What caused the Wall Street Crash?

Question 1

When did 12.8 million shares change hands on Wall Street

Answer 1

-Thursday 24th October 1929
-also known as Black Friday

Question 2

By the end of the day on the 24th, how much had value of shares fallen?

Answer 2

-almost 4 billion dollars

Question 3

On the 29th October 1929, how many shares had changed hands?

Answer 3

-a record 16 million
-at very low prices

Question 4

An economic slump followed the WSC, but…

Answer 4

-was not the result of it

Question 5

Between October and December 1929, how much had unemployment risen?

Answer 5

-from 500,000 to 4million

Question 6

How much did average real wages fall 1929-31?

Answer 6

-16%

Question 7

What was a consequence of Republican low tax policies?

Answer 7

-the rich became richer
-by 1929, the rich owned 33% of America’s wealth
-the bottom 40% of the population owned only 12.5%
-therefore, the US economy lacked spending power to buy all goods produced and overproduction occurred

Question 8

Which govt policy encouraged overproduction?

Answer 8

-Fordney McCumber tariff 1922
-limited US trade with the rest of the world economy
-in retaliation to the tariff, foreign countries put their own tariffs on US goods

Question 9

How did the WSC affect consumer spending?

Answer 9

-confidence in the ecocnomy began to wane and consumer spending dropped
-therefore, overproduction occurred

Question 10

Why was the economic boom of the 20’s unsustainable?

Answer 10

-the disparity of wealth between the rich and the bottom third of the US population

Question 11

Explain land speculation in Florida

Answer 11

-super rich industrialists such as T. Coleman Du Pont, saw the possibility of buying upland in Southern Florida and selling it to newly prosperous populations who faced cold winters in the North East
-the growth of the motor car made Florida more accessible

Question 12

How was Miami’s population affected by land speculation in Florida?

Answer 12

-from 30,000 to 130,000

Question 13

Why had Florida’s land boom collapsed by 1926?

Answer 13

-lack of infrastructure such as roads and railways
-in 1925, the Internal Revenue Service began taxing profits on property speculation
-in September 1926, a major hurricane devastated large parts of Southern Florida and killed 400 people and left 50,000 homeless

Question 14

What is a bear market ?

Answer 14

-what USA had experienced in the past
- a period where share prices fall

Question 15

What is a bull market?

Answer 15

-what many believed would last forever
-a period where share prices increase

Question 16

How had share prices changed 1925-29?

Answer 16

-almost doubled
-from 34 billion dollars to 64 billion dollars

Question 17

What idea led to share speculation?

Answer 17

-that average Americans could ‘get rich quick’ through buying shares

Question 18

What does buying shares ‘at the margin’ mean?

Answer 18

-they would borrow money and buy shares at 10% of the share price
-they hoped to pay back the loan through selling the shares at higher prices in the future

Question 19

What happened once stock prices began to waver?

Answer 19

-a wave of selling began which triggered a share sale panic

Question 20

What did the Harvard Economic Society and Moody’s Investment Service warn about share prices?

Answer 20

-that share prices had reached unreasonable levels and a downward readjustment in prices was expected
-these warnings were ignored by the majority of share purchasers

Question 21

What did the Federal Reserve Board do to banks?

Answer 21

-kept US interest rates low at 3.5%
-this fuelled borrowing by bambi’s with substantial reserves of money

Question 22

Where did most of the money banks invested go?

Answer 22

-Share speculation and property investments instead of loans to commerce and industry

Question 23

What were call loans?

Answer 23

-loans to individuals and companies to buy shares ‘on the margin’
-this was profitable if share prices rose
-once they began to fall in 1929, it exposed thousands of banks to bad debts which they could not get borrowers to repay

Question 24

How many banks actually worked with the Federal Reserve Board?

Answer 24

-1/3
-the other 2/3s operated in an unregulated market without clear controls on how they should operate

Question 25

How did the existence of thousands of different banks affect the US?

Answer 25

-US law set limits on bank operations, restricting most to operation within one of the 48 states
-these had limited stocks of money
-when faced with debit, they usually called in loans which sparked off bank closures when debtors were unable to pay

Question 26

How many banks went out of business 1921-28

Answer 26

-5000

Question 27

What was the McFadden-Pepper Act 1927?

Answer 27

-gave big city commercial banks extra powers which allowed them to compete more strongly against smaller rural banks

Question 28

What was the 1933 Glass Steagall Act?

Answer 28

-trying to begin the creation of a modern banking system and finally enable the US economy to get out of severe depression