Stock Market Crash 1929
Josh Harry, Jon Palmer, Gabbi Cavallero
How the Market Inflated
When credit was introduced to the American’s, people did not understand it. They did not understand that the money they were using built up debt. When people started buying a massive amount of stock, they used credit to do so. More people were investing in stock then ever before because of the credit they were allowed. This caused the stocks to rise extremely. Some people were becoming rich in matters of days. People were only looking at the present, but not the future. They were only adding fuel to the flames they had created with credit.
How and Why it Crashed
The crashed was mainly caused by the loans people were taking from banks and the money they were borrowing to invest in stock. When the stock market started to go down, people stopped investing in as much stock, in turn making the stock plummet even further. Lots of the chaos happened in the banking system too that made the stock market go down. Banks tried to collect on the loans to stock market investors whose holdings were little or nothing. They also invested in stock with depositors money, so when it came time for people to withdraw their money when the market crashed, there was nothing left. All the confusion and chaos of the stock market crash only made things worse.
Buy on Margin
Buying margin means you pay for a fraction of the stock and borrowed the rest from their brokers. Brokers, since they didn't have any money borrowed from the bank. If the value of the stock rose, you could sell it later, pay off your debt, and still make a profit. But the downside to this is when the stock loses value you, the brokers, and the bank would lose money. It also looked like you had lots and lots of money so the government thought the economy was doing well, but some of that money wasn't actually there.
How Bad Personal Fiances led to the Crash
The concept of credit was the downfall of many Americans and led to massive losses in investments and the closing of thousands of banks nationwide. Americans used credit to buy many different things, which built up to a large bill. People recklessly bought expensive possessions that they could never actually pay for in the end, but they thought that the banks would handle it. When they realized the trouble that resulted in an enormous debt, such as repossessions, consumers began to spend very lightly using credit. This resulted in lower prices and bankruptcies in major companies and banks, which only meant fewer jobs and the continuation of the downward spiral of the economy.
When people defaulted, they failed to meet loan payments. Most people borrowed money to buy stocks, which turned out to be a bad decision. People also bought things on credit and made them in debt even more. When it came time to pay, they were unable to meet the demands. Banks suffered huge losses because of this and many started failing by the hundreds in the early thirties.
Thursday, October 24, 1929, was the start of the Wall Street Crash and the Great Depression that followed. This was the first large fall in share prices for America. People rushed to trade in their stocks to get what little money that they could. A record of over 12 million stocks were traded in. Wall Street was completely crowded with people rushing around in panic. Everyone was afraid they would lose all their money. What made this crash even worse was that people had taken loans from banks to invest in stock. When the crash happened, banks tried to collect on the loans and were unable to collect the money.
After the stock market crashed, stocks devalued tremendously. This resulted in the loss of great amounts of investments and the bankruptcy of banks. Within half of a year, 1.7 million Americans lost their jobs and hundreds of banks had gone bankrupt. When the economy plummeted in the United States, it pulled the rest of the world with it. In Europe, many major nations were still recovering from the effects of World War I, and the Stock Market Crash of 1929/The Great Depression only made their economies worse.
Before the stock market crashed, broker firms had lent out more money than was invested. After the market crashed, people defaulted when the banks called in the loans. Many people attempted to withdraw their deposits, at most times in large crowds. The combination of the prodigious amounts of withdrawals and defaults drove banks across the United States into bankruptcy. Within about a year of the Stock Market Crash of 1929, 744 banks had failed nationwide. The bankruptcy of the banks caused a loss of billions of dollars, which was a major blow to the economy. The bank failures also established the fact that the economy had nothing to fall upon for support of the nation. What made the predicament worse was the banks’ reaction to the defaults of the American public; banks no longer sought to give out as many loans, or in some cases, none at all. This caused the economy to slow dramatically and hurt the United States.
Some serious issues came to the United States’ attention in the 1920s, such as reduced agricultural and industrial income. The lack of income derived from a lack of demand for goods, and because fewer goods were being purchased, workers’ wages were cut and some were even laid off. This resulted in a repetitive spiral downward because the workers could not buy as many goods because their wages were cut and they were laid off, which resulted in the cutting of more workers’ wages and the laying off of even more workers. This hurt the American standard of life, and it hurt the economy as well. However, rather than plunging every single American into poverty, it brought prosperity to the affluent and caused a great gap of wealth in the United States.
Joblessness and Poverty
Our economy is reliant within itself. When one thing fails the rest falls with it. When the stock market crashes people lost a lot of their money, which meant they couldn’t buy goods/services, and when goods/services are selling people are fired. And when people get fired they have no money to invest in the stock market or even to feed themselves. As a result many jobs were lost and resulted in poverty. In 1932, 25% if workers had no job. The rate remained around 20% for a decade. Lines of hungry people waited in the street for food to eat. Food was cheap but no one had money to pay for it (ex: potatoes cost $0.02 per pound and chicken cost $0.22 per pound.) Many people lost their homes and ended up living in boxes.
Many countries were dependent on us for money. After WWI, people owed use more money that we owed them. Countries would borrow money from American banks and sell goods to the American public. The only problem was they had to pay a high tariff on the items they imported. Since the other countries were in so much debt they couldn’t afford to send as much items as they did before. Without American loans, nations had less money to spend, this just goes to show that you cannot be dependent on a country to support you financially.
What Life was Like
As a results of the crash, the Great Depression happened. Not everybody lost their job or needed help. But everyone had less food, money, and security. Many took to the road and abandoned their homes. Food became so scared that people were fighting for food out of trash cans. By the end of 1932, 13 million had no job. People were forced to move into Hoovervilles which were a group of shacks families lived together in. Children between the ages of 10 and 18 quit school and went to work just so their family would have money to eat.
Women Enter the Work Force
People thought that women shouldn’t have jobs when men don’t, but surprisingly, the main income sometimes came from the lady, in spite of being paid less. Women would make a lot of the necessary items at home including clothing, baking bread, and storing food. When the new deal occurred many federal jobs were given to women. Frances Perkins was the first woman to serve on the cabinet. When some men aimlessly wandered the streets, the housewife supported the family and kept everyone alive and clean. If anything women’s role in daily life greatly increased.
People killed themselves because of the debt they were in
Many people lost their jobs