Stock Market Crash The Booming Economy Comes to a Screeching Halt

Troubling Signs  Despite the appearance of a healthy economy, there were dangerous signs: Uneven prosperity: generally, the rich got richer—less than 1% made more than $100,000 Increase in personal debt (installment plan) Playing the stock market—speculation Overproduction Lower farm prices Workers had hardships (poor conditions)

Stock Market Practices  Buying on margin: investors in the stock market could pay just a portion of the actual stock price and borrow the rest If a stock went up, people could sell and pay back the broker Sometimes people would take the value of the stock and use it to borrow more, or sell the stock to buy other products  Speculation: as more people bought stock, the prices rose until the value exceeded the real potential of the company Brokers drove up the prices of stock to make money

Buying on Margin

Stock Market Crashes - October 29, 1929  The stock market grew until September, 1929  As prices began to drop, nervous brokers started to call in loans (Margin Call), while other brokers gave out more & investors sold to get out.  Black Thursday: Oct. 24, stocks dropped sharply. Bankers tried to reassure the public, and even pooled money to try to lift prices back up  Black Tuesday: The bankers’ gains were temporary. On Tuesday, Oct. 29, the market went into free-fall, with losses of $30 billion

Activity – Your Stock Market Losses

Black Thursday: Oct. 24, 1929

Black Tuesday: Oct. 29, 1929

Beyond the Investors  At first, only those with stock were affected by the Great Crash  Banks and brokers started to call in their loans (wanted their money)—few people could pay them back  Banks didn’t have enough cash to cover withdrawals as depositors rushed to get their money out Banks failed, and depositors’ money disappeared  Factories began closing—fewer jobs available

Unemployment Lines

Beyond the Investors (cont’d)  Farm prices continued to drop—more farms fail, more foreclosures as banks seek money  World effects: the U.S. no longer a strong market Investment in Europe dropped Germany couldn’t afford reparations without U.S. investment Europeans couldn’t afford American goods

Bad Practices Contributed to Ruin  Overspeculation: banks lent out too much money—they couldn’t cover potential loss Investors used stock bought on margin as collateral for other loans; when stock value fell, collateral value fell  Government policies: the Federal Reserve reduced the interest rate and put more money in circulation to meet the needs of the boom As overspeculation increased, the Reserve limited the amount of money (discourages lending) When the Great Crash hit, there wasn’t enough money to help  Overproduction, uneven distribution of wealth

Reading Qs – The Great Depression

Graphic Organizer – The Great Depression: Causes

Reading Qs – The Federal Reserve

Activity – Bank on It