Today in class we discussed how things have changed for banks and what they can do with their customers' money. Before the stock market crashed, banks were able to take the money deposited in their bank and invest it in the stock market. When the stock market crashed, all the money that the banks had invested was gone. Even if you were a customer of the bank that hadn’t invested in the stock market, your money was totally gone. People also individually invested in the stock market, so when the market crashed, all their money was gone. If they had a loan with a bank, they now wouldn’t be able to pay that bank back- because all their money is gone.
Even worse- people borrowed money to buy stocks. People could not borrow money after the crash because nobody could lend them anymore money. The whole situation during the 20’s was really messed up. Everyone in the chain of stocks/borrowing/ lending was very interconnected. If someone borrowed money to buy stock, they think that they can sell the stock for a higher price. Then they can pay back the lender and make a profit. However, this only works if the stock price goes up, and when it doesn’t, everything goes downhill.
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