Causes of the Stock Market Crash
Some of the causes of the 1920
- Crash are buying on margin: borrow from brokers, allowed the non-wealthy people to get in the market
- Overproduction and under consumption of goods: Businesses kept producing but only wealthy people were buying which made the stock go down
- Banks investing: people invested money in the bank and banks invested it in the stock market and the market started going down so they lost their money in the market so banks end up closing, didn't ask the people if they could invest their money in the stock market
- Stock Pools and watered stock- wealthy people would a lot of the times would buy the company and then sell stock at a very high price but it didn't reflect the business
- Water stock- over priced stock
- The government had do rules regulating the stock market, the government did not get involved
- Unrealistic view of the Market: people that that the market would keep getting higher and higher and it would never go down, no one believed that it would ever fall
- Weak bank system: prone to going bankrupt, high bank failure rate, the kept borrowing which lead to people losing money
- Federal reserve: looking at the stock market and knew there was a market, but thought if we increase interest rates, if they lower interest rates it encourages people to buy, they thought that if they increase interest rates the prices will be so high that people will stop borrowing so the market would go down
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