Stock Market Crash of 1929
Gale Encyclopedia of U.S. Economic History, 1999
During the 1920s increasing numbers of Americans became interested in Wall Street and in buying stocks. A prospective buyer did not have to pay the full price of a stock in order to buy. Instead the practice of "buying on margin" allowed a person to acquire stock by expending in cash