*Bank Run
*Bull Market
*Foreclosure
*Hoboes
*Installment
* Margin Call
* Public Works
* Relief
* Speculation
* Stock Market
*
*
Chapter 9
* The Long BULL MARKET
* The 1920’s had been a decade of great growth
* The outlook for the future was rosie. “We are nearer to the final
triumph over poverty than over before.” Herbert Hoover
THE ELECTION OF 1928
Hoover (sec of commerce) vs. Smith (1st Catholic nominee)
* Smith – beliefs were an issue
* Hoover – republican led prosperity – won by a landslide
STOCK MARKET SOARS – ‘Bull Market’
* many, including growing middle class, invested heavily
* speculation – buying on margin – margin call
*
* Market peaked in September 1929
* THE STOCK MARKET CRASH – October 21, 1929
- Stock holders panicked and sold off stocks (often at a loss)
- Banks/brokers panicked and called in margins
- Prices plummeted, causing more stock holders to sell off
* BLACK THURSDAY - October 24, 1929
- Men started the day rich, ended it poor/in debt
- More than $16M shares sold, more than $30B value lost
- While crash did not cause the Great Depression (soon to come), it
broke the US’s ability to respond to other economic problems
* Banks had loaned billions to speculators
* Banks had invested money in their banks in stock market
* When stock values crashed, banks lost both the money they
invested and the outstanding loans (defaulted)
* Banks cut back drastically on loans, meaning businesses and
consumers were unable to borrow money
* Many banks could not absorb their losses and had to close
(government did not insure banks at this time)
* BANK RUN – when many depositors withdraw their money at
the same time (out of fear the bank will fail). If the bank
cannot honor the withdrawal requests, they must close
* UNEVEN DISTRIBUTION OF INCOME
* Top 5% earned 30% of wealth, bottom 2/3rds had little/no
disposable income
* Overproduction = more efficient factories, long lasting goods
* Farmers woes = over production, low prices, high debt
* Overextension = stopped buying, couldn’t pay what was due
* Downward spiral of economy =
* Decreased sales = laid off workers
* Laid off workers = decreased spending
* Decreased spending = decreased sales
* Etc, etc, etc
*
UNEMPLOYMENT INSURANCE DID NOT EXIST SO LOSS OF JOB MEANT LOSS OF
EVERYTHING – PRIDE, HOME, FARM,
* LOSS OF EXPORT SALES – (U.S. bank loans helped foreign nations
afford U.S. made products)
* When stock market crash hit, banks quit loaning money
* To encourage foreign trade, Hoover wanted to lower tariffs, but
Congress wanted to protect US made goods here at home. Tariffs
were raised in the Hawley-Smoot Tariff Act
* While US purchase of goods was helped, foreign trade dropped
* Less foreign trade = workers laid off = decreased spending = etc
* MISTAKES BY THE FEDERAL RESERVE
* Federal Reserve had lowered interest rates throughout the 20’s
* Banks encouraged to make risky loans
* Business leaders falsely believed economy was still growing (borrowed)
* As SM crash hit, the “FED” raised interest rates, which caused less
money to be in circulation/less business activity
*
* Hoover believes the economy will eventually fix itself, so
government does little to intervene
* By 1930 – 1,352 banks had suspended operations and 30,000+
companies will go under
* ¼ of all workers are out of work
* Struggling to Get By
* No “safety net” – jobless meant homeless, foodless, hopeless
* “Hoovervilles” will spring up all over (shanty-towns)
* HOBOES – homeless men riding the rails searching for something
* Many immigrants will return to home countries voluntarily, others deported
* The DUST BOWL
* Between overplanting and several years of drought, land was ARID – dust
* Winds blew topsoil away – Great Dust Storms (50+ year)
* Some will manage to hold on to land, but most lost their farms
* “Okies” – homeless farmers headed for California in hopes of finding work
*
*
* People needed to escape their troubles – movies/radio helped
* More than 60 million will go to the movies each week in 1930’s
* MOVIES:
* Comedies – Shirley Temple, Marx Brothers
* Cartoons – Walt Disney “Snow White”
* Dramas – Mr. Smith Goes to Washington, Wizard of Oz, Gone with
the Wind
* RADIO:
* Comedies –Fibber McGee and Molly
* Dramas – Lone Ranger, Green Hornet
* Soap Operas
*
* LITERATURE:
* The Sound and the Fury
* MAGAZINES: (photographs, articles)
* Time
* Life
* ART
* American Gothic
*
* On Friday October 25, after “Black Thursday”, President
Hoover is quoted as saying: “the fundamental business of
the country . . . is on sound and prosperous basis.”
