Black Tuesday: The Great Recession

Abstract

In the United States, there have been several events that have shaped the way that our economy is currently functioning. Events such as the Great Depression in 1929 and the more recent Great Recession of 2008 have led to financial stress on large, important industries. In these difficult economic times, executive officers and policy makers must make difficult decisions about how to combat this financial stress. In particular, the banking industry in the 20’s and 30’s and the automotive industry in 2008 were struggling to stay afloat.

In this thesis, I will research the decisions that have been made in these, sometimes controversial, events. I will seek to understand the different approaches that have been taken to mitigate these

Tuesday, October 29 is the day that the Great Depression began with the crash of the stock market. On this day and the months after, billions of dollars were completely gone and sent the financial well being of the entire country in a downward spiral. Investors were left with nothing and the confidence of consumer spending dwindled. This however, was only the start to this long financial crisis. Following the stock market crash, the threat of losing money stored in financial institutions caused an alarm among the citizens. As a result, bank runs occurred. These runs were detrimental to the viability of the banking industry. Banks didn’t have the cash on hand to be able to distribute the large withdraws. In this time during the 1930’s, over 9,000 banks failed. This coming as a result of deposits not being insured which caused even more panic for the American people. With money being pulled from all directions, businesses suffered and a reduction in consumer spending was felt throughout the

It was an event that we hadn’t experienced before of that kind of magnitude. Arguably the industry hit the hardest during this time was the banking industry. This was because after Black Tuesday, all financial confidence went to practically nothing. Stock prices continued to plummet and the wealthy, who were in control of roughly a third of the nation’s wealth were losing money left and right because of the poor stock prices. This financial pandemonium trickled down the entire system as businesses weren’t selling anything and millions were laid off. Americans had lost all trust in the financial institutions that had developed the country thus far. For this reason, a wave of bank runs began to ensue. A bank run is when large amounts of people look to withdraw their money from banks. While it is their money, this creates solvency issues because a bank doesn’t actually hold that much money at a time. They are typically using your money to provide loans and make interest off that money. As a result, the American people lost confidence in their security of banks and began withdrawing at the same time. Because of this, between 9,000 to 11,000 banks dissolved during a three-year period. Once a bank dissolved, there was no way of getting your money out and no insurance for your loss. With more banks dissolving, the little confidence that was still there for