Wall Street Crash Flashcards
Describe 1928 presidential election.
In 1928 there was a presidential election. President Hoover won against Al Smith, an Irish Catholic and wet who had been a successful governor of New York. In March 1929 he entered the White House, arguing that Americans were prosperous.
How did Americans become more involved in the stock market?
In 1920 there were 4 million share owners on the stock market, rising to 20 million by 1929. As there were more buying than selling, prices were high. 600,000 new investors were speculators who would buy shares and sell them off when the price had risen. Some could pay 10% and receive a loan which they would pay off when the price of the share increased. Women owned 50% of the Pennsylvania Railroad. Banks lent $9 million in 1929 for this. However, in 1929 confidence was lost, resulting in more sellers.
What were signs in industry that a crash was coming?
By 1926 the construction industry showed weakness. Traditional industry such as coal and textiles struggled. 500 banks closed each year, typically small banks lending too much.
In 1929 consumer goods, which had defined the boom, had already been bought by upper and middle class. Lower classes couldn’t afford them even with hire purchase and credit schemes and $3 billion was spent on advertising. 9 years of tariffs made it expensive to sell off surplus abroad.
What reduced confidence in shareholders?
In June 1929 industrial output showed a fall for the first time in four years. Between September to October investors slowly sold off their shares, and by 29 October 1929, 13 million shares were dumped at a fraction of the price they were bought at.
How did Mellon respond?
Andrew Mellon, Secretary to the Treasury, told Hoover to do nothing, as he saw that wealth from shut down companies could be liquidated and invested in new more worthwhile industries and ventures.
What was the impact of the crash?
Unemployment rose to 16 million in 1933, bank failures to 4000, construction declined, by 1932 there were 0 full time steel workers from 225,000 in 1929, and ¼ of all farmers lost their land by 1932.
What was the right action and wrong action?
RIGHT ACTION; Reconstruction Finance Corporation in 1932 passed Glass-Seagall Act to offer community loans, and Federal Home Loan Bank Act to provide cheaper home mortages. 1932 Emergency Relief and Construction Act gave relief money to states for federal and public work.
WRONG ACTION; Interest increased in 1931 making borrowing more expensive; Hawley-Smoot Act of 1930 raised import duties by 1/3, war debts couldn’t be paid off; by 1931 Hoover decreased federal spending and rejected relief bills from Congress. Revenue Act of 1932 increased corporate taxes.
