Stock market crash:
- Farmers defaulting on loans (because of Dust bowl conditions) was one of the main contributing factors to the record number of bank failures during the Great Depression.
- there were several major run on banks, times during which people panicked and Americans tried to withdraw all of their money from banks.
- In 1933, people who had money deposited in banks lost approximately $140 billion.
- when people didn't have the money to pay full price on stocks, they bought on margin
- Buying on margin= The buyer would put down some of his own money, but the rest he would borrow from a broker.
- used 10- 20% of his own money and borrow 80-90% of the stock
- Buying on margin was very risky
- The price of the stock fell lower than the loan amount
- Then the buyer must come up with the cash to pay back his loan immediatly
- Many people didn't consider he risk
- People started placing all their money
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