The stock market crashed in 1929 because investors had put too much capital into the stocks by borrowing large amounts of money that they did not truly have. Large sums of money were invested in certain stocks because many investors thought that they were a sure thing.
When too many stocks were purchased, there was an influx in the number of stocks. This large number caused a figurative bubble to burst and stocks to take a heavy decline. There were not enough stocks to meet the heavy demands that were imposed by the investors who were interested in these stocks. This led to people losing money, banks losing money and corporations becoming defunct.
Due to the high amount of loans that were taken out for stock market purchases, banks quickly tried to collect the debts on the loans. The people who had borrowed the money from the banks were not able to repay the money for these loans and collections ensued. People who got word of these banks trying to recover money pulled out all of their physical money from the banks. Banks began to fail because they had loaned out more money that they could not recover from the federal bank reserve and were not able to support themselves with the money from their other clients.