If the stock dropped in price, they would not be able to sell it and therefore couldn't pay the loan back. When the stock market crashed and all the stock values went down or were worthless, no one could pay off their loan. Ironically, in , then Secretary of Commerce Herbert Hoover warned President Calvin Coolidge that stock market speculation was getting out of control.
Once he became president, Hoover tried to persuade Wall Street managers that they needed to act with more caution. A drop in consumer spending. Even modern economists have a difficulty explaining why the economy did not bounce back in Robert Samuelson, a journalist today who writes on economic affairs, says a big drop in consumer spending kept the economy depressed. People lost confidence in the economy and stopped buying new household items. Rising bad debts led to banks stop making new loans.
Less credit meant less spending, lower prices, and more bankruptcies. Hoover attempted to help. In fact, he was one of the main causes to why the depression was worse that it would have been without him. His pro-labour policies, wage freeze and job-sharing ideas were detrimental to the economy. He meant to do good by his ideas but did not calculate what the negative effects would be. Therefore Hoover is so often blamed for the Great Depression. Accessed November 12, Make sure your essay is original or hire a writer to make it plagiarism-free.
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Don't know where to start? Give me your paper requirements and I connect you to an academic expert. Category: American History. Pages : 2. Words : Download: Print: Order Original Essay. Contents 1 Our writers can help you with any type of essay. For any subject 1. Did you like this example? Morgan, and others, conspired to purchase large amounts of blue chip stocks including U. Steel in order to keep the prices artificially high. Even that effort failed in the growing wave of stock sales.
As newspapers across the country began to cover the story in earnest, investors anxiously awaited the start of the following week. When the Dow Jones Industrial Average lost another 13 percent of its value on Monday morning, many knew the end of stock market speculation was near. The evening before the infamous crash was ominous. After a night of heavy drinking, they retreated to nearby hotels or flop-houses cheap boarding houses , all of which were overbooked, and awaited sunrise.
Children from nearby slums and tenement districts played stickball in the streets of the financial district, using wads of ticker tape for balls. Although they all awoke to newspapers filled with predictions of a financial turnaround, as well as technical reasons why the decline might be short-lived, the crash on Tuesday morning, October 29, caught few by surprise.
The volume of Western Union telegrams tripled, and telephone lines could not meet the demand, as investors sought any means available to dump their stock immediately. Rumors spread of investors jumping from their office windows. Fistfights broke out on the trading floor, where one broker fainted from physical exhaustion. Stock trades happened at such a furious pace that runners had nowhere to store the trade slips, and so they resorted to stuffing them into trash cans. When the final bell rang, errand boys spent hours sweeping up tons of paper, tickertape, and sales slips, as shown in Figure To put this in context, a trading day of three million shares was considered a busy day on the stock market.
People unloaded their stock as quickly as they could, never minding the loss. Banks, facing debt and seeking to protect their own assets, demanded payment for the loans they had provided to individual investors.
Those individuals who could not afford to pay found their stocks sold immediately and their life savings wiped out in minutes, yet their debt to the bank still remained. The financial outcome of the crash was devastating. Any effort to stem the tide was, as one historian noted, tantamount to bailing Niagara Falls with a bucket. The crash affected many more than the relatively few Americans who invested in the stock market.
While only 10 percent of households had investments, over 90 percent of all banks had invested in the stock market. Many banks failed due to their dwindling cash reserves.
This was in part due to the Federal Reserve lowering the limits of cash reserves that banks were traditionally required to hold in their vaults, as well as the fact that many banks invested in the stock market themselves. Eventually, thousands of banks closed their doors after losing all of their assets, leaving their customers penniless. While a few savvy investors got out at the right time and eventually made fortunes buying up discarded stock, those success stories were rare.
Housewives who speculated with grocery money, bookkeepers who embezzled company funds hoping to strike it rich and pay the funds back before getting caught, and bankers who used customer deposits to follow speculative trends all lost.
While the stock market crash was the trigger, the lack of appropriate economic and banking safeguards, along with a public psyche that pursued wealth and prosperity at all costs, allowed this event to spiral downward into a depression. The crash of did not occur in a vacuum, nor did it cause the Great Depression.
