What were the causes and consequences of the Wall Street Crash? A very brief set of notes…

What were the causes and consequences of the Wall Street Crash? This presentation will look at 3 main areas: Causes of the Wall Street Crash Consequences of the Crash Why did Roosevelt win the 1932 election? To return to the start click the logo. CausesConsequencesRoosevelt in 1932

Wall Street in the 1920s Wall Street is the name of the stock market in New York. This is the place where stocks and shares are bought and sold. During the 1920s buying shares [in companies] was a good way to make money: -You were paid a dividend [a share in the companies profit] -Share prices rose through the 1920s so you could generally sell your shares for more than you bought them for. The number of Americans buying shares in the 1920s quadrupled to 20 million. CausesConsequencesRoosevelt in 1932

The Wall Street Crash was a sudden collapse in the price of shares in October 1929 that sent the world into a economic depression [ a period when the economies shrank, businesses closed and there was high unemployment] Thursday 24 th October 1929 ‘Black Thursday’. Share prices fell rapidly. Banks spent $250 million to try to stop the falls. It seems to work until Monday 28 th October Millions more shares were sold as banks stop spending. Tuesday 29 th October Over 16 million shares were sold for any price people could get. $8 bn was lost in one day. CausesConsequencesRoosevelt in 1932

Speculation More and more Americans joined the speculation [buying and selling shares quickly to make money]. Banks did the same. During the 1920s people also began ‘buying on the margin’. This meant borrowing money from banks to buy shares. The would sell the shares once the prices had gone up, pay back the borrowed money to the bank, and make a profit as well. This required confidence, and only worked when shares prices were rising. Without rising prices people could not pay back the banks. As more people went bankrupt, people started to panic making the prices fall even faster. Speculation meant a small drop in prices quickly turned into a big drop in confidence, and a sudden crash. CausesConsequencesRoosevelt in 1932

Other causes 1 Weakness in the U.S. economy were already reducing confidence: Farming Agriculture had struggled through the 1920s with overproduction. Many farmers had gone bankrupt CausesConsequencesRoosevelt in 1932

Other causes 2 Republican policies U.S. tariffs had led other countries to introduce their own tariffs. As a result it was hard for U.S. industry to sell their surplus [extra] food and consumer goods abroad Poverty The US economy was saturated. All those who could afford consumer goods had already bought them. This was made worse because half of all Americans lived in poverty so couldn’t afford consumer goods, even on hire-purchase. CausesConsequencesRoosevelt in 1932

Financial Effects Many big speculators were ruined. There are famous stories of speculators jumping from skyscrapers. Over 600 banks also went bust in CausesConsequencesRoosevelt in 1932

Cycle of depression Confidence was destroyed, and a cycle of depression had started. As more banks went bankrupt, confidence fell, people removed their money, which caused more banks to collapse (over 1000 in 1930, over 2000 in 1931). Similarly, people stopped buying goods, which led businesses to cut wages and staff, which meant people bought even less. By 1933 Industrial production had fallen by 40% Wages had fallen by 60% Unemployment had risen to 25% CausesConsequencesRoosevelt in 1932

Social Consequences of the Depression Farmers were very badly hit, they were poor before the crash. The drought in the ‘dust bowl’ made things even worse. Many became migrants [had to move]. Some cities like Cleveland had 50% unemployment. There were soup lines, and shanty towns nicknamed ‘Hoovervilles’. 100s of people died from starvation. CausesConsequencesRoosevelt in 1932

Hoover’s reaction At first Hoover promised Americans that prosperity was ‘just around the corner’ and refused to believe there was a major problem until 1932.Iowa farmers complained ‘in Hoover we trusted, now we are busted’ He was seen as a ‘do nothing’ president. He did cut taxes, and set up the Reconstruction Finance Company to try to stop some banks going bust. He put up tariffs but this made things worse by reducing trade even more. He believed in laissez-faire Republican policies. He did not believe in spending government money on feeding or housing the unemployed CausesConsequencesRoosevelt in 1932

Bonus Marchers Hoover’s reputation was very damaged by his treatment of the Bonus Marchers in June Former First World soldiers had been promised a bonus [a kind of pension]. They marched to Washington and set up a peaceful camp outside the White House asking for their pensions to be paid early because of the depression. Hoover had asked the police and army to break up the protest respectfully. However, they used tear gas and burnt the marchers camp. Rather than apologise Hoover prised the police for their actions. For many Americans this proved how heatless he was. CausesConsequencesRoosevelt in 1932

1932 Presidential Election Franklin D Roosevelt [FDR] achieved a landslide victory over Hoover in the 1932 election. In part, Hoover lost it because he was unpopular. However Roosevelt also inspired many Americans with hope: -He promised a ‘New Deal’. This was quite Vague but it involved ‘active government’ with spending to improve people’s lives if self help and charity failed -He believed in using government spending to give the unemployed work FDR gave 16 major speeches and also spoke from a train as he travelled the country. He had a track record of ‘active government’ as governor of New York. CausesConsequencesRoosevelt in 1932