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Democracies in Change - America > Topic 1.2 - Causes of the Wall Street Crash > Flashcards

Topic 1.2 - Causes of the Wall Street Crash Flashcards

1
Q

What is stock exchange?

A

The market on which stocks and shares of companies are bought and sold.

Specifically, the building is called Stock Exchange

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2
Q

When did the wall street crash happen?

A

24th - 29th October 1929

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3
Q

What is the bull market?

A

Stock market where there is lots of confidence and lots of buying and selling

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4
Q

What did 6 important bankers do in an attempt to keep the stock market afloat?

A
  • Each pump $40 million into it
  • Withdrew that money once trading looked more stable
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5
Q

What happened on Monday 28th October?

A

The volume of trading was less than the previous Thursday

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6
Q

Within a few weeks of the WSC, how much money had been lost?

A

$30 Billion

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7
Q

Define - Economy

A

The circulation of money (buying, selling, inflation etc.) in an area/ country

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8
Q

Define - Stocks and shares

A
  • 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.
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9
Q

What is wall street?

A

A street in New York’s financial district, where the New York Stock Exchange building is.

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10
Q

What is an investor?

A

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

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11
Q

Who is a broker?

A

A person who buys and sells stocks and shares on behalf of investors

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12
Q

Define - Bull Pool

A

Method by which dishonest brokers bought and sold stock to and from each other to keep prices high

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13
Q

Define - Bankrupt

A

Person or organisation declared in law as unable to pay their debts.

Their assets are taken away from them.

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14
Q

What were Dow Jones Index and New York Times Index

A
  • 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)
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15
Q

State the causes of the wall street crash.

A
  • uneven distribution of wealth
  • Economic problems linked to prosperity
  • International cycle of debt
  • Underlying problems in the economy
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16
Q

What were three signs the economy was slowing down?

A
  1. Problems in small business - every four businesses that succeeded, three failed.
  2. The construction industry - 1926, boom in demand for construction was tailing off - increase unemployment + knock on effects to their suppliers eg brick manufacturers.
  3. Falling domestic demand - The market was flooded with goods that could not be sold - unemployment and low wages.
17
Q

Explain how an uneven distribution of wealth lead to the wall street crash

A
  • 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

18
Q

Explain why stability of employment lead to the wall street crash

A
  • 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.
19
Q

Why did labour unions have very little influence?

A
  • 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
20
Q

Explain for the instability of the “get-rich-quick” schemes lead to the wall street crash

A
  • 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.
21
Q

Explain how land speculation and the Florida land boom lead to the wall street crash

A
  • 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
22
Q

What was Florida’s population like 1920 and 1925?

A

1920 population of the state was 968,000.

By 1925 it was 1.2 million as people purchased

23
Q

What was the result of the Florida hurricane?

A

1926 - 150,000 homeless

This stopped the land boom as the scam was evident

24
Q

How did the stock-market speculation lead to the wall street crash?

A
  • 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
25
Q

How did the weaknesses of the banking system lead to the wall street crash?

A
  • 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
26
Q

How did the cycle of international debt lead to the wall street crash?

A
  • 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
27
Q

Explain the downward spiral of the wall street crash

A
  • 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.
28
Q

Give an example of USA intervention for international debt

A
  • 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
29
Q

What proportion of USA’s stocks and shares were handled on Wall Street?

A

61%

30
Q

Explain the story of the wall street crash. Thursday

A
  • 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.
31
Q

What does the Dow jones Industrial Index show?

A

Shows a drop of 38 points on the days trading down to 260.

Then a further 30 to 230.

32
Q

In total how many shares were sold during the wall street crash

A

16,410,030

  • Stokes falling 11.73%
33
Q

How much was lost during the wall street crash?

A

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

34
Q

State the causes of the Wall Street Crash

A
  • Uneven distribution of Wealth
  • Economic problems linked to prosperity
  • International cycle of debt
  • Underlying problems in the economy

Democracies in Change - America (16 decks)

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