The Stock Market

When an investor purchases stock in a corporation, he or she owns a portion of that business. Stocks are bought and sold at a stock exchange, such as the New York Stock Exchange on Wall Street in New York City.

Profits

Throughout the 1920s stocks quadrupled in value, attracting many investors who believed they could get rich quick. For a time, people made enormous profits buying and selling stocks.

Borrowing Money

Average people who did not have liquid assets to invest in the stock market often borrowed money to purchase stocks.

Stock Market Crash

When the stock market crashed in 1929 stock values began to tumble. Investors flooded the market trying to sell stock that was worth less than what they paid for it.

Banks in Trouble

People who had borrowed money from the bank to purchase stock were not able to repay their loans. When customers went to withdraw money from savings accounts, the banks were literally out of money.

Effects

The entire economy began to collapse. Funds did not exist to purchase stock and keep corporations in business. Companies laid off employees. Banks foreclosed on mortgages. People were forced to sell cars, jewelry and other valuables to feed and clothe themselves. These conditions persisted throughout the 1930s and became known as the Great Depression.

Source:

PBS.org: Stock Market Crash