AP Success - AP US History: Stock Market Crash of 1929

The financial boom occurred during an era of optimism. Families prospered. Automobiles, telephones, and other new technologies proliferated. Ordinary men and women invested growing sums in stocks and bonds. A new industry of brokerage houses, investment trusts, and margin accounts enabled ordinary people to purchase [stocks] with borrowed funds. Purchasers put down a fraction of the price, typically 10 percent, and borrowed the rest. The stocks that they bought served as collateral for the loan. Borrowed money poured into [stock] markets, and stock prices soared.

In September 1929, stock prices gyrated, with sudden declines and rapid recoveries…Investors began selling madly. Share prices plummeted.

The crash frightened investors and consumers. Men and women lost their life savings, feared for their jobs, and worried whether they could pay their bills. Fear and uncertainty reduced purchases of big ticket items, like automobiles, that people bought with credit. Firms – like Ford Motors – saw demand decline, so they slowed production…Unemployment rose, and the contraction that had begun in the summer of 1929 deepened.