Causes of the Wall Street Crash Question PDF

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Question on the Wall Street Crash...

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How far were the problems of the Bull Market responsible for the Wall Street Crash of October 1929? P1-Bull Market The bull market was the purchase of shares at the margin and the future sale of those shares for profits. This became very popular in the 1920’s as ‘get rich quick schemes’ encouraged trading and share prices had been rapidly rising for many reasons. However, this was extremely unsustainable and the money required to purchase shares required a loan. This loan was paid off after the shares had been sold. However, when share prices showed signs of falling, the majority of shareholders sold their shares, some for a loss. This caused share prices to plummet and the Wall Street Crash to occur. Also, many shareholders accumulated large debts as shares were sold for a loss and they had no means of repaying the borrowed money P2-Banking failure However, the banking collapse was a more responsible cause of the Wall Street Crash. The Federal Reserve Board set low interest rates to encourage banks to invest in firms, however, they often invested in high risk, high reward shares. Furthermore, the Board gave recommendations that banks should have strong reserves, however, less than a third of banks complied with this. As a result, when the share prices fell in 1929, banks lost large sums of money, and outstanding debt could not be repaid to the bank causing further losses. As two thirds of banks did not have the necessary reserves, this caused many banks to collapse, worsening the effects of the Wall Street Crash. P3- Overproduction Finally, overproduction of goods also helped cause the Wall Street Crash. As firms were producing large amounts of goods due to the popular use of hire purchase schemes, more and more stock was going unsold, cutting profit margins. This was largely caused by the huge rich poor divide which saw 5% of US citizens own 40% of US wealth. As profits fell further, share prices showed uncertainty, causing the Wall Street Crash to occur. Conclusion The Bull Market was somewhat responsible for the Wall Street Crash of October 1929. As shares were bought on the margin and sold for profits, confidence grew in the share market of America. However, this was completely

unsustainable as large loans were required to purchase shares. Despite this, the Banking failures was more responsible for the crash as banks loaned the money to Bull Market traders and didn’t follow the advice of the Federal Reserves Board causing huge losses of money. Finally, overproduction caused profit margins for firms to fall, causing enough uncertainty to push share prices down and cause the Wall Street Crash. Therefore, How far were the problems of the Bull Market responsible for the Wall Street Crash of October 1929, however the most responsible cause of the Wall Street Crash was banking failures....