Customers deposit

money in a bank

Banks invest that money by

making loans

Banks make money on

the interest from loans

Cause & Sparks of Depression

B. SPARK!!! Of the Depression1. Stock Market Crash, Black Thur. Oct. 29, 1929a. Summer 1929, Investors began to sell stocksb. Supply & Demand Again – Massive Sell-Off and prices began to fall2. Margin (Borrowing $$)

- Buy stock by just paying a small portion of what the stock is worth

(example: 100 shares at $10= $1000 only pay $300 still owe $700) -Problem, stock crashes and you loose your money and can’t payback stock broker - stock broker can’t pay back bank

The Stock MarketPeople bought

stocks on marginIf a stock is $100 you

could pay $10 now and the rest later

when the stock rose

Stocks FellThe person had less

than $100 and no money to pay back

Then….People panicked

about their money Investors tried to sell

their stocksThis led to a huge decline

in stock valueStocks were worthless People who bought on

“margins” could not pay Investors were average

people that were broke

• Bank FailuresAnd….

=+People Default on Loans

Banks have no money to give people

Banks ClosePeople Loose

savings

Causes of the Great Depression1.Stock Market Crash of 1929 – Stockholders lost over $40 billion dollars in 1st two months2.Bank Failures – Over 9,000 banks failed.3.Reduction in Purchasing Across the Board – Led to unemployment rate above 25% 4.American Economic Policy with Europe – Smoot Hawley Tariff led to high taxes on imports5.Rising debt led to restrictions on new loans, which led to scarce credit – Federal Reserve tightened the money supply6.Big banks had made huge loans to foreign countries – When money supply grew tight, foreign countries defaulted7.Drought Conditions – The “Dust Bowl” on the Great Plains led to farm failures8.Over Production– Farms & Factories produced a surplus of products