Reasons for the Wall Street Crash

  • Created by: ellen
  • Created on: 08-05-13 12:34

Reasons for the Wall Street Crash

Lack of Confidence: Rumours were spreading that big players like Joe Kennedy on the stock market were selling their shares, and that they were going to make it more difficult to get credit. In this atmosphere of uncertainty, brokers started to ask for credit and their clients began to sell their stock to pay their loans back. This increase in selling brought prices of the shares down, October 29, 1929, about 16 million shares were traded. In a single day, the market lost $14 billion.

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The reasons for the Economic Boom

The banking system and lack of regulation: The Republican government pursued ‘Laissez Faire’ policies that favoured big businesses. The federal government could have intervened and regulated the banking system by raising interest rates on loans which would discourage people from borrowing as much as they did. The federal government did not want to do this as it saw raising interest rates as unnecessary because it would make American goods too expensive for foreign buyers. Foreign trade took priority over regulating the stock market. 

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The reasons for the Economic Boom

‘Get rich quick’ scheme: Historians have identifies that the majority of people who invested in the stock market, sought to ‘get rich quick’. People who knew nothing about the workings of the stock market simply expected prices to keep rising. An estimated 50,000 of those regularly bought shares ‘on the margin’. This meant that they only put down a fraction of the price, borrowing the rest from the Broker who in turn borrowed largely from banks to pay for the shares It seemed a fool-proof way to get rich. 

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