Economic Depression

The current financial crisis began with the bursting of the U.S. housing bubble and high default rates on "subprime" and adjustable rate mortgages (ARM).

Since the late 1990's, declining lending standards, an increase in loan incentives such as easy initial terms, and a long-term trend of rising housing prices had encouraged borrowers to assume difficult mortgages.

Borrowers were motivated to take these risky mortgage loans by the belief that they would be able to quickly refinance in the future at more favorable terms. However, once interest rates began to rise and housing prices started to drop moderately in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically as easy initial terms expired, home prices failed to go up as anticipated, and ARM interest rates reset higher.

Foreclosures accelerated in the United States in late 2006 and triggered a global financial crisis through 2007 and 2008. The Stock Market Dow Index plunged over 5,000 points, practically ruining the current retirement plans of millions of Americans.

These events prompted Congress to pass a $700B Bailout Plan (a.k.a. Rescue Plan) that they hope will bring stability to the financial markets and increase the chance of bringing the economy out of the growing current recession.

If the Rescue Plan fails, some economists predict a U.S. and global depression.

The Great Depression of the 1930s had causes that are similar to the current crisis. Stock market investors in the 1920s were similarly deceived into thinking that borrowing money to buy stocks on margin (little money down) could always be repaid by selling the stock at a higher price in the future and repaying the loan. But, then the bubble burst.

Wall Street crashed on Black Thursday in October 1929. But unlike the government of 2008 initiating a Rescue Plan, President Herbert Hoover maintained that it was not the federal government's responsibility to provide relief. War veterans, many of them jobless and hungry, marched in protest. Critics attacked Hoover for his insistence on balancing the federal budget and his claim that "Prosperity is just around the corner." Franklin Roosevelt defeated Hoover in the 1932 presidential election.

Assuring Americans in his inaugural address that "We have nothing to fear but fear itself," Roosevelt immediately launched a hundred days of reform. In a program known as the New Deal, Congress passed a series of laws that increased the federal budget to alleviate poverty and stimulate the economy. A virtual alphabet soup of agencies arose to employ Americans in various public works projects.

Among the New Deal's most enduring accomplishments was passage of the Social Security Act to protect disabled and elderly people from future economic disasters. Although Roosevelt encouraged the public in regular Fireside Chats on radio, the Depression lasted in the U.S. until the onset of World War II.

Assign students to study some aspect of the Great Depression and government's role in trying to hasten economic recovery. Students will want to learn how government involvement in future economies could help to prevent the conditions that lead to recessions and depressions. Students should choose some aspect of the Great Depression that provided relief for millions of people.

Students should create a report or presentation (see links below) that cites at least three resources and addresses the following essential questions for critical thinking (you can create of substitute others):

• What caused the Stock Market crash and why?
• What actions could President Hoover have taken to counter the start of the depression?
• What actions did Roosevelt take to attack the depression and how was this revolutionary for this era?
• Which people were more most affected by the depression, who were not too affected, and why?
• Why did Roosevelt create a series of "Fireside Chats" and did they help?

All pathfinders listed below are accessed first by clicking the Topics tab:

Pathfinder 1: The Great Depression > Stock Market Crash
Pathfinder 2: The Great Depression > Herbert Hoover
Pathfinder 3: The Great Depression > The New Deal
Pathfinder 4: The Great Depression > Personal Impact of the Depression
Pathfinder 5: The Great Depression > Fireside Chats

Use our custom ProQuest models for written or PowerPoint reports written and PowerPoint-style reports.

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