Inside a bank in the year of 1929. | The Roaring 20’s was one of the most intriguing times in history. Sadly, many things in this era lead to the great depression and one of those things was the bank. Although the twenties were important to the development of the banking industry, we can examine how much the bank affected the economic crisis by simply looking at a time span of two years: 1927-1929, in 1927 the economy was booming, there were no economic problems and the employment rate was at a record high. There was virtually non-existent inflation and nothing else. Because the economy was so great, people could not clearly distinguish their needs—food, shelter, clothes—from their wants—automobiles, toys, computers, etc.—therefore the bank’s money was in high demand for loans. The main reason they were looking for loans was because everybody wanted to invest in the stock market. At this time Americans were only looking to invest in stock and this was because the attitude of most Americans was to believe that the Stock Market could keep its bull market indefinitely. |
This is where the banks became of huge importance because everyone who was trying to buy stocks began to get loans from the bank. Since there was a huge amount of people buying stocks, the banks started to become low on money. This became the very beginning of a very difficult and intense problem. Since bank loans were in high demand and the bank was running low on money, the banks were required to start calling in loans from the companies that people were buying stocks from. Since the same money that was being taken out of the bank were going into stocks of these companies it caused everything to start collapsing together. To make it clear and to paint a picture you can think of a circle that all starts off with American people. The people borrow money from the bank. The people put the money in the company stocks. The bank runs low on money and demands money from the companies. The companies cannot afford to pay the bank as fast as they need the money and the next step is for the companies to file for bankruptcies. Bankruptcies are always a negative thing and this entire situation goes back to the people and leaves the people with virtually nothing.
The reason why these companies filed for bankruptcies was because the bank needed payments for these companies extremely fast, so that they could give out loans to the people demanding the money. The companies could not afford to pay the bank as fast as they needed it so their only option was to say that they did not have the money and declare that they were bankrupt. This affected the financial situation because when companies file for bankruptcies it automatically makes their stocks become worthless. This means that all the people that had money invested in these companies lose everything. The bank—still overwhelmed with people wanting loans—does not have the money to provide for the loans because the companies could not pay. Since the circulation of money has now stopped everything and everyone came to a giant crash. This was known as Black Tuesday: The stock market crash of 1929.
When all of this happened people were overwhelmed and going insane. They immediately started taking out their money from the bank, but it was too late. The stock market crash had already begun.
Bibliography
Bremer, Lisa. "The Roaring Twenties." Accessed April 12, 2015. http://www.pbp.sevier.org/The Roaring Twenties.ppt.
"Digital History." Digital History: Roaring Twenties: January 1, 2014. Accessed April 13, 2015. http://www.digitalhistory.uh.edu/disp_textbook.cfm?smtID=2&psid=3432.
Foner, Eric. "From Business Culture to Great Depression." InGive Me Liberty!: An American History, 788-798. Seagull 4th ed. Vol. 2. New York: W. W. Norton &, 2014. Rötheli, Tobias. "Innovations in US Banking Practices and the Credit Boom of the 1920s."Business History Review87, no. 2 (Summer2013 2013): 309-327.Academic Search Complete, EBSCOhost(accessed April 14, 2015). T, Angus. "History of the Roaring Twenties." : The Stock Market Crash. June 15, 2010. Accessed April 12, 2015. http://theroaringtwentieshistory.blogspot.com/2010/06/stock-market-crash.html.
Footnotes:
Bremer, Lisa. "The Roaring Twenties." Accessed April 12, 2015
Digital History. "Digital History: Roaring Twenties." Accessed April 13, 2015.
Forner, Eric. "From Business Culture to Great Depression."
Rötheli, Tobias. "Innovations in US Banking Practices and the Credit Boom of the 1920s." Accessed April 14, 2015.
T, Angus. "History of the Roaring Twenties : The Stock Market Crash" Accessed April 12, 2015
