caused shares in the company to drop leaving both shareholders and investors alike with less money. This then led to a chain reaction of events with the companies that manufactured the parts of the faulty planes because those companies also began obtaining scrutiny and caused them to also loss money due to the stoppage of production of those parts and the law suits that followed due to the crash. This can example can be seen with a lot of companies, while they not necessarily have to follow the same scenario, the outcome will still be the same. You can also look to the Recall of Romaine Lettuce in California late last year due to an outbreak of E.coli which had contaminated the lettuce causing many of the buyers who consumed it to become ill. The product was recalled, because of this the company lost money and adding on to that they had to pay the consumers that sued them because of it. Those factors where then linked to the loss of money in shareholders and inevitably the investors soon after. And falling stocks can happen at any time for any vast number of reasons. Big or small the decrease of stocks will always be a problem within the stock market.
Another common but something that goes as a virtually unnoticeable danger of the stock market is the manipulation within the stock market, which includes tampering of the market and insider trading of the stock market. Insider trading is the illegal act of trading on the public stock market for personal gain with the help of confidential/undisclosed information that the public themselves doesn’t have access to. This is illegal due to the fact that you’re using information that the public doesn’t have access to and illegal insider trading and laws to prevent them have been a part of the stock market since its beginning but many of them were created due to a crippling stock market crash in the year 1929. Due to this devastating crash the two acts known as the 1933 Securities Act and the 1934 Securities Exchange Act were created in order to prevent anymore stock market crashes due to insider trading. Insider trading is very serious crime due to the fact that it can affect a very large amount of people and because of this it can be come with some very hefty penalties. Those penalties include:
- The maximum prison sentence for insider trading is approximately about 20 years as of the year of 2013.
- The maximum fine for criminally fined individuals is currently set at $5,000,0000 as of the year 2013.
- The maximum fine for any non-natural persons (private or public organizations) is currently set at $25.000.000 as of the year 2013.
- The person or persons involved will have to forfeit all profits gained/ and or any loss of profit that was avoided.
A civil penalty may be placed upon the conducts violator which states that they may have to pay an amount from 1 to 3 times the profit gained or the losses avoided depending on the intensity of the violation.
There is also a significant ban depending on both who you are trading with and how much you trade. Some bans may just be for less than 90 days and some may be a permanent ban from trading stock all together.
Even though there are these penalties for anyone proven guilty of insider trading people are still occasionally caught. They take the risk due to the high rewards of the crime and since it’s difficult to track. The most recent case of recorded insider trading was from Chris Collins who was formerly a board member of an Australian pharmaceutical corporation. He passed on private company information that would affect stocks to his son, who passed that information to his father-in-law. With that information they traded away the stock which ended up making them avoid a potential loss of approximately $768,00. As a result, 2 of the three men are still under criminal investigation and face indictment.
The most threatening thing imaginable in stock market and the world economy alike is the threat of complete stock market crash. A stock market crash is a sudden dramatic decrease in stocks across a very large portion of the stock market resulting in the decline of worth of paper currency. Probably the most commonly used example of a stock market crash used throughout history is Stock Market Crash of 1929, the Great Crash, or Black Tuesday. During this time that followed WW I many areas of industrial production became sluggish even with the increased population of citizens moving into the city. This caused investors to rapidly sell their stocks. They were warned many times by the Federal Reserve, but the stock market still continued on. This then resulted in a complete stock market crash resulting in a loss of approximately $30,000,000,000 in the span of 2 days alone. This then led to the largest financial crisis of the 20th century known as the Great Depression and was instantly felt in all markets around the world excluding Japan. The Great Depression caused widespread poverty around many areas of the United States and close to 15,000,000 people were put out of jobs because the jobs could no longer afford to pay them since they also struggled with money. Many citizens had to get food at government run soup kitchens and used stamps to buy grocery rations instead of actual money because the value of paper money at the time was so low. The Great Depression destroyed many lives, jobs, and businesses and plagued America for years after its initial start. And this is all due to the crash of the stock market in a time which is less wealthy and economically involved. So, if a large enough stock market crash was to happen today, the repercussions would be worldwide.
The dangers of the stock market will always be apparent. Nothing can be done to completely get rid of them. All that can truly be done is to make laws making it more difficult for people to actually do these illegal acts and having extra precautions just in case they happen again so the world economy will stay stable.
References
- https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929#Background
- https://www.sec.gov/Archives/edgar/data/25743/000138713113000737/ex14_02.htm
- https://www.foxbusiness.com/features/chris-collins-and-other-high-profile-insider-trading-cases
- https://knowledge.wharton.upenn.edu/article/why-insider-trading-is-hard-to-define-prove-and-prevent/
- https://www.nytimes.com/interactive/2019/business/boeing-737-crashes.html
- https://www.foodsafetymagazine.com/news/cdc-declares-romaine-lettuce-e-coli-outbreak-over/
- https://www.encyclopedia.com/social-sciences-and-law/economics-business-and-labor/money-banking-and-investment/insider-trading
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