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Lenders During The Great Depression

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The Great Depression started with the stock market crash of 1929. “In 1925, the total value of the NEW YORK STOCK EXCHANGE was $27 billion. By September 1929, that figure skyrocketed to $87 billion” (The Market Crashes 1). Stocks were being sold for way more than their reasonable value and that couldn’t go on indefinitely. Although more people in the U.S.owned stock than ever before, “90% of American households owned precisely zero shares of stock” (Sinking Deeper and Deeper 1). This stock frenzy was fueled by the practice of buying stocks on margin (The Market Crashes 1). This meant that the person was borrowing the majority of the money, up to 75%, used to purchase the stock. Lenders were happy to make these loans because the stock market…show more content…
didn’t have a social safety net like we do today. There was no unemployment insurance, if you lost your job you were out of luck. Even the 90% of the country that had not invested in the stock market were affected. Their savings could be wiped out if the bank they put it in failed (Sinking Deeper and Deeper 1). If they lost their job, and the unemployment rate was 25% by 1932 (Sinking Deeper and Deeper 1), there was no unemployment insurance. With unemployment that high, there was very little chance people would find another job. Many people kept their jobs by settling for lower wages, feeling that any money was better than none. Local governments had trouble paying their bills because so many people couldn’t pay their property taxes, this often meant schools were under-funded, under-staffed, or shut down completely (Social and Cultural Effects of the Depression 1). Unemployment got so bad that “Mexican Americans in California were offered free one-way trips back to Mexico to decrease job competition in the state” (Sinking Deeper and Deeper…show more content…
Herbert Hoover, the Republican president when the Great Depression started, didn’t believe government should play a large role in the economy and believed the government’s budget should always be balanced. During the depression tax revenues were way down so instead of investing money in infrastructure projects to put people to work, Hoover raised taxes. This just took more money out of the economy and was a disaster. “Finally in 1932 Hoover signed legislation creating the Reconstruction Finance Corporation. This act allocated a half billion dollars for loans to banks, corporations, and state governments. Public works projects such as the GOLDEN GATE BRIDGE and the Los Angeles Aqueduct were built as a result of this plan” (Hoover’s Last Stand 1). It was a good start but too little, too late. The Roosevelt administration believed that government spending could help pull the country out of the depression. It also believed that there needed to be regulations in place so a crash like the stock market crash of 1929 couldn’t happen again. Roosevelt’s plan, called the New Deal, could be summed up in 3 words: relief (helping the unemployed), recovery (using federal money for job creation and infrastructure building) and reform (putting social welfare programs in place) (The New Deal, Period 7
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