Wall Street Crash

Topics: LifeMoney

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Last updated: November 13, 2019

The Wall Street Crash was caused for a number of reasons. There were many long term and short term causes which combined and led to the crash. For example: Speculation was a medium term cause as it had been around for quite a while but this led to the “Babson break” which was a trigger cause. The “Babson break” was a trigger cause because it instantly disrupted one of the most important factors in the stock market, confidenceMany people believed that the stock market was an easy and quick way to get rich, they were correct. Many Americans decided to invest in the stock market, there had only been four million share owners in 1920 but by 1929 there were around twenty million shareholders.

Around 600,000 people were speculators, they were gamblers. Speculators would borrow money to buy shares and sell them as soon as their price had risen. They would buy “on margin” which meant they only had to put down 10 per cent of the cash needed to buy shares and could borrow the rest. They would pay back the borrowed money back as soon as their shares had made a profit, this intrigued a lot of people.

One vital ingredient in all this was confidence. When people were confident prices would rise there would be more buyers than sellers and whenever people were not confident prices would rise, all of a sudden there would be more sellers than buyers which would cause the market to crash. Confidence was a long term cause, as without it people would have never invested in the stock market.

In 1929 Confidence was shattered on the stock market due to the “Babson break”. Roger Babson was an economic forecaster who predicated that the stock market would collapse. This caused many people to panic and sell their shares as soon as possible, this resulted in share prices to plummet.

Speculation was one of the most important causes to the Wall Street Crash, as it shattered millions of peoples confidence in investing in the stock market.In spite of all this the banks had a chance to rekindle confidence among people and stabilise the share prices. This was done as top banks all gathered together and bought huge amount of shares at high prices.

This caused a small amount of confidence to return for a few days. Unknowingly this triggered a huge lack of confidence among people as they knew that something was definitely wrong in order for banks to support the share prices, this caused many people to sell their shares. A day later the banks stopped supporting the share prices due to an index loss of 43 points which caused even more people to sell, this was chaos for the American economy.However, there were also many weaknesses in the American economy which caused the Wall Street Crash such as the republicans attitude towards business, this was a long term cause. President Hoover failed to see the problem with so many monopolies and never intervened with the stock market during its crisis. The problem with so many monopolies was that money wasn’t being distributed equally with the poor and rich, all the money was going to the rich business tycoons.

One of the biggest weaknesses in the economy came right after the boom years, there were signs that American industries were producing more goods than they could sell, this was a short term cause leading up to the crash. The market for these goods such as cars and other electrical appliances were aimed at the upper class and middle class. By 1929 the majority of Americans that could afford these goods had already bought them.These weaknesses were beginning to show, when car sales were slowing and in June 1929 the official figures for industrial output showed a fall for the first time in four years. This caused Speculators on the American stock exchange to become nervous which resulted them in selling their shares.Usually, industries would have exported its surplus goods to foreign countries but people in Europe also couldn’t afford American goods. In addition, after nine years of American tariffs, Europe had put up its own tariffs in order to protect its industries.

Protectionism and tariffs were a long term cause to the wall street crash as they had been around for a long time, they prevented industries exporting their surplus goods to other countries which left industries with goods nobody wanted. This devalued their business as money was being wasted on goods which nobody was willing to pay for.

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