Wall Street Crash And Great Depression Flashcards
(25 cards)
What was the nature of the stock market before the crash?
Strong herd mentality - stampede
Speculation - believing someone out there who knows more
Overconfidence: Americans had come to believe that there were no losers playing the Stock Market so too many people were buying shares “on the margin” (on credit) which only took a 10 or 20% deposit
Success on the stock market depended on continued confidence in a continued belief that the prices of shares was going to rise
what did over-confidence lead to in the wall street crash?
believed there were no losers -> buying on credit
leading to stock market participation being democratised (even shoe shine boys) even though only about 1% Americans owned shares
Why were Americans over-confident?
Rapid industrial growth and victory in WW1
When was the Wall st crash and events leading up to it?
In 1929, confidence peaked on 3rd September.
European investors lost faith and began selling due to signs of slowing industries (e.g. automobiles).
High-profile Americans like Charlie Chaplin and Joseph Kennedy sold early. A cascade of sales led to panic, culminating on Black Thursday (24 October), when nearly 13 million shares were sold.
What happened on Black Thursday?
Leading bankers publicly claimed shares were underpriced to restore confidence. J.P. Morgan and others spent millions buying shares—but were secretly selling, and this leaked, worsening the panic. Share prices kept falling.
How many Americans owned shares before the crash?
Only about 1%, but share ownership was democratized, with even shoeshine boys participating.
Did any Americans realise market was dysfunctional and why?
Too many lost touch with economic reality and even those who did not, and were warned as early as 1927 that the supply of automobiles was catching up with demand were not listened to because their voices drowned out by herd with roar of optimism AND tended to be commentators rather than participants
What were the cause of the Wall Street crash simple and importance?
American economy was being driven by its stock market rather than industries DYSFUNCTIONAL
IMPORTANT because had the system worked as it should, the health of the industries ( and therefore the health of the economy) would have been reflected in accurate share prices
What is important about the stock market being run on faith?
Long-term weaknesses were being concealed and the system was running on nothing more than substantial than faith therefore bound to be revealed as dysfunctional causing everyone to sell at the same time as a herd
How did over confidence(where did they get it) lead to the crash?
Victory in ww1 and economic boom and advances in technology
How did banking system lead to crash?
Wstc exposed banking system unsound with casino banks playing stock market with investors money
Even so called vanilla banks could not meat depositors demands to withdraw their savings if depositors demanded their money all at once
When did public confidence in banks collapse and why?
Between 1929 and 1931 because congressional investigations exposed the fact that some banks had knowingly sold worthless bonds during the boom years
Statistics of us banks failing between 1929 and 1932?
One in five US banks failed
How did democratized share ownership make the crash worse?
Widened risk: many poor and middle-class people bought shares on margin. When the market crashed, they couldn’t cover losses.
Why did European speculators withdraw their money?
No confidence that share prices would continue to rise as not being American they had no patriotic susceptibility to the notion that American prosperity would never end - therefore looked at the indicators of the health of the American economy (steel and automobile) and noted that the demand that for both was now falling (time to sell)
Consequences of the Wall Street crash(shortlist)?
Investment companies destroyed - caused thousands of individuals to lose all their money
Unemployment
Eviction
Eroded and finally destroyed public confidence in banks
Growing dependence on breadlines and soup kitchens in cities and state relief funds (where they existed
Private charities were also relied on (where this was possible)
Rise in organised political protest + higher incident of violent clashes
Those with jobs paid lower + fewer hours
Trust in banks destroyed
Hoovervilles - shanty towns
social consequence of the wall st crash
public confidence in banks destroyed
Which investment companies were destroyed?
Those created in the 1920s to buy and sell stock were destroyed, causing thousand of individual investors to lose all their money
How did wstc lead to unemployment + evidence?
1930 alone 26,000 businesses failed
businesses and consumer confidence were shattered
What happened to workers lucky enough to keep their jobs?
Forced to work fewer hours for far lower pay
What did eviction due to wstc lead to?
Eviction in the cities and foreclosure in the countryside
Homeless drifted into so-called Hoovervilles
Examples of rise in organise political protest?
Extreme left and right wing parties became more prominent features of society
Example: American communist party and silver shirts
Who was the silver shirts created by?
Edward Pelly who modelled himself on Hitler and Mussolini
What happened to rich investors and example?
Rich investors like Rockerfeler coped easily with te crash because even though he lost 80% of his wealth, his assets were diversified and he was still worth a billion pounds when he died