* On March 7, “the worst effects of the crash upon
employment will have passed during the next 60 days”
* Hoover urged the public and business leaders to act
rationally. He failed to inspire confidence and the economy
continued to spiral downward
* Hoover’s belief that government should not intervene
(American “rugged individualism” would keep things afloat)
* Hoover brought together the leaders of major industries to
strategize about solutions, but it did not help
*
* Industry leaders pledged to keep factories open
* stop slashing wages, laying people off
* By 1931, they had broken those pledges
* Hoover increased funding for some “public works” jobs
* Somehow, government had to pay for these jobs
* Raising taxes meant less to spend, hurting the economy
* If gov’t went in debt, it would have to borrow money, meaning
there was less to loan to businesses and the public, hurting the
economy
*
* To get the economy moving, Hoover wanted to increase the
money supply – to make loans to businesses
TOO LITTLE - TO LATE
* Hoover asked “The Fed” to release money, they refused
* National Credit Corp (NCC) – pool of money to help banks in
trouble to continue to lend money in their communities
* Hoover requested Congress
to set up the RECONSTRUCTION
FINANCE CORPORATION (RFC) to make loans to businesses
*
* Hoover strongly opposed direct RELIEF (money given
directly to poor people)
* Hurt their self-worth
* Only state and local governments should provide RELIEF
* State/Local and private charity tried, but did not have
enough resources to meet the needs
* Congress acted, against President Hoover’s wishes
* $1.5 Billion for public works
* $300 million in emergency loans to state for direct relief
* 1st time in US
history the federal government provided direct
relief to the citizens – but the problem had grown TOO BIG
*
* Jan. 1931 – Angry citizens looted a grocery store in OK City
* Feb. 1931 – 100’s of angry citizens smashed the store window
of a grocery store and took food
* Crowds began to rally in Washington DC to protest
“Feed the hungry, tax the rich”
• Farmers protested too
• Low prices meant they were losing their farms (foreclosed)
• Farmers began destroying their crops in an effort to push up the
prices (by reducing supply)
*
* WWI veterans promised $1000 bonuses to be paid in 1945
* Veterans wanted their bonuses NOW, during tough times
* Oregon veterans marched to Washington DC to lobby
* As they moved east, other veterans joined in
* Hoovervilles – set up in parks to house 15,000 veterans
* Congress voted down the bill to pay bonuses immediately, but did
provide funds to help veterans get home
* Most veterans continued to demand their bonuses and refused to leave
* Hoover called for all to be cleared out – officer panicked and shot into a
crowd killing 2 veterans
* Army officer (Douglas MacArthur) ignored Hoover’s order to clear the
buildings but leave the camps. Moved in with troops/tanks/teargas
* Press coverage of the treatment of the veterans harmed Hoover’s
reputation even more
* Hoover failed to resolve economic crisis
* Did more than any previous president, using the government to try
to correct an economic problem
* Reconstruction Finance Corps – 1st federal agency created to
stimulate economy during peacetime
- Bonus Army fiasco
- Forever tarnished Hoover’s image even though he did not order troops to
attack the Bonus Army
- Hoovervilles
- Millions of homeless in camps of shacks/tent
- Farm foreclosures
*
ESSAYS - CH 9 TEST
* The Great Depression caused the economy to go into a
“downward spiral.” Explain what occurred and how that
led from one bad thing to the next.
* What was President Hoover’s philosophy about government
BEFORE the Great Depression began? How/why did that
change and the Great Depression got worse?
* President Hoover finally did begin to use the government to
try to stop the problems caused by the Great Depression.
Explain 2 actions taken by the government and HOW they
were supposed to help