Many Americans invested heavily into the stock market and depended on it very much. A poor man could invest into the stock market one evening and wake up in the morning as a wealthy person. “From 1826 to 1929, the market indices moved up nearly 400%. Investors frequently talked about the great wealth that could be made in the stock market. Relaxed credit terms from banks and stock brokers fueled the buying frenzy”. “In September 1929 the stock market came crashing down. In panic people were selling off their stocks all at the same time and nobody wanted to buy.” There could have been a possibility that when the stock market crashed in September and people tried desperately to sell off all their stocks on October 29, 1929, if people weren’t in so much panic and they didn’t try to sell all the stocks they invested into at once, maybe then The Great Depression wouldn’t of been as Great as it was.
Because of the stock market crash, people began to buy fewer consumer goods. This led to factories firing their workers and people losing jobs. “By 1933 about 85,000 businesses had failed. And by 1933 over 12 million Americans had lost their jobs.” As people lost their jobs they could not support their families, pay for the rent, or buy food. “All of a sudden we had to move,” remembered one child. “My father lost his job and we moved into a double garage.” Homeless families often built shelters out of scraps of wood, tin, and tar paper.” Many families were unable to find food and jobs. And as a last resort families would break apart and scatter across the whole United States in search of food or jobs. And for the first time ever homelessness became a major problem for the United States. People were living in fear and poverty. There were many different causes of The Great Depression. One of them was the crash of the stock market. “During the 1920’s almost every other American invested in the stock market. As the stock market prospered, many eager investors began using “margin buying” to purchase stocks. This meant that buyers paid just part of the price of the stock and borrowed the rest through their stockbrokers. The stockbrokers, in turn, often borrowed money from the banks. Each of these steps was an economic chain and if at least one part of the chain would break or be out of place the economy would crumble and fail miserably. Everybody involved in this procedure was betting that the stock prices would go up. Later, investors hoped to sell their stock at a higher price, which would give them the cash to repay the borrowed money and still make a profit. But if the stock prices fell, investors could be stuck with huge debts.” That is exactly what happened. People began to sell the stocks the owned and nobody was buying new ones. Because of everybody selling at once, the stock market didn’t have a chance to go up. And so it fell.
Bank failures played a huge role in the Great Depression. “Throughout the 1930s over 9,000 banks failed. Bank deposits were not eligible for insurance coverage and as banks failed people lost their savings. Surviving banks, unsure and afraid of the economic situation and concerned for their own survival, stopped allowing new loans. This made the situation even worse leading to less and less spending of money.”
A reduction in purchasing across the board contributed to the cause of The Great Depression. “After the market crash and the fears of further economic problems, individuals from all classes stopped purchasing items. This led to a reduction in the number of items produced and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for other items they had bought by credit plans and their items would be confiscated. The unemployment rate rose above 25%, which meant, of course, even less spending”.
Margin Buying was a significant cause of the Great Depression. In the 1920’s more people invested in the stock market than ever before. Stock prices rose so fast that at the end of the decade, some people would become rich overnight by buying or selling stocks. “People could buy stocks on margin which was like installment buying. People could buy stocks for only a 10% down payment! The buyer would hold the stock until the price rose and then sell it for a profit. As long as the stock prices kept going up, the system worked. However, during 1928 and 1929, the prices of many stocks went up faster than the value of the companies the stocks represented. Some experts warned that the bull market would end, and it did.” Margin buying was the system that kept helping the stock prices go up. When using the margin buying system, in a way people were lying to themselves and paying for different consumer goods and stocks with money that they never actually had. In the beginning the margin buying system was working well because not that many people were using it. However, the number of people that began to use this system increased rapidly and soon people were abusing this system and it backfired. When the stock market crashed in 1929 some investors who had bought their stocks “on margin” sold their shares to pay off the losses. But that didn’t help or fix any problems and the prices dropped even further. The people that borrowed from the banks couldn’t repay their loans because their hopes were that the stocks would go up, they would make a profit, and also repay the banks. Nevertheless, people’s hopes crumbled and they fell into huge debts and the banks went bankrupt because nobody would deposit their money into them. Margin buying was almost holding together the American economy and when the stock market crashed, people no longer looked at margin buying as a possible choice.
During the Great Depression, the country needed a new leader and plan to get out of this economic collapse and America elected a new president who had upon him the pressure to try to restore the country. In 1932 Franklin Roosevelt was elected as president. He was a bold and bright figure in the government. Many desperate Americans looked up to him and they believe he represented hope and a better future for America. Roosevelt began working immediately to try to help the country. He turned first to the bank crisis. “He first closed all the banks for four days and inspected bank records allowing only banks with sufficient funds to open again. Roosevelt acted as a citizen and instead of ordering everybody to do something; he would address the nation by radio and like any other human being would and ask for the people to deposit their money into the banks. In Roosevelt’s fist hundred days in office he pushed Congress to pass 15 major bills, (a record number for that number of days). This legislation, along with laws pass later on, established programs with three goals: immediate relief for the needy, economic recovery, and reform intended to keep such problems from developing in the future. These programs became known as the New Deal.”
Margin buying was a very important factor that played a huge role in America’s economy and at the time being people only saw it’s positive side. But nobody knew let alone expected, the way margin buying turned on the economy and forced it to quickly collapse. People weren’t paying the full prices to the stock companies, only the down payments, and the rest was borrowed from the bank. But as the stock market exploded people in panic began to sell all their stocks at once and that not only caused mayhem but a definite, certain, and official stock market collapse. People relied too much on this system and this system was the one that caused one of the biggest problems in American history. So many people suffered from hunger, poverty, and damaged lives. People didn’t think about themselves as one nation but instead as individuals. The Great Depression put a scar on America’s past because people weren’t thinking ahead, they were living each day of their lives as the last, and margin buying just proved that people weren’t really thinking about the consequences of what could happen latter on in life. But even now in 2009, people are wondering if history is slowly repeating itself and 80 years later, have people learned from the mistake they have made?
Bibliography:
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Gusmorino, Paul Alexander. "The Main Causes of the Great Depression." The Main Causes of the Great Depression. greatdepression/index.html (accessed December 8, 2008).
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Hart, Diane. History Alive: The United States. Edited by John Bergez. History Alive. California: Teachers Curriculum Institute, 2002.
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Martin Kelly, "Top 5 Causes of the Great Depression," About.com, http://americanhistory.about.com/od/greatdepression/tp/greatdepression.htm (accessed December 8, 2008).
"Causes of the Great Depression," The Great Depression, http://www.museum.siu.edu/museum_classroom_grant/Museum_Explorers/school_pages/bourbonnais/page1.htm (accessed February 1, 2009).
“Top 10 New Deal Programs." About.com-American History http://americanhistory.about.com/od/greatdepression/tp/new_deal_programs.htm(accessed April 28, 2009)