The Great Depression was caused by several different factors including buying on margin and the Stock Market Crash of 1929. These two events are tied together, as many American citizens bought stocks on margin. In this case, a person would pay 10% down on the price of a stock and then would borrow the other 90% from a bank. During the 1920's, this did not seem like a bad idea. This is due to the fact that stocks were quite consistently increasing in price. However, when the Stock Market Crash late in 1929, millions of Americans lost their life savings because they invested too much in stocks. Due to the stock market crash, banks were shut down, millions of citizens became homeless, and the unemployment rate reached nearly 20%.
Herbert Hoover's policies were considered quite ineffective, as he very rarely used the power of the federal government to interfer in the ecnomy. This is why the shanty towns developed during this time were called "Hoovervilles." Franklin D. Roosevelt's policies were more effective than Hoover's, as he implemented his New Deal policies. This resulted in the creation of federal agencies that helped to employ thousands of Americans as well as creating agencies that regulated the American economy to ensure that another economic collapse did not take place.