The 1920s was a period of great wealth and a large employment rate. Then, everything came to a halt in 1929. The Stock Market crash, also known as "Black Thursday," led to the period in history we know today as the Great Depression.
As the selling of stocks increased before the crash, the prices went up with the demand. Then it got to a point where people didn't want to pay that much, so the stocks didn't sell. As a result, people had to lower their prices to sell stocks. At the end of one day, the New York Stock Exchange lost $4 billion. By year's end, the Exchange lost $15 billion! It was almost like the money evaporated. People who had money in stocks simply lost it.
This crisis created a great deal of unemployment in the United States. An additional 20 percent of American workers became unemployed. Farmers couldn't sell their crops because no one was buying them. Companies went out of business due to a loss of sales. Banks failed due to lending out funds for purchasing stocks that were never repaid. Bankers who had invested in the stock market were unable to cover their deposits, and banks didn't have the money to pay back their customers. As a result, some Americans stopped trusting the banks and decided to stash their money at home. If no one trusted the banks, no one would use them, and they wouldn't be able to loan money for businesses and buying homes. What could be done?
To make it possible for Americans to have faith in their banks once again, the government created the Federal Deposit Insurance Corporation (FDIC). People's pay checks were taxed and a special fund was created to insure deposits in American banks. The FDIC is still operating today, and now guarantees each bank account up to $100,000 will be protected in case of future bank failures. This gives people the confidence to deposit their money in banks without the fear of losing it. Banks can then loan money for people to buy homes, cars, or create businesses.
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