Why did the stock market crash, causing the Great Depression?

[Riot]

I have to do a Social Studies paper for tomorrow, and I was absent for most of this unit. One of my days out sick was spent covering what caused the stock market to crash. Why is that? I can't really write a good paper without knowing.

[BobbyD]

Before the great depression, people were doing so well in the stock market that they were allowed to invest with "imaginary" money. Later, when companies actually needed the money they discovered that the money didn't exist. This caused many companies to fold and legitimate investors lost all their savings. When people stopped believing in stock as an investment, other companies began to fail.

[Bob G]

In a single sentence? Consumer confidence.

You have to understand something. The stock market crashed, right? But what was lost? People were still working and eating and sleeping, right? Babies still being born, cars still on the road and so on. So what changed? People stopped or drastically cut back on unnecessary consumption. They held their money in the cookie jar or under the mattress after withdrawing it from the banks. They stopped spending! As a result factories were no longer able to sell their goods and so people lost their jobs. When the news got around about lay offs more people got scared and so on. As factories stopped producing the value of their stock went down. Its a domino effect.

That isn't the whole story but should give you something to work with.

[J.Shade]

A) Unequal distribution of wealth: too few rich, too many poor
B) Over production: too much supply, not enough demand...manufacturing efficiency rose 4x faster than wages... lots of goods, not many can afford them
C) Buying on credit: Now everyone can afford stuff! Many goods bought on credit (radios, cars, etc...), eventually, people were forced to stop buying on credit and pay their debt
People stop buying = wealthy stops investing in business = factories close = people lose jobs = people become even poorer
Business wealth concentrated on cars and radios-demand for these drops, the whole economy suffers
D) Stock market crash-speculation-buying "on margin" allowed people with little $ to invest in stock by putting up 10%, bankers "loaned" the other 90%
E) Bank failure: Banks encouraged speculation by loaning at low interest rates...Banks invested depositor's money in the stock market and lost in when the market crashed
people lost trust in banks = "bank runs" (massive withdrawals)
F) Hawley-Smoot Tariff (1930): tariffs rose by over 100% during the 1920s: Europeans would not sell their goods in the US and had little @ to buy US goods.
US businesses depended on foreign demand in addition to domestic consumers
Other nations launched retaliatory tariffs against US goods.

[Byron W]

The stock market crash didn't cause the great depression, the coming great depression caused the stock market to crash. Of course the crash exacerbated what was already going to happen. One of the major reasons it crashed, besides bad fundamentals and being crazy overbought, was excessive leverage.