the u.s. stock market - deficiencies, brief history, how did it help lead to the great depression?

Answer 1

The crash followed a speculative boom that had taken hold in the late 1920s, which had led millions of Americans to invest heavily in the stock market, a significant number even borrowing money to buy more stock. By August 1929, brokers were routinely lending small investors more than 2/3 of the face value of the stocks they were buying. Over $8.5 billion was out on loan, more than the entire amount of currency circulating in the US.[6] The rising share prices encouraged more people to invest; people hoped the share prices would rise further. Speculation thus fueled further rises, and created an economic bubble. The average P/E (price to earnings) ratio of S&P Composite stocks was 32,6 in September of 1929 [7], clearly above historical norms.

Economists and historians disagree on exactly what role the crash played in the ensuing economic fallout, though stock prices fell on the day and continued to fall, at an unprecedented rate, for a full month. The decline in stock prices caused bankruptcies and severe macroeconomic difficulties including business closures, firing of workers and other economic repression measures. The resultant rise of mass unemployment and the depression is seen as a direct result of the Crash, though it is by no means the sole event that contributed to the depression, it is usually seen as having the greatest impact on the events that followed.