Wall Street crash 1929 Flashcards
Who became President in 1928.
Republican - Herbert Hoover.
He moved into the White House in March 1929.
Hope and prosperity still existed.
When did the Wall Street crash start?
Black Thursday - 24 October 1929
Speculators realised that the banks were not going to intervene to support the price of shares…
Confidence in the value of shares started to fall - panic started. People dumped shares - flooded the market. Made shares worthless.
How does the stock market work?
You can buy shares in companies. If they do well (production up, profits up) their share prices will go up.
In the 1920s many Americans brought shares, and made good money. In 1920 there were 4 million investors. In 1929 there were 20 million.
Some were speculators (individuals, groups and banks). This is a form of gambling. They borrow money to buy share. As soon as they increase, they sell them, pay off the loan, and keep the quick profit.
In 1920s speculators could buy “on the margin”. This meant that they only paid 10% of value of the shares, and borrowed the other 90%. Women were heavily involved in speculation.
In 1929 US banks lent $9 billion for speculation.
Share prices rise because of confidence in the economy (the vital ingredient). If people are confident that the prices will keep rising, there will be more buyers than sellers, so the prices will rise.
If people lose confidence, then they will want to sell their shares, and the prices will go down.
What year did speculation of shares really take hold?
1928
During the 1920s share prices rose quite steadily, but by 1928 there was an all-time high in demand for shares. Everyone wanted to buy them. This cause the price to increase to an unrealistic high.
Weaknesses in the US economy?
The consumer boom depended on people continuing to spend but by 1927, many had run up large debts and/or brought the goods they needed. By 1927, there was a downturn in demand.
In June 1929 - the effects of over production started to be felt and some companies cut back on production.
In Sept. 1929 - some investors began to worry about prices falling, and a crash happening. This led to some stocks being sold.
Banks and large scale speculators wanted to stop the panic and restore confidence - so they brought a vast amount shares. This restored confidence temporarily, so their share prices didn’t fall.
In Oct 1929 - panic set in again. Millions of shares were sold. Banks couldn’t afford to buy more shares again, so from 24th onwards, shares prices plummeted. Investors tried to sell shares and often received a fraction of what they paid.
What underline economic problems contributed to the crash?
- Wealth wasn’t evenly distributed. Profits not passed onto workers, and most were too poor to spend anymore - so demand did not rise as fast as production. Rich already had goods.
- Overproduction. - by 1929 unsold stock was building up so manufacturers reduced production and prices, and made people unemployed (even less money for them to spend).
- Couldn’t sell surplus good abroad because of Tarriff on US goods
- Banks invested more into shares to keep the prices artificially high.
- Lenders gave expensive loans to people.
- Eventually peopLe lost confidence. Realised that companies weren’t making money.
- Investors wanted to sell share. Scared that they would be left with shares worth less than their loans. Panic = Crash.
What was the consequences of the Wall Street crash?
- May rich people lost all their £. Invested heavily.
- Couldn’t afford goods - so immediate down turn in demand. Unemployment increased (lowered demand more).
- People couldn’t pay back their loans to banks / insurance companies. Evicted from homes, and went bankrupt.
- People tried to withdraw their saving from banks. Banks couldn’t pay - went bankrupt. Saving lost.
- US govt. cut taxes in a hope restore confidence and start to consumer boom again. Too little to late.
- People had lost confidence. Didn’t want to use banks. Didn’t want to spend. Result = consumer boom broken. Country had no money
- Great Depression of the 1930s. Mass unemployment and homelessness.
Where is Wall Street?
It’s in New York and it’s the major financial centre in the US.
Stocks and shares are brought there
