The above by
Lometa does a good job of summarizing the events of the
Great Depression, except for one very key point.
Those bad investments wouldn't have happened in the first place but for one thing.
Sometime in, I believe, 1920 or 1921, the federal government of the United States seized control of the interest rate used for loans. Apparently, some bright boy in Washington figured that, if the government controlled the interest rate, the economy could be kept in a state of perpetual boom.
Anyone ever experiment with positive feedback?
The road to hell is paved in good intentions, and things are only magnified when it's the government.
Things were fine for a few years. The interest rate was kept unnaturally low, and business boomed along, just like they had predicted. But, since money was very cheap to borrow, much cheaper than it should have been, _everyone_ was starting a business. Some weren't too feasible, and wouldn't have ordinarily gotten a loan. But, since rates were so low...
By 1927 Washington realized something was wrong. They started squeezing the money supply, which eventually culminated in Black Thursday.
Then, the government cleverly took a recession and turned it into a Depression, with a capital D.
The economy gets fucked up to the extent the government fucks with it. Simple rule.