4. Unregulated banking practices worsened the depression during the Hoover Administration
Throughout the Roaring Twenties, which began following the post-WWI recession around 1923, investment in the stock market soared. Among the participants in widespread speculation were the banks across America, which used the deposits from their customers to invest in the markets. Banks also lent money to investors to purchase more stock. By 1928, stock prices were wildly over their actual value, and several investors (including Joseph P. Kennedy), withdrew from the speculative bubble, anticipating its bursting. The stock market created great wealth on paper during the 1920s, shared by a relatively few.
In 1929, the market that giveth took away. The collapse on what became known as Black Tuesday – October 29, 1929 – erased $14 billion in speculated wealth. By Friday of that grim financial week, over $30 billion vanished like smoke in the air. The losses exceeded American expenditures during World War I by a factor of ten. Banks invested in the stock market were forced to close their doors, creating runs on other banks by a panicked public, leading to further closures. In early 1930, Hoover initiated steps to shore up banks and other financial institutions, with little effect on the growing crisis. It was one of many efforts he made to help the business community, believing it would in turn help the workers. In essence, Hoover believed in a trickle-down effect.