Why did US stock exchange collapse in 1929 and what effects did it have?

On March 1929, the newly elected Republican President; Herbert Hoover, proclaimed "We in America today are nearer to the final triumph than ever before. The poor man is vanishing among us." He boasted that America will continue it's 'boom' and said 'a chicken in every pot'. However, USA's financial condition looked starkly different from what it had looked before. The Great Depression had hit; and it's main perpetrator?  The World Street Crash of 1929.

In September 1929, overproduction forced industries to cut back on production. Investors started to worry about prices, and some warned that a crash may follow. This encouraged some other investors to sell their shares. Banks return stability by buying back some shares, hence raising the price up again. But, soon the increasing tension was released, and panic sets in. On October 24, 13 million shares were sold, leading to a sudden drop in prices.

Sign of the crash

There were signs of warning. In March, the stock exchange suffered a mini crash. It was a prelude of what was to come. As prices began to drop, panic struck across the country as margin calls were issued. When banker Charles Mitchell made an announcement that his bank would keep lending, his reassurance stopped the panic. Although Mitchell and others tried the tactic of reassurance again in October, it did not stop the big crash. Production slowed down. Many investors predicted a crash, but their comments were labelled as pessimist.

Causes of the crash
One of the main causes of the was the stock Market boom'. During the 1924s, stock prices rose rapidly. Investing in stock market was soon becoming a notion to make 'a quick buck' . Common people started to invest, mostly borrowing money from banks who lent money on margin(investors would put their houses on mortgage/guarantee and the banks could repossess their homes and evict the people who  lived inside it) to new investors on the assumption that the stock prices would rise up forever so they would be able to repay the loan while making a profit at the same time. This strategy worked for investors for a long time until October 1929, when the market crashed. Over-production meant that company cut-back on their production, hence reducing sales and increasing unemployment.

Effect of the crash

• Big Investor lost heavily. The Vanderbilt family lost $40 million
• Smaller investors borrowed money from banks with their homes as security. The banks reposssesed their homes and evicted all its inhabitants
• Some investors committed suicide 
• Over 100,000 companies went bankrupt
• Many banks went out of business as they could not pay their investors.
• Unemployment rose 12 million bu 1932
• many homeless built temporary shelters in parks. These 'homes; acquired the names of 'hoovervilles' because Herbert Hoover was the president at that time.