2 Black TuesdayTuesday, October 29, 1929: Millions of dollars were lost on the New York Stock ExchangeWho would be affected by a loss in stocks?StockholdersBusinessesBusiness ownersWorkersConsumersbanks
3 Black TuesdayA messenger struggling through the crowd suddenly found himself yanked by his hair off his feet. The man who held him kept screaming he had been ruined. He would not let the boy go. The terrified youth at last broke free, leaving the man holding tufts of his hair. Crying in pain, the messenger fled the Exchange. His hair never regrew. Behind, he left a scene of increasing pandemonium. As huge blocks of shares continued to be dumped,... 1,000 brokers and a support army of 2,000 page boys, clerks, telephonists... and official recorders could sense this was going to be the 'day of the millionaire's slaughter.‘ William Crawford, swept along helplessly by the great tide of people, would always remember how 'they roared like a lot of lions and tigers. They hollered and screamed, they clawed at one another's collars. It was like a bunch of crazy men." - Gordon ThomasIs calling this event the ‘day of the millionaire’s slaughter’ correct? Why or why not? Think about this question as if you were living during this time.
4 Before the Crash Stock market is doing very well in late 20s Dow Jones Industrial Average (average stock prices of major industries, used as tool to measure how market is doing) was at an all-time high in September 1929Market not really as it appearsProblem: Stock prices soared well past their real valueBlack Thursday- October 24Stock prices begin to drop quicklyBlack Tuesday- October 2916.4 million shares sold and Dow Jones goes down from 381 to 198.7Event known as The Great Crash
5 Ripple Effect of the Crash As we said before the crash affected many different groups of peopleA lot of the problems revolve around banking and loansTime for a demonstration!
6 Ripple Effect Explained Risky Loans Hurt BanksConsumer BorrowingBank RunsBanks FailedSavings Wiped OutCuts in ProductionRise in UnemploymentFarther Cuts in ProductionEconomic Contraction
7 1. Risky Loans Hurt Banks 2. Consumer Borrowing Bank loans money to business, business uses money to make business betterIf stocks prices crash, business loses money, business cannot pay banks the interest on the loans2. Consumer BorrowingPeople borrowed money to pay for goods and services and did not have payments ready when banks needed them
8 3. Bank Runs 4. Banks Failed 5. Savings Wiped Out Great Crash made people rush to get money out of banks in fear that banks had none4. Banks FailedBanks were not getting interest payments and were hurt by runs, so they had to close!5. Savings Wiped OutIf a bank fails, accounts are lostBy 1933, 9 million savings accounts vanished
9 8. Farther Cuts in Production 9. Economic Contraction Businesses cannot borrow money so cannot make goods7. Rise in UnemploymentLess production means less jobsLess jobs means less people spending money8. Farther Cuts in ProductionPeople cannot afford goods so businesses make less9. Economic ContractionEconomic decline followed by falling output of goods and services
10 Impact on Farmers and Workers Factories closed- even Ford’s, millions without workAfter factories, small businesses and restaurants closed because they have no customersCrop prices go down¼ unemployed (12 million people) and Gross National Product (total value of goods and services) down from $103 billion to $53 billion
11 Impact on the WorldRise in international banking, manufacturing and trade= interdependencyUS leading economy- triggers ripple effectGermany payment of WWI loansGermany repaying loans depended on US investment, Germany pays France and GB, F and GB pay US, cycle that fails when US can no longer invest in Germany
13 Underlying Causes of the Depression Bigger problems than just crashAn Unstable EconomyUneven distribution of wealthMore goods produced than neededOverspeculationBought stocks with borrowed money, pledged those stocks as collateral to buy moreCollateral- item of value to surrender if borrower cannot repay LP- Use student exampleToo much optimism and borrowed moneyGovernment PoliciesFederal Reserve (controls amount of money in circulation)- had too little money in circulation at time of crash