Wall Steet Crash And Depression


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Wall Steet Crash And Depression

  1. 1. 1. What happened in Wall Street in Oct 29 th . 1929 2. WHY DID THE WALL STREET CRASH HAPPEN ? – BECAUSE OF WEAKNESSES IN THE 1920’s ECONOMY (a) Market Saturation and Tariff Barriers (b) Unequal distribution of income (c) Blind faith in the Bull Market driving up stock prices (d) Lack of government regulation meant Banks were able to speculate speculating with deposits 3. WHY DID THE GREAT DEPRESSION AFTER 1929 HAPPEN ? The roots of the Depression lay in the 1920’s (a) Farming was already Depressed in the 1920’s – Why? (b) Workers in older industries were poor – Why? (b) Market saturation meant Unemployment was rising after 1928 as profits started to fall The Depression was caused by the Wall Street Crash (a) It destroyed the Banking system – so business (b) It wiped out savings and confidence The Depression was caused by the policies of President Hoover (a) Rugged individualism / self help (b) Smoot Hawley Tariff (c) Failure of the RFC The ONE potential essay questions that could be asked in Paper 1 on the Crash and Depression Why did the Great Depression happen ? Case A – Weaknesses in the 1920’s economy Case B –The impact of the Wall Street Crash Case C – The policies of President Hoover THE GREAT CRASH and THE GREAT DEPRESSION What you need to know on this topic
  2. 2. <ul><li>Tues. Oct. 29th, 1929 - NYC Stock market crashed. A few prominent investors sold up </li></ul><ul><li>because they could see that share prices did not reflect the REAL VALUE of many </li></ul><ul><li>businesses. Everyone else followed suit in a panic of selling. Millions were wiped off the </li></ul><ul><li>value of shares at a stroke </li></ul>THE WALL STREET CRASH – OCTOBER 1929 Many of those who had shares found that they were worth only a fraction of what they had paid for Them.
  3. 3. DID THE CRASH HELP CAUSE THE GREAT DEPRESSION? Millions of shareholders were ruined. They had borrowed money to buy their stock “on margin” hoping to pay the loan back when prices rose. Now they had to find the money to pay off their creditor – banks / credit companies - so had to sell what they had – cars or houses at knock down prices to anyone able to buy!! – not many As the small shareholders went to their banks to get money from their savings to pay off their creditors – they found the banks shut – BANKRUPT – BUST – why? YES - Shareholders were ruined YES - It destroyed the Banking system Many Banks had speculated with depositors money too in the Stock Market and lost it because of the Crash. Too many were did not have enough funds behind them – The Federal Reserve had not bothered to make sure of this in the laissez faire 1920’s
  4. 4. AND THIS BANKING COLLAPSE CAUSED MASS UNEMPLOYMENT…. # Thousands of Banks collapsed because of the Great Crash. # People had no money to deposit in banks – and those who did have money held on to it – putting it into a bank was risky! # Banks ran out of money – many of them had played the market! # So businesses could not get loans / financial services to keep going during the Depression – thousands of bankruptcies resulted
  5. 5. <ul><li>The Great Depression brought hardship, homelessness, and </li></ul><ul><li>hunger to millions across the country, people lost their jobs, and </li></ul><ul><li>their homes. </li></ul><ul><li>Some built makeshifts shacks out of scrap material. Before long </li></ul><ul><li>whole shantytowns (sometimes called Hoovervilles in mock </li></ul><ul><li>reference to the President ) sprung up </li></ul>ESPECIALLY IN THE TOWNS and CITIES One of the common features of urban areas during the era were soup kitchens and bread lines. Soup kitchens and Bread lines offered free or low-cost food for people
  6. 6. FARMERS COULD NOT SELL FOOD – PEOPLE HAD NO MONEY TO BUY Between 1929-1932 almost ½ million farmers lost their land # The Bank failures across the country meant thousands of farmers LOST the SAVINGS they had. # Their INCOME COLLAPSED for lack of demand for food. #Many farmers had RUN up DEBTS in the 1920’s – the few banks in existence in rural areas called these loans in – bankrupting the farmer BUT MANY FARMERS FACED OTHER PROBLEMS NOT TO DO WITH THE CRASH BUT IN THE COUNTRYSIDE AS WELL
