Banks lent money to speculation banks had invested

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Banks _lent_ money to speculation Banks had _invested_ depositors’ money in the stock market When stock values crashed banks lost money on investments and speculators defaulted on loans. Banks cut back on loans they made Less money to borrow= _recession_ Some banks lost more than they could absorb Bank failure No insurance-customers lost life savings. Bank Runs Confidence in banks shaken by news of failures _Confidence_ decide to withdraw money at one time, fearing collapse of bank Banks only hold _fractions_ of what is deposited Too many people withdraw bank will eventually _collapse_ 3,000 banks or _10%_ will be forced to close in first two years of Great Depression Roots of Great Depression Uneven distribution of wealth _Overproduction_ was the _key cause_ of the depression Most americans did not earn enough to buy the flood of goods they produced 5 percent of all American households earned 30 percent of the nation's income 2/3rds of families lived on less than $2,500 a year Installment plans
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_Cyclical_ effect The loss of export sales _Hawley-Smoot Taiff_ Highest tariff level in history Aimed to protect American goods from foreign competition but damaged American sales abroad Other contries raised tariffs on American goods 1932 exports had fallen by 1/5th Mistakes by Federal Reserve Instead of raising interest rates to curb excessive speculation, rates were kept very low Significantly leads to depression in two ways Low rates encouraged banks to make _risky loans_ Low interest rates made business leaders think _economy_ was still _expanding_ When depression hit, raised interest rates tightening credit.
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  • Fall '19
  • Great Depression, Wall Street Crash of 1929, long bull market, country’s banks

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