5. Why Did The Crash Happen?

Question 1

List the 10 possible reasons for the crash

Answer 1

• Falling demand for consumer goods
• Get rich quick schemes
• the Florida Land Boom
• Problems with agriculture
• Town and country
• Problems with old industries
• Banking system
• Over speculation on the stock market
• Easy credit
• Loss of confidence

Question 2

How did falling demand for consumer good contribute to the Wall Street crash?

Answer 2

• The boom in car ownership slowed as the market became saturated
• Fall in demand for consumer goods largely due to the wealth disparity
• USA couldn’t sell its surplus products - the gov had imposed high tariffs on goods coming in

Question 3

What were the ‘Get rich quick’ schemes?

Answer 3

• Lots of people just wanted to get rich, so invested in hugely speculative ventures and many lost their money
• This provided opportunities For crooks like Charles Ponzi - who promised 50% profit within 90 days. Thousands of gullible and greedy people were conned

Question 4

What was the Florida land boom and how did it help to cause the crash?

Answer 4

• Ponzi began selling land Florida, meaning that the population rose to 1.2million - there were large scale coastal developments and wealthy northerners brought land
• Demand fell in 1926. In a series of hurricanes, 400 died and 50,000 left homeless
• The Florida land boom had collapsed

Question 5

How did agricultural problems contribute to the boom?

Answer 5

• After WW1, demand and prices fell to only $1 per bushel on average
• Farmers were producing more food then was needed, and demand fell largely due to synthetic fibres
• Demand for cotton and grain also fell (because of prohibition)

Question 6

How did town and country matters contribute to the crash?

Answer 6

• The north south divide remained prominent - many areas in the south faced poverty due to poor agriculture. By 1928, half of all US farmers were living in poverty

Question 7

How did problems with old industries contribute to the crash?

Answer 7

• Many industries faced long term difficulties in the 20s, eg demand for coal fell as gas and electricity were more widely used and there was more competition (eg Poland) and many lost their jobs
• Textile industry also had problems - tariffs were lowered so they faced competition from abroad, and new man made fibres were cheaper to produce. Massachusetts suffered badly

Question 8

How did the banking system contribute to the crash?

Answer 8

The banking system was out of date by the 1920s - it consisted of 12 regulatory reserve banks, headed by the federal reserve board.

HOWEVER…

• They acted in the interests of the banks rather then the nation as a whole
• Local banks weren’t part of the centralised system - and they couldn’t cope with financial problems
• FRB wanted to keep market buoyant so favoured low interest rates (3.5%) - encouraged the ‘bull market’

Question 9

How did easy credit help contribute to the crash?

Answer 9

• People were able to buy goods without having all the money up front. Customers paid instalments in hire purchase, and brought shares in credit - ‘on the margin’
• Problems arose well prices began to fall
• 75% of the purchase price of shares was borrowed - this created artificially high prices

Question 10

How did a loss of confidence contribute to the crash?

Answer 10

• The market was maintained largely by the confidence people had in it. In Autumn 1929, people began to sell their shares before they lost any more value, so small investors panicked and rushed to sell their shares, leading to a complete collapse in prices

Question 11

EVENTS LEADING UP TO THE CRASH - 1929
What happened on the following dates that led to the crash?
- September
- Saturday 19th October
- Tuesday 22nd October
- Thursday 24th October
- Friday 25th October
- Saturday 26th October
- Tuesday 29th October

Answer 11

• September
  A sharp fall in prices but no real panic
• Saturday 19th October
  Share holders began to panic with almost 3.5mil shares traded - prices were falling
• Tuesday 22nd October
  Stock market seemed to recover with prices getting a little higher
• Thursday 24th October
  ‘BLACK THURSDAY’ - prices fell rapidly as people rushed to sell shares. Almost 13million were sold
• Friday 25th October
  Banks met up to support the market. Seemed to work as prices steadied
• Saturday 26th October
  Hoover assured US that panic was over
• Tuesday 29th October
  ‘BLACK TUESDAY’ - 16.5mil shares traded. They lost all value and shareholders lost everything. Suicided reported.