  7. 7. <ul><li>A severe drought gripped </li></ul><ul><li>the Great Plains in the early </li></ul><ul><li>1930s </li></ul><ul><li>Wind scattered the topsoil, </li></ul><ul><li>exposing sand and grit </li></ul><ul><li>The resulting dust traveled </li></ul><ul><li>hundreds of miles. One </li></ul><ul><li>storm in 1934 picked up </li></ul><ul><li>millions of tons of dust from </li></ul><ul><li>the Plains an carried it to </li></ul><ul><li>the East Coast. </li></ul>BUT MANY FARMERS FACED OTHER PROBLEMS NOT TO DO WITH THE CRASH Kansas Farmer, 1933 Many “OAKIES” left and headed for CALIFORNIA
  8. 8. THE HOBOES THE UNEMPLOYED “RODE THE RAILS” ACROSS THE COUNTRY LOOKING FOR A JOB 300,000 transients – or hoboes – hitched rides around the country on trains and slept under bridges (thousands were teenagers) Injuries and death was common on railroad property; over 50,000 people were hurt or killed <ul><li>They used to tell me I was building a dream, and so I followed the mob, </li></ul><ul><ul><li>When there was earth to plow, or guns to bear, I was always there right on the job. </li></ul></ul><ul><ul><li>They used to tell me I was building a dream, with peace and glory ahead, </li></ul></ul><ul><ul><li>Why should I be standing in line, just waiting for bread? </li></ul></ul><ul><ul><li>Once I built a railroad, I made it run, made it race against time. </li></ul></ul><ul><ul><li>Once I built a railroad; now it's done. Brother, can you spare a dime? </li></ul></ul><ul><ul><li>Once I built a tower, up to the sun, brick, and rivet, and lime; </li></ul></ul><ul><ul><li>Once I built a tower, now it's done. Brother, can you spare a dime? </li></ul></ul><ul><ul><ul><li>Once in khaki suits, gee we looked swell, </li></ul></ul></ul><ul><ul><ul><li>Full of that Yankee Doodly Dum, </li></ul></ul></ul><ul><ul><ul><li>Half a million boots went slogging through Hell, </li></ul></ul></ul><ul><ul><ul><li>And I was the kid with the drum! </li></ul></ul></ul><ul><ul><li>Say, don't you remember, they called me Al; it was Al all the time. </li></ul></ul><ul><ul><li>Why don't you remember, I'm your pal? Buddy, can you spare a dime? </li></ul></ul><ul><ul><ul><li>Once in khaki suits, gee we looked swell, </li></ul></ul></ul><ul><ul><ul><li>Full of that Yankee Doodly Dum, </li></ul></ul></ul><ul><ul><ul><li>Half a million boots went slogging through Hell, </li></ul></ul></ul><ul><ul><ul><li>And I was the kid with the drum! </li></ul></ul></ul><ul><ul><li>Say, don't you remember, they called me Al; it was Al all the time. </li></ul></ul><ul><ul><li>Say, don't you remember, I'm your pal? Buddy, can you spare a dime? </li></ul></ul>
  9. 9. <ul><li>After the stock market crash, President Hoover tried </li></ul><ul><li>to reassure Americans. He said, “Any lack of </li></ul><ul><li>confidence in the economic future . . . Is foolish”. He </li></ul><ul><li>recommended business as usual </li></ul>DID THE ACTIONS OF PRESIDENT HOOVER CAUSE THE GREAT DEPRESSION? Republican Herbert Hoover ran against Democrat Alfred E. Smith in the 1928 election Hoover emphasized years of prosperity under Republican administrations. He won an overwhelming victory Hoover was not quick to react to the depression. He believed in what he believed was the very American idea of “ rugged individualism ” – that people succeed through their own efforts and should take care of themselves, and not depend on governmental hand-outs. SELF HELP and looking after your own problems were the key to being a “real” American – NOT RELYING ON THE GOVERNMENT HOOVER’S PHILOSOPHY – RUGGED INDIVIDUALISM