It also represented both the end of an era characterized by blind faith in American exceptionalism and the beginning of one in which citizens began increasingly to question some long-held American values. A number of factors played a role in bringing the stock market to this point and contributed to the downward trend in the market, which continued well into the s. The Allies owed large amounts of money to U. Unable to repay these debts, the Allies looked to reparations from Germany and Austria to help.
The economies of those countries, however, were struggling badly, and they could not pay their reparations, despite the loans that the U. The U. When other countries began to default on this second wave of private bank loans, still more strain was placed on U. Poor income distribution among Americans compounded the problem. In the s, this was not the case.
Eighty percent of American families had virtually no savings, and only one-half to 1 percent of Americans controlled over a third of the wealth. This scenario meant that there were no new buyers coming into the marketplace, and nowhere for sellers to unload their stock as the speculation came to a close.
In addition, the vast majority of Americans with limited savings lost their accounts as local banks closed, and likewise lost their jobs as investment in business and industry came to a screeching halt.
Finally, one of the most important factors in the crash was the contagion effect of panic. For much of the s, the public felt confident that prosperity would continue forever, and therefore, in a self-fulfilling cycle, the market continued to grow. But once the panic began, it spread quickly and with the same cyclical results; people were worried that the market was going down, they sold their stock, and the market continued to drop. Historically, markets cycled up and down, and periods of growth were often followed by downturns that corrected themselves.
But this time, there was no market correction; rather, the abrupt shock of the crash was followed by an even more devastating depression. Investors, along with the general public, withdrew their money from banks by the thousands, fearing the banks would go under. The more people pulled out their money in bank runs, the closer the banks came to insolvency. As the financial markets collapsed, hurting the banks that had gambled with their holdings, people began to fear that the money they had in the bank would be lost.
This began bank runs across the country, a period of still more panic, where people pulled their money out of banks to keep it hidden at home. The contagion effect of the crash grew quickly. With investors losing billions of dollars, they invested very little in new or expanded businesses.
After the crash, both were hit hard. In November , fewer cars were built than in any other month since November Even before the crash, widespread saturation of the market meant that few Americans bought them, leading to a slowdown. Afterward, very few could afford them. By , Stutz, Locomobile, Durant, Franklin, Deusenberg, and Pierce-Arrow automobiles, all luxury models, were largely unavailable; production had ground to a halt.
They would not be made again until In construction, the drop-off was even more dramatic. It would be another thirty years before a new hotel or theater was built in New York City. The Empire State Building itself stood half empty for years after being completed in The damage to major industries led to, and reflected, limited purchasing by both consumers and businesses.
Even those Americans who continued to make a modest income during the Great Depression lost the drive for conspicuous consumption that they exhibited in the s.
People with less money to buy goods could not help businesses grow; in turn, businesses with no market for their products could not hire workers or purchase raw materials.
Employers began to lay off workers. Unemployment tripled, from 1. By mid, the slide into economic chaos had begun but was nowhere near complete. For most Americans, the crash affected daily life in myriad ways. In the immediate aftermath, there was a run on the banks, where citizens took their money out, if they could get it, and hid their savings under mattresses, in bookshelves, or anywhere else they felt was safe.
Some went so far as to exchange their dollars for gold and ship it out of the country. A number of banks failed outright, and others, in their attempts to stay solvent, called in loans that people could not afford to repay. Working-class Americans saw their wages drop: Even Henry Ford, the champion of a high minimum wage, began lowering wages by as much as a dollar a day.
Southern cotton planters paid workers only twenty cents for every one hundred pounds of cotton picked, meaning that the strongest picker might earn sixty cents for a fourteen-hour day of work. Cities struggled to collect property taxes and subsequently laid off teachers and police. The new hardships that people faced were not always immediately apparent; many communities felt the changes but could not necessarily look out their windows and see anything different. They might be found keeping warm by a trashcan bonfire or picking through garbage at dawn, but mostly, they stayed out of public view.
As the effects of the crash continued, however, the results became more evident. Those living in cities grew accustomed to seeing long breadlines of unemployed men waiting for a meal, as shown in Figure Companies fired workers and tore down employee housing to avoid paying property taxes. The landscape of the country had changed. The hardships of the Great Depression threw family life into disarray. Both marriage and birth rates declined in the decade after the crash.
The most vulnerable members of society—children, women, minorities, and the working class—struggled the most. Parents often sent children out to beg for food at restaurants and stores to save themselves from the disgrace of begging.
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