I try to learn more in depth about topics that interest me. I was reading about the Great Depression, but it is so hard to understand for me what exactly cause it, as I read it, it feels like a mix of fancy words that don’t tell me much (likely due to my lack of knowledge and english not being my 1st language). So, could anyone explain me in simple words what exactly cause the Great Depression?
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The ELI5 version:
In 1929, stockbrokers were overconfident — the markets were way, *way* up, and the extremely-optimistic outlook was that they’d stay that way for some time.
Because of that over-confidence, financial institutions started to do *a lot* of risky lending — granting loans, mortgages and other financial assistance to people that would ordinarily never qualify.
In the end, that came back to bite them — in 1930, the markets experienced a precipitous drop, which wiped out the value of all of those loans and mortgages.
Interest rates soared, to the point that the banks *lost* money when their customers couldn’t afford their mortgages or to pay interest on their loans.
People just…stopped paying.
Financial institutions had no choice but to foreclose on most of them, and then the banks had a whole *bunch* of real-estate on their hands that was realistically *never* going to sell in such a depressed market.
So, it was a combination of investor over-confidence, banks making risky loans, and rising interest rates that made *existing* loans unpayable.
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