The Wall Street Crash - Business Ethics
The Wall Street Crash (October 1929)
Famous for...
The most devastating stock market crash in American history
This led to the Great Depression of the 1930’s with poverty and high
unemployment.
How much did share prices fall?
Stock (or company share) prices nose dived in the American stock market in Wall Street, New
York.
It started on 24th October (Black Thursday), but the biggest price falls (nearly a
quarter) happened on Black Monday and Tuesday (28th and 29th October).
This collapse:
- destroyed business confidence.
- saw share prices fall 89% between 1929 and 1932.
Results of the crash
1. Great Depression
The crash destroyed:
- investment in America and overseas (particularly as America wanted its large foreign
loans repaid).
This led to:
- massive unemployment (13 million Americans in 1933, a quarter of the working
population).
- the end of the prosperous, fun loving Roaring Twenties (as described in Scott
Fitzgerald’s novel, The Great
Gatsby).
Pictured right is a poor family in California during the Depression.
2. Suicide for savers
Investors worldwide lost loads of money, particularly in America where people borrowed money to invest.
3. Attacks on capitalism and democracy
Failure of businesses to provide prosperity and jobs for everyone boosted the popularity of
communism and fascism - like the dictatorships of
- Hitler , pictured right
above.
- Mussolini, pictured right below .
Ordinary Americans weren’t happy with the huge gap between rich and poor (in 1929 the
richest 5% got a third of all personal income).
American capitalism was saved by the election of Franklin
D. Roosevelt ,pictured right, as president in 1933.
His New Deal policies:
- increased government spending on job creation projects (like the Tennessee Valley
hydro-electric dam)
4. Credit crunch
Bank lending dried up, hitting jobs.
Many banks also went bust, because:
- demanded their bank deposits (which the banks couldn’t
pay because most of the money had been lent out).
5. Collapse of worldwide food prices
This was caused by lower demand from increased poverty, hitting farmers (as shown in John
Steinbeck’s, pictured right, novel, The Grapes of Wrath).
Isn’t the crash similar to the financial crisis of
2007-8?
Yes but...
The impact on share prices and the world economy wasn’t nearly so damaging - why?
Governments took effective action to prevent it becoming a global depression (instead it triggered off what is
now known as the Great Recession).
In 2007 there was a big fall in share prices and a credit crunch caused by banks (particularly in America and
Britain) which
- encouraged credit debt and loans to people (particularly homeowners) who couldn’t
afford to repay them.
The American investment bank, Lehman Brothers, went bust in September 2008 and financial
institutions in America and Britain were saved by big government bailouts including:
- the American home loan companies, Freddie Mac and Fannie May.
- the global insurance company, AIG.
As in the 1930’s, the banks in America are now hugely unpopular, fuelled by the public disgust at their huge
salaries – AIG was re-named: Arrogant, Incompetent, Greedy.
The banks now have greater government regulation to (hopefully) prevent a similar crisis happening again.
Key quotes
Stock prices have reached what looks like a permanently high plateau.
- Irving Fisher, pictured right, (American economist, just before the Wall Street Crash).
The sense of responsibility in the financial community for the community as a whole is not small. It is nearly
nil.
- J.K. Galbraith, pictured right (in his book, The Great
Crash, 1961).
Today, basically, on Wall Street, the big money is made by taking risks.
- Bernard Madoff, pictured right, American financier, jailed for investment fraud.
Greed is all right.
- Ivan Boesky, pictured right, American financier, jailed for illegal stock trading
This is similar to Gordon Gekko’s (pictured right below) statement in the 1987 film,
Wall Street:
Greed - for lack of a better word – is good.
The nation cannot prosper long when it favours only the prosperous.
- Barack Obama, pictured right, American
president.
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