Wall Street Crash Flashcards
What was Wall Street?
Wall Street was a stock exchange, where people bought and sold stocks in other companies. Thought to be a way to get rich quickly and easily. It became more popular to borrow money from banks to buy shares, after a short time, the shares would be sold as soon as the price rose.
What is buying on the margin?
They would then pay off the loan and make a quick profit. ‘Buying on the Margin’ was the practice of paying 10% to the bank, by individuals buying stocks, of the share, and paying the whole sum when you made a profit. The numbers of people investing increased rapidly, as a result the prices of shares rose. Confidence in the market was high, there were more buyers than sellers.
What did the banks do?
Continually lent money to speculators, this money was invested by the banks from other people’s bank accounts, so they could not afford to lose it or their customers would lose money.
What were the weaknesses in the US economy?
42% lived under the poverty line and weren’t able to buy consumer goods etc. Companies were producing more goods than they could sell to the American people. Because of high tariffs placed by America on non-US goods, Europe also put tariffs on US goods limiting exports.
Republican Policies
Taxing foreign imports Fordney-McCumber Tariff Act of 1922, European nations respond with tariffs on US goods, limiting US industry’s ability to export, reducing demand. Laissez-faire policy means there is little regulation of the stock market or the banks (large number of small banks which had no government regulations as to who they could give loans to)
What happened to cause the crash?
Experienced investors knew that the American economy was slowing down. In September 1929, their lack of confidence in the price of shares meant that they began selling them in large numbers. This causes a further decrease in prices. By October, everyone becomes nervous and panicked, and rush to sell their shares. 24 October Black Thursday, 12.8 million shares were sold. 29 October 1929 Black Tuesday, 16 million shares were sold.
What happened to cause the crash 2?
America’s GNP dropped by almost 50%. Car production fell by 80% and building construction fell by 92%. 1931 2,294 banks closed, those who had investments or savings in the banks, lost them. Banks no longer gave loans, reducing the expansion of business. Unemployment rose by 25% of the national workforce. Homelessness became more common, around 2 million. Shanty towns known as Hoovervilles sprang up around the edges of towns. Average hourly wage in factories fell from 59 cents in 1926 to 44 cents in 1933. From the 1930 the Midwest was hit by a series of droughts, which created the Dust Bowl of 20 million hectares of land.
Farm incomes fell from 22 billion in 1919 to 13 billion in 1929. Farmers’ debts increased to 2 billion. In 1928 half of the farmers were in poverty. Prohibition led to a 90% fall in the demand for barley.
