The 1929 stock market crash was caused by a mixture of structural failings and economic imbalances.  From the credit boom to buying in the margin, the market crash led to depression and destroyed the confidence in Wall Street (Barro and José 45). The major causes of the market crash included credit boom, buying on the margin, irrational exuberance and difference between consumption and production.

In the 1920s, the bank’s credit and loans experienced rapid growth. With the growth in the economy, the people thought to invest in the stock market were profitable. Consumers borrowed in large numbers to buy shares while businesses acquired more loans to expand. As more people invested in stocks, the price of shares increased and even more, people invested (James 134). People acquired high debts and became susceptible to any change in investor confidence. When the new York times published an article about the exit of foreign investors, short selling, and margin sellers, people panicked, and borrowers were in a rush to dispose of their shares to redeem their debts and in doing so crashed the stock market.

Another cause of the stock market crash was buying on the margin. If someone did not have the money to buy shares, a broker was ready to lend part of the money. However, this was risky in that if the price of the stock fell below the loan value, the broker issued a margin call requiring the investor to repay the loan with immediate effect. In the 1920s, most investors borrowed 80%-90% of the stock cost from brokers (James 134). People invested so heavily in stocks neglecting the risk involved. Banks went ahead to invest the customer’s money. A few days before the crash, the stock market tumbled, and investors were selling their stock. Banks put in more money in buying sto0cks to maintain investor confidence, but it was too late. The market crashed, and many people lost their savings and investments.

False expectation and excitement were the major causes of the market crash. The reason why many people invested in stocks was that the market offered the potential for huge returns. Therefore, people borrowed and invested in stocks with the excitement and expectations to make more money. The prices of shares kept rising, and investors expected the prices to rise further. However, the problem was that prices were not being driven up by economic principles rather by investors’ optimism. By October 1929, the shares were largely overvalued, and when some companies did not trade well on October 24, investors thought it was time to sell and collect the profits. By October 29, share prices at a high percentage causing the selling rush, which ultimately crashed the market (James 134).

The crash led to the great depression. When Franklin D. Roosevelt (FDR) took office as the president, he initiated different programs to help those affected by the depression. Within his 100days in office, the president signed the new deal into law thus creating 48 agencies designed to create jobs, provide unemployment insurance and allow unionization. The new deal concentrated with reform, recovery, and relief (Higgs 56). In addition, the political realignment caused by the new deal made the Democratic Party the majority. This allowed the Democrats to progress the liberal ideas of empowering the people through government intervention (Ferrara). The Republicans of the time, however, argued that the market should be allowed to correct itself. They argued that the citizens should be left to take care of themselves. Government intervention according to them was a waste of resources since it would not correct the market.

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