In1928,ayearbeforetheBlackTuesdaystockmarketcrash,PresidentHerbertHooverstatedin

theAnnualMessagetothecongressontheStateoftheUnion
Economicdepressioncannotbe
curedbylegislativeactionorexecutivepronouncement.Economicwoundsmustbehealedbythe
actionofthecellsoftheeconomicbodytheproducersandconsumersthemselves.
Eventsin
historyprovethatthegovernmentdoesinfactneedtointervenewhenaneconomicdownturn
doesoccur.Creatingactsandlawstopreventthecausesforeconomicdownturnsisneededfrom
thegovernment.
ThecausesoftheGreatDepressionweresimilartothecausesoftheGreat
Recession:economicbubbles,stockmarketmeltdowns,andunbalancedeconomicclasses.

In1930,theAmericanstockmarketdeclines,leavingcompaniesforcedtocutwagesorclose
completely.Oneofthethingsthatcausedthisdeclinewastheburstofahousingbubblein
Florida1.Duetothestockdecline,peoplestartedwithdrawingtheirmoneyfrombanksovernight.
Thiscausedbankstorunoutofmoneytolendandcausedanimmenseamountofbankstoclose.
WhenPresidentHooversawwheretheeconomywasheaded,hehadrealizedthatgovernment
interventiononthefreemarketwasoneoftheeffectivewaystocurethiseconomicdownturn.
Eventhoughcontrollingbusinesses,manipulatingthevalueofcurrency,andforcingfixedprices
wereallstepstogovernmentintervention,Hooverthoughtthesewerealsostepstoward
socialism.Insteadhegaveindirectaidtobanksandwouldnotgivedirectfinancialaidto
citizens,believingitwouldreducepublicmorale2.In1933,Hooverloseshisreelectionand
FranklinD.Roosevelt(FDR)goesintooffice.Inhisfirst100days,FDRputstheNewdealinto
place.TheNewDealwere15separatebillscreatedtojumpstarttheeconomy3.In2008,a
housingbubble,similartotheFloridahousingbubble,burstoccurredcreatinganotherdeclinein
stocks.Unlikethecrashin1930,theEmergencyEconomicStabilizationActof2008wassetup
tocushionfurthereconomicdecline.$700billionwasputintobanksforareturninequity4.
LearningfromtheactionstakenbyHooverandFDR,wewereabletosoftentheimpacttoour
moderneconomytopreventfuturedevastations.

TheAmericanstockmarketisahouseofcards5andisaprominentfactorinwhatcausedthe
GreatDepressionandGreatRecession.Bothstockmarketcrashsituationsstartedwithan
incredibleriseinstockpriceswhichgrewatanexponentialrate.From19211929stockprices
hadrisenfourfold.In1928and1929thefederalreservewasraisinginterestratesinhopesof
1

Colombo,Jesse."The1920sFloridaRealEstateBubble."RSS.June26,2012.AccessedMarch21,2015.

"HerbertHooverontheGreatDepressionandNewDeal,19311933."HerbertHooverontheGreatDepression
andNewDeal,19311933.AccessedMarch19,2015.
3

ShmoopEditorialTeam."FranklinD.Roosevelt(FDR):First100Days."Shmoop.com.November11,2008.
AccessedMarch21,2015.
4

Clark,Andrew."PaulsonAbandonsPlanstoBuyupAmerica'sToxicMortgageAssets."TheGuardian.November
12,2008.AccessedMarch16,2015.
5

"TheGreatDepression."Ushistory.org.AccessedMarch22,2015.
2

slowingtherapidriseinstockprices.Thisdidinfactdepressinterestsensitivespendingwhich
reducedproductionbutthehousingbubbleburstinFloridacreatedacrash6.Anymeanstoslow
theriseofstockpricesbecamemootatthatpoint.Muchliketheriseinthe1928stockmarket,
2007alsosawanexponentialriseinprices.Thesubprimemortgageindustrywasthriving,the
valueofthemortgageswasestimatedat$1.3trilliondollarsinmarch20077.Bankswerelending
individualswithpoorcredithousingloans,butwithhousepricesontherisegoodlending
practiceswereignored8.Becauseofhomeownersequity,bankswereabletogiveloansthatwere
moresubjectabletodefaultsincetheassetwaseverincreasinginvalue.Thiswasprovedtobe
falseoncehousingpricesbegantofallin2007.Borrowersstartedowingmoremoneythanwhat
theassetwasworth.2008saw25bankscloseand2009saw1409.TheEmergencyEconomic
StabilizationActof2008wascreatedtoputcapitalbackintobankstoreducetheamount
closingstopreventanotherdepression.

TheunbalancedeconomicclassesinAmericaisoneofthecausesforthecreationandprolonging
ofboththeGreatdepressionandGreatRecession.In1928thetop1%received23.9%oftheir
pretaxincome,thebottom90%percentgot50.7%.OnethirdofAmericanassetswereownedby
the1%10.Havingsuchavastdifferenceinincomecreatesagapbetweentherichandthepoor
wherethemiddlehasbeeneliminated.TheDepressionandWWIIreshapedthedistributionof
income11.Duringthe20072009recession,The1%incomemovedup36.3%whilethe99%
moveddown11%.In2012the1%controlledaround95%whilethe99%had0.04%.The
disproportionateamountcapitalmakesitalmostimpossibleforoureconomytobefair.

6
7

Romer,Christina."GreatDepression."EncyclopediaBritannica.Firsted.2003.

msnbc.com.

"Howsevereissubprimemess?.AssociatedPress.20070313.AccessedMarch,22,2015.

"TheStockMarketCrashof2008."TheStockMarketCrashof2008.AccessedMarch22,2015.
"FailedBankList".FederalDepositInsuranceCorporation.ArchivedfromtheoriginalonNovember15,2013.

AccessedMarch,22,2015.
10

"TheGreatDepression."Ushistory.org.AccessedMarch22,2015.
"U.S.IncomeInequality,onRiseforDecades,IsNowHighestsince1928."PewResearchCenterRSS.
December5,2013.AccessedMarch22,2015.
11

Bibliography:

"TheGreatDepression."Ushistory.org.AccessedMarch22,2015.

Colombo,Jesse."The1920sFloridaRealEstateBubble."RSS.June26,2012.AccessedMarch21,2015.

"HerbertHooverontheGreatDepressionandNewDeal,19311933."HerbertHooverontheGreatDepressionand
NewDeal,19311933.AccessedMarch19,2015.

ShmoopEditorialTeam."FranklinD.Roosevelt(FDR):First100Days."Shmoop.com.November11,2008.
AccessedMarch21,2015.

Clark,Andrew."PaulsonAbandonsPlanstoBuyupAmerica'sToxicMortgageAssets."TheGuardian.November

12,2008.AccessedMarch16,2015.

"TheGreatDepression."Ushistory.org.AccessedMarch22,2015.

Romer,Christina."GreatDepression."EncyclopediaBritannica.Firsted.2003.

msnbc.com.

"Howsevereissubprimemess?.AssociatedPress.20070313.AccessedMarch,22,2015.
"TheStockMarketCrashof2008."TheStockMarketCrashof2008.AccessedMarch22,2015.

"FailedBankList".FederalDepositInsuranceCorporation.ArchivedfromtheoriginalonNovember15,2013.
AccessedMarch,22,2015.

"TheGreatDepression."Ushistory.org.AccessedMarch22,2015.

"U.S.IncomeInequality,onRiseforDecades,IsNowHighestsince1928."PewResearchCenterRSS.December
5,2013.AccessedMarch22,2015.