Causes and Consequences of the Wall Street Crash 1929

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Causes and Consequences of theWall Street
Crash1929

• Overview

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Unequal distribution of wealth
Poor overseas markets
Too many goods and not enough demand
The share bubble of speculation
Heavy borrowing
Wall Street Crash
Buying on the margin
The Florida Land Boom 19241926
The Wall Street share boom
How long could the share boom last?
Did people see the crash coming??
The Florida Land Boom ends
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Unequal distribution of wealth

• Many Americans could not afford to be part of the
  consumer society
• The American boom had been built on mass
  production producing mass profits
• However, the market for mass produced goods was
  limited.

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Poor overseas markets

• The American Government wished to protect home
  markets from foreign competition
• Therefore it imposed high import duties
• Foreign countries responded by imposing high
  import duties on American goods
• This meant that American companies had to rely on
  the home market

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Too many goods, not enough demand

• Home demand was not great enough to absorb all
  the good available
• To maintain profits, employers started to cut
  back on labour costs
• By 1928 2 million Americans were out of work

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The Wall Street Share Boom

• In the early days of the impact of mass
  production company profits increased
• Many ordinary people saw investing in companies,
  by buying stocks and shares, as a way of making
  easy money.
• In the early days many people made a great deal
  of money

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Heavy borrowing

• Americans were confident that the value of stock
  and shares would continue to rise.
• Therefore they borrowed from banks and other
  financial institutions to buy shares
• The banks and other financial institutions shared
  their confidence and so would allow bigger loans
  than normal.
• Millions of Americans were in debt

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Buying on the margin

• Stockbrokers also allowed the buying of shares on
  credit.
• The purchaser bought the shares for a 10 deposit
  (the margin) against the hope that they could
  sell the shares quickly for a higher price.
• Their profit would cover the balance of the
  original cost and make a profit for the purchaser

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How long could the boom last?

• The peak of the boom was 1927 1929
• When share prices fell, buyers would snap up
  these shares, the price would rise again, and
  they would sell at a profit
• As a result the boom kept going

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The Bubble of Speculation
Everyone was buying and selling shares!
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The Florida Land Boom1924 1925

• Credit also allowed people to buy land which they
  hoped would rise in price
• Plots of land were bought for 10 deposits
  (called binders) and sold off quickly to cover
  debts and make a profit.
• Poor land in Florida was sold off under this get
  rich quick approach

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The Florida Land Boom collapses

• Buyers started to realise that the land they were
  buying at inflated prices was worthless
• People began to sell in a hurry which made the
  prices collapse and accelerated the collapse of
  the Boom
• Many individuals and banks were ruined because of
  this.

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Could people see the Crash coming?

• The Florida Boom collapse started people thinking
  that the good times were in danger of ending.
• Banks realised that they were over-extended and
  started to raise interest rates to decrease the
  money available for buying on the margin
• However too many people were already in too deep
  to pull out.