Topic 1.2 - Causes of the Wall Street Crash Flashcards
What is stock exchange?
The market on which stocks and shares of companies are bought and sold.
Specifically, the building is called Stock Exchange
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
- 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
Define - Economy
The circulation of money (buying, selling, inflation etc.) in an area/ country
Define - Stocks and shares
- 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?
A street in New York’s financial district, where the New York Stock Exchange building is.
What is an investor?
A person or organisation that puts money into financial schemes, property, etc. with the expectation of achieving a profit.
In this case, they own stocks and shares
Who is a broker?
A person who buys and sells stocks and shares on behalf of investors
Define - Bull Pool
Method by which dishonest brokers bought and sold stock to and from each other to keep prices high
Define - Bankrupt
Person or organisation declared in law as unable to pay their debts.
Their assets are taken away from them.
What were Dow Jones Index and New York Times Index
- 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)
State the causes of the wall street crash.
- uneven distribution of wealth
- Economic problems linked to prosperity
- International cycle of debt
- Underlying problems in the economy
What were three signs the economy was slowing down?
- Problems in small business - every four businesses that succeeded, three failed.
- The construction industry - 1926, boom in demand for construction was tailing off - increase unemployment + knock on effects to their suppliers eg brick manufacturers.
- Falling domestic demand - The market was flooded with goods that could not be sold - unemployment and low wages.
Explain how an uneven distribution of wealth lead to the wall street crash
- Northeast (1929 this was $921)
- Far West ($881)
- Southeast was far lower ($412
Social groups like agriculture, women and ethnic minorities didn’t share in prosperity
Explain why stability of employment lead to the wall street crash
- Many families experienced periods of unemployment, particularly in 1929.
- Was time with little welfare and benefits.
- Labour Unions had very little influence, and many workers were not allowed to join them anyway.
- Union membership fell during the 1920s leaving workers without any legal protection and very little rights.
Why did labour unions have very little influence?
- workers were not allowed to join due to contracts employers made them sign.
- Union membership fell leaving workers without any legal protection and very little rights
Explain for the instability of the “get-rich-quick” schemes lead to the wall street crash
- Easy credit was seen as a strength in the economy, but many Americans invested in speculative ventures and lost a lot of their money
- Confidence tricksters and crooks
- E.g. Charles Ponzi - promising a 50% return on their investment in 90 days. He did not force people to invest, but took advantage of their greed.
Explain how land speculation and the Florida land boom lead to the wall street crash
- Early 1900s Florida appealing for middle classe people
- began to invest in unseen and unbuilt developments based on glossy brochures
- 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 - trail off 1926 - there were scandals of made up property developments & hurricane (1926) left 150,000 homeless
What was Florida’s population like 1920 and 1925?
1920 population of the state was 968,000.
By 1925 it was 1.2 million as people purchased
What was the result of the Florida hurricane?
1926 - 150,000 homeless
This stopped the land boom as the scam was evident
How did the stock-market speculation lead to the wall street crash?
- Wall street Crazy as 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)
- People bought stocks and shares not to invest in a company but on speculation - when stock prices rose people would quickly sell making a quick profit
How did the weaknesses of the banking system lead to the wall street crash?
- It was outdated by 1920
- No government monitoring
- Bankers work for themselves not for nations best interests
- Most ordinary people’s money was invested in small local banks - these were unable to deal with financial problems
How did the cycle of international debt lead to the wall street crash?
- America’s priority was for Europe to pay debt from WW1
- Most European countries could not afford to do so
- Tariffs increased - European could not trade with America
- Therefore they could not make the money to repay USA
Explain the downward spiral of the wall street crash
- growth in new industries slowing
- full-time employment fell
- Fall in income
- Fall in demand
- Fall in production, adding to unemployment.
- Problems were concealed by the superficial optimism and the frenzy of stock market speculation.
Give an example of USA intervention for international debt
- Dawes Plan - 1924
- Lend money to Germany to be spent of building the german economy
- Germany uses increased tax revenues to pay reparations to France
- France pay back war loans to US and import US goods to held rebuild France
What proportion of USA’s stocks and shares were handled on Wall Street?
61%
Explain the story of the wall street crash. Thursday
- Thursday 24th
- Massive amount of selling began forcing prices down and leafing to more selling stills as brokers feared they would be left with worthless stokes.
What does the Dow jones Industrial Index show?
Shows a drop of 38 points on the days trading down to 260.
Then a further 30 to 230.
In total how many shares were sold during the wall street crash
16,410,030
- Stokes falling 11.73%
How much was lost during the wall street crash?
After a few weeks $30 billion had been lost out of over $100 billion.
This was almost as much as America had spend on WW1
State the causes of the Wall Street Crash
- Uneven distribution of Wealth
- Economic problems linked to prosperity
- International cycle of debt
- Underlying problems in the economy
