Hoover and the CrashHoover and the Crash

Chapter 23 Section 1Chapter 23 Section 1

Beginning of the CrashBeginning of the Crash

Remember that in 1928, Americans Remember that in 1928, Americans had chosen had chosen Herbert Hoover Herbert Hoover to be to be the 31the 31stst president of the United States president of the United States

American economy was still in pretty American economy was still in pretty good shape when he gets electedgood shape when he gets elected– But older industries, such as But older industries, such as

agriculture/farming, started to fail as agriculture/farming, started to fail as other countries can’t buy our productsother countries can’t buy our products

– The Stock market kept rising, but there The Stock market kept rising, but there wasn’t anything behind the shares to wasn’t anything behind the shares to back the prices.back the prices.

Causes of the Great Depression

Unequal distribution of wealth:•The rich got richer & the poor got poorer

•Company profits rose in 1920s but wages were NOT increased as much

•Taxes had also been drastically reduced for the top earners!

This means a Lack of purchasing power for the poor

Causes of the Great Causes of the Great DepressionDepressionBuying on MarginBuying on Margin

– A person borrows money to buy a stockA person borrows money to buy a stock– A stock broker takes a A stock broker takes a

portion of the loan as portion of the loan as collateralcollateral

– You have to pay back You have to pay back the stock broker when the stock broker when you’re ready to sell.you’re ready to sell.

– Stockbroker got the Stockbroker got the share of stock if the share of stock if the investor could not repay investor could not repay the loanthe loan

Overspeculation:You buy stocks you THINKTHINK will rise in price

•Based on borrowed $$$ & optimism…NOT the real value of the stock!

Causes of the Great Causes of the Great DepressionDepression

Stocks were overpricedStocks were overpriced– Many people in the economic sectors of business stated that Many people in the economic sectors of business stated that

the stocks were overpriced and the crash brought them back the stocks were overpriced and the crash brought them back to normal levelsto normal levels

Federal Reserve PolicyFederal Reserve Policy– Raised the rates on stock brokers who tried to take loans Raised the rates on stock brokers who tried to take loans

from banks to cover losses.from banks to cover losses.

Comments by Public OfficialsComments by Public Officials– Hoover, Andrew Mellon, and others were telling people that Hoover, Andrew Mellon, and others were telling people that

the stock prices were wrong…people weren’t listening…the stock prices were wrong…people weren’t listening…

It’s good for some banks and people to fail! This is all a part of economic competition!

Give more cash to banks throughout the 1920’s! Then we will reduce the amount of cash available to banks in 1929!!!

It is just as important that business keep out of government as that government keep out of business.

Let me remind you that credit is the lifeblood of business, the

lifeblood of prices and jobs.

Causes of the Great Causes of the Great DepressionDepression

The Crash HitsThe Crash Hits

On Wednesday October 23, 1929On Wednesday October 23, 1929– 6 Million shares are bought and sold by 6 Million shares are bought and sold by

big investors in the stock market.big investors in the stock market. On On October 24, 1929 October 24, 1929 Black Black

Thursday, the day in which almost Thursday, the day in which almost 2.5 million shares are outright sold, 2.5 million shares are outright sold, and the market loses $4 Millionand the market loses $4 Million

The Crash HitsThe Crash Hits

On Friday, many investors talk, and On Friday, many investors talk, and decide the stock market will stabilize.decide the stock market will stabilize.

Monday again sees people skeptical, Monday again sees people skeptical, but deciding to hold out.but deciding to hold out.

On On October 29, 1929October 29, 1929 the stock the stock market officially crashes, known as market officially crashes, known as Black Tuesday. Most investors try to Black Tuesday. Most investors try to sell their stocks back, but there is no sell their stocks back, but there is no one to buy them, and values plummet one to buy them, and values plummet drasticallydrastically..

Was the Stock Market the only Was the Stock Market the only cause?cause?

NO!!!! A number of events lead up to NO!!!! A number of events lead up to the crash, not just the market.the crash, not just the market.

Farmers run into some serious Farmers run into some serious problems!problems!– Review the Graphic Organizer, Duh!!!Review the Graphic Organizer, Duh!!!

Big-time manufacturing businesses Big-time manufacturing businesses were having similar problems to their were having similar problems to their farming friends.farming friends.

Areas Hit By The Dust Bowl

Human Causes of the Dust Human Causes of the Dust BowlBowl

Problems with Overgrazing!

Over-plowing, Over-Grazing, and Drought!

The Eventual Outcome…

Environmental Causes of Environmental Causes of the Dust Bowlthe Dust Bowl

Drought (Lack of

Rain)

No Crops

Wind Erosion!!!