  10. 10. <ul><li>The U.S. was not the only country gripped by the Great Depression. In 1930, </li></ul><ul><li>Congress passed the toughest tariff in U.S. history the Smoot – Hawley Tariff. It </li></ul><ul><li>increased the tariffs by 40% - way beyond Fordney McCumber. It was meant </li></ul><ul><li>to protect U.S. industry yet had the opposite effect. Other countries enacted </li></ul><ul><li>their own tariffs and soon world trade fell 40%. US industry and farming found </li></ul><ul><li>the last few international markets closed off to them. Unemployment got worse </li></ul>DID THE ACTIONS OF PRESIDENT HOOVER CAUSE THE GREAT DEPRESSION? YES – His beliefs in Rugged Individualism prevented him from taking effective action # Hoover did not want to take government action – HE THOUGHT THE ECONOMY WOULD SORT ITSELF - he met # Hoover HATED the idea of FEDERAL government welfare for the poor – private charities did more than the Federal government. Hoover tried to get State governments to help with welfare payments with industrialists like Henry Ford and tried to PERSUDE them VOLUNTARILY not to cut workers wages or lay more off – he was IGNORED But most States had no money because they were unemployed so could not pay tax – HOOVER DID LITTLE TO PUT SPENDING POWER INTO THE POCKETS OF ORDINARY AMERICANS       YES – In 1930 Hoover Increased Tariffs on foreign imports : Smoot-Hawley
  11. 11. DID THE ACTIONS OF PRESIDENT HOOVER CAUSE THE GREAT DEPRESSION? YES and NO – The Reconstruction Finance Corporation ( RFC ) Hoover set up helped a bit # Hoover was attacked by some laissez faire Republicans for setting up the RFC because it smelled too much like state intervention in private business ( as this cartoon suggests ) # The RFC gave LOANS to the banks mainly to help them keep open which was good. It was as far as Hoover was prepared to go in terms of state intervention BUT THE PROBLEM WITH THE RFC WAS ….. # People saw these as handouts to business while millions of ordinary people were suffering – it seemed that rugged individualism did not apply to business. # The loans given were small and did little to really help YES – Hoover’s attitude to the Bonus Marchers showed how out of touch he was with people 3,000 unemployed and poor World War 1 veterans marched on Washington to ask for an early payment of bonuses due to be paid to them in 1945. Troops and police were used by Hoover to clear their Hooverville just outside Washington – the excuse used that they were communists out to bring down the government. A shameful episode but it made people hate Hoover
  12. 12. Many Americans hated Hoover, and the bitterness directed towards him showed how they wanted a scapegoat “ We were heroes in 1917 said one veteran bitterly, but we’re bums now” – A Bonus Marcher &quot;I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress.“ – Andrew Mellon, U.S. Treasury Secretary December 31, 1929 &quot;I am convinced that through these measures we have reestablished confidence.“ Hoover, December 1929 “ Why don’t they make him quit, He’s not doing himself or the party any good. It’s turning into a farce. He is tired physically and mentally” - A Republican Senator about Hoover in the 1932 election. “ Give me a lift or I’ll vote for Hoover” – A sign held by a hitcher during the 1932 election
  13. 13. <ul><li>Refer to overproduction and market saturation, inequalities in wealth, margin buying, speculation by the Banks </li></ul><ul><li>in the Stock Market, laissez-faire and the lack of regulation. </li></ul>Comprehension questions on the Crash and Great Depression 1. Why were Americans convinced that buying shares in the 1920’s would make them rich? 2. Why was there panic selling on “Black Tuesday” 3. How did this ruin speculators? 4. What were the weaknesses in the 1920’s economy that made the Crash inevitable? 5. How could it be said that the Crash caused the Great Depression in the early 1930’s? 6. Why were the effects of the Depression particularly bad for Americans? 7. How could it be said that President Hoover caused the Great Depression? 8. Why was self help not an option for people? 9. Define the following terms – THE BULL MARKET, UNDERCAPITALISED BANKS, DEPOSITORS, INVESTORS, HOOVERVILLES, HOBOES, OKIES, DUST BOWL, VOLUNTARISM, THE BONUS ARMY Comprehension questions on Hoover Refer to the impact on industry and agriculture and why Americans suffered such poverty Refer to Hoover’s philosophy, the Hawley Smoot Tariff, and the RFC