09. Wall St Crash Flashcards
How do we know that there was a culture of credit during the 1920s?
By 1929, almost $7 bn worth of consumer goods bought on credit, this elucidates the culture of borrowing and credit
Banks ran very few financial checks
How much was bought on the margin?
By 1929, speculators had borrowed $9 bn for guessing and hoping that prices would go up and they’d make a quick profit. They would pay it back with the profit that they made
How did the culture of “get-rich-quick” impact the stock exchange?
By 1929, 600,000 Americans had become “speculators”, professional guessers
America went Wall Street Crazy
How did lack of government regulation impact other areas of the economy?
Lack of government regulation had led to the growth of huge corporations already - Samuel Insull owned 111 companies (cartel) Corporations would fix prices and keep prices high, preventing competition a d taking advantage of consumers and workers
How was there corruption on the stock exchange?
On the stock exchange there was also corruption: for years before the crash there was “insider dealing” between banks and brokers, set the price of shares at the wrong value
What was the bull pool?
Brokers worked together to artificially force up prices of shares by buying them quickly and selling them once naive investors had joined in. Brokers made a quick profit but shares were left to drop and people lost out.
What happened in March 1929?
March 1929, prices dropped, but banks mass bought shares to help the stock exchange look healthy
What happened on 24th October 1929?
24th October, market dropped by 11%, prices dropped, brokers panicked they’d be left with worthless stock
How did major financial institutions try to fix the problem?
J.P. Morgan, Rockefeller and other financial businesses pumped money into the stock market by buying up loads of stock to try and stabilise it and increase confidence. Each pumped $40 million into it - they then withdrew that money once trading looked more stable
How did the panic continue on Monday?
But selling kept increasing as brokers tried to get rid of their stock, and on Monday the market dropped by 13%
How did the market crash on Tuesday 29th October?
On Tuesday 29th, 16 million shares sold and market dropped a further 12%
What happened as a result of the Wall Street Crash over the next few months?
The Wall St stock exchange was responsible for 61% of transactions in the USA, when it crashed lots of other smaller exchanges crashed in the USA, and then across the capitalist world
Over the next few months $30 billion lost out of $100 bn
People began to rush to the banks to withdraw their savings, but the banks did not have enough to give
By the end of 1929 650 banks had failed, and a further 1,500 in 1930
By 1933 10,000 banks had failed across America
What was the response of the media?
The newspapers helped stir up the panic by reporting each stage of the panic between 24-29th October
The newspapers also told false stories of investors jumping from building on Wall Street to commit suicide. This was started by Winston Churchill who was staying on Wall Street at the time
