Causes of The Wall Street Crash (T1) Flashcards
What is the stock exchange?
The markets on which stocks and shares are bought and sold
Lots of this happens in a building called the stock exchange where brokers bid and trade large amounts of money
When did the wall street crash happen?
24th - 29th October 1929
What is the Bull market?
Stock market where there is lots of confidence and lots of buying and selling
What did 6 important bankers do in an attempt to keep the stock market afloat?
Each pump $40 million into it - they then withdrew that money once trading looked more stable
What happened on Monday 28th October?
The volume of trading was less than the previous Thursday
Within a few weeks of the WSC, how much money had been lost?
$30 billion
What does economy mean? (key words)
The circulation of money (buying, selling, inflation etc.) in an area/ country
What does stocks and shares mean? (key words)
Parts of a company’s assets and earnings that are sold. Owning a share in a company means you make money and have some ownership of that company.
What is wall street? (key words)
A street in New York’s financial district, where the New York Stock Exchange building is.
What is the stock exchange? (key words)
The market on which stocks and shares of companies are bought and sold. Lots of this happens in a building called the stock exchange where brokers bid and trade huge amounts of money.
What does investor mean? (key words)
A person or organization that puts money into financial schemes, property, etc. with the expectation of achieving a profit. In this case, they own stocks and shares
What is a broker? (key words)
A person who buys and sells stocks and shares on behalf of investors
What is the bull market? (key words)
Stock market where there is lots of confidence and lots of buying and selling
What is the bull pool? (key words)
Method by which dishonest brokers bought and sold stock to and from each other to keep prices high
What is a bankruptcy? (key words)
(of a person or organization) Declared in law as unable to pay their debts. Their assets are taken away from them.
What is ticker? (key words)
Ticker tape on which stocks and shares transactions were recorded
What is the Dow Jones Index and New York Times Index
? (key words)
Two indicators of how well stocks and shares are doing, based on the top 25 leadings stocks (they show when the value of stocks are going up and down)
What is a forecast? (key words)
Predict or estimate (a future event or trend).
What were 3 of the signs that the economy was slowing down?
- Problems in small business
- The construction industry
- Falling domestic demand
How did problems in small business show the economy was slowing down?
During the 1920s, for every four businesses that succeeded, three failed. It was a time for the big corporations to succeed
How did the lacking construction industry show the slowing of the economy?
By 1926, the boom in demand for construction was tailing off. This led to unemployment and a series of knock effects to their suppliers eg brick manufacturers.
How did falling domestic demand show the slowing of the economy?
The market was flooded with goods that could not be sold - people didn’t need or couldn’t afford any more goods. This then led to unemployment and low wages.
What are 8 possible causes of the WSC?
- Uneven distribution of wealth
- Stability of employment
- Instability of get-rich-quick
- Land speculation, Florida land boom
- Stock market speculation
- Weaknesses of banking system
- Cycle of international debt
- Overproduction and slow down in economy
Uneven distribution of wealth (as a cause of the WSC)
- Income distribution across regions of America was vastly different: NE (1929 this was $921) and West ($881) SE ($412)
- Industries such as agriculture did not experience prosperity
- Social groups e.g. ethnic minorities + women did not experience opportunities + prosperity as much as big business
- Patterns of employment could be unstable
Stability of employment (as a cause of the WSC)
- Many families experienced periods of unemployment, particularly in 1929
- This was a time with very little welfare and benefits
- Labour Unions had little influence + many workers were not allowed to join them. Union membership fell during the 1920s leaving workers without any legal protection and very little rights
The instability of “get-rich-quick” schemes (as a cause of the WSC)
- Easy credit was seen as a strength in the economy, but many Americans invested in speculative ventures and lost a lot of money
- This desire to get rich quick led to confidence tricksters and crooks
E.g. Charles Ponzi: a former vegetable seller who conned thousands of people out of their money by promising a 50% return on their investment in 90 days. He did not force people to invest, but took advantage of their greed.
Land speculation: The Florida Land Boom (as a cause of the WSC)
- In the early 1900s Florida was relatively underdeveloped, but the climate made it appealing for middle classes… led to the land boom
- 1920 population = 968,000. By 1925 population = 1.2 million people bought new developments on the coast
- People began to invest in unseen + unbuilt developments based on glossy brochures (with the hope to then sell properties on at a profit). Often purchased on credit.
- Success stories fueled the boom as wealthy northerners rushed to invest money
- Demand began to trail off 1926 - there were scandals of made up property developments
- Hurricane 1926 left 150,000 homeless
- 100s were bankrupted leaving the land boom collapse and hundreds of unfinished properties
Stock-market speculation (as a cause of the WSC)
- Between 1926-1929 many Americans went Wall street Crazy; another get-rich-quick scheme opened up
- Easy credit meant people could buy stocks and shares “on the margin” (only paying part of the price) - this demand to buy shares was the bull market
- More people bought stocks + shares not to invest, but on speculation - stock prices rose + people would quickly sell making a quick profit
- This worked for a while…
Weaknesses of banking system (as a cause of the WSC)
- It was outdated by 1920 - only set up in 1914
- Banks regulated themselves without government monitoring
- Bankers could not be relied upon to act for the best interests of the nation, but for themselves
- Most ordinary people’s money was invested in small local banks - these were unable to deal with financial problems
The cycle of international debt (as a cause of the WSC)
- America’s priority was for Europe to pay debt from WW1
- Most European countries could not afford to do so
- Tariffs made it worse - European countries could not trade their goods to America - it was too expensive
- Therefore they could not make the money to repay USA
Overproduction and slow down in the economy (as a cause of the WSC)
- Boom depended on continued domestic consumption
- Problems in small business - for every 4 successful businesses, 3 failed
- The construction industry - lesser demand for construction
- Falling domestic demand - people already had the domestic goods they needed therefore they did not need anymore –> there were warehouses full of products
Downward spiral (as a cause of the WSC)
- With growth in new industries slowing, full-time employment fell and the economy went into downward spiral.
- Fall in income led to fall in demand (buying), which led to fall in production, adding to unemployment.
- These problems were concealed by the superficial optimism and the frenzy of stock market speculation.