As a As a Result…Result…

Farms and Homesteads are

Destroyed!!!

Farmers and their Families Have to Leave The Land, many move West

Little Kids are WAAAAAYYYY Bummed Out

More Causes of the More Causes of the Great DepressionGreat Depression

OverproductionOverproduction or or a situation a situation where supply of manufactured goods where supply of manufactured goods is greater than demandis greater than demand, also , also occurred. occurred.

The problem with this is, when there The problem with this is, when there is too many goods not being sold, is too many goods not being sold, and not enough people to buy them, and not enough people to buy them, the goods become worth less…the the goods become worth less…the company’s worth then goes down.company’s worth then goes down.

More Causes of the Great Depression

Overextension of credit: Too much Installment Buying, or buy now, pay later…kind of like credit cards!

More Causes of the Great More Causes of the Great DepressionDepression

Remember Remember Buying on MarginBuying on Margin???????? Well, banks used people’s money to Well, banks used people’s money to

play stock marketplay stock market The market did poorlyThe market did poorly They lose innocent people’s money.They lose innocent people’s money. Banks then had to close…Banks then had to close…

– which meant even those people who which meant even those people who hadn’t played the market lost out.hadn’t played the market lost out.

The Role of BanksThe Role of Banks As banks closed, As banks closed,

they often took they often took businesses’ money businesses’ money with them.with them.

Sales continued to Sales continued to fallfall

Companies couldn’t Companies couldn’t pay their workers pay their workers

They had to declare They had to declare BankruptcyBankruptcy, a , a condition in which condition in which a a company’s financial company’s financial failure does not allow failure does not allow it to pay its debts.it to pay its debts.

The Role of BanksThe Role of Banks

It wasn’t just companies that were It wasn’t just companies that were affected by this.affected by this.

Remember that countries purchase Remember that countries purchase goods from each other on loan for goods from each other on loan for things like war and other essential things like war and other essential functions.functions.

When the depression hit, they couldn’t When the depression hit, they couldn’t pay these loans back and were forced pay these loans back and were forced to to DefaultDefault or failed to repay their loans.or failed to repay their loans.

The Effects of the The Effects of the DepressionDepression

In 1930, Unemployment rose from In 1930, Unemployment rose from 3 to 25 percent3 to 25 percent, and people that were , and people that were working weren’t making any money.working weren’t making any money.

People couldn’t afford their homes, so People couldn’t afford their homes, so they started setting up they started setting up Hoovervilles, Hoovervilles, small towns made up of make-shift small towns made up of make-shift shanties.shanties.

The Depression also broke up families, The Depression also broke up families, through fights, search for work, and through fights, search for work, and sometimes death.sometimes death.

Hooverville outside of NYCHooverville outside of NYC

Hooverville in SeattleHooverville in Seattle

Hoover’s FailuresHoover’s Failures

Hoover’s ResponseHoover’s Response

Hoover will rely on Hoover will rely on VoluntarismVoluntarism or or asking big business and local asking big business and local governments to begin supporting the governments to begin supporting the people of America at their own will.people of America at their own will.

Hoover realizes that this isn’t the Hoover realizes that this isn’t the only way to recover, so he sets up only way to recover, so he sets up the the Reconstruction Finance Reconstruction Finance CorporationCorporation gave money to banks gave money to banks and public-works projectsand public-works projects…the …the problem is, it’s not enough.problem is, it’s not enough.

The Last Stab at HooverThe Last Stab at Hoover(View “March of the Bonus Army” - 16:00 – 21:40)(View “March of the Bonus Army” - 16:00 – 21:40)

In 1932, the In 1932, the Bonus ArmyBonus Army marched on marched on Washington, Washington, these were a group of these were a group of soldiers from World War 1, who asked soldiers from World War 1, who asked for their service bonus pay during the for their service bonus pay during the Depression to help their situationsDepression to help their situations

Hoover refuses to pay, and actually Hoover refuses to pay, and actually sent Major George Patton and General sent Major George Patton and General MacArthur to get the soldiers out of MacArthur to get the soldiers out of Washington, using military force.Washington, using military force.

A Bonus Army CampA Bonus Army Camp

There’s a Pittsburgh There’s a Pittsburgh Connection!Connection!

Bonus Marchers At the Bonus Marchers At the CapitolCapitol

The Last Stab at Hoover pt. The Last Stab at Hoover pt. 22

When this occurs, an already When this occurs, an already unhappy electorate decides they unhappy electorate decides they can’t deal with Hoover anymore, and can’t deal with Hoover anymore, and in November 1932 decide to elect in November 1932 decide to elect another man to be president.another man to be president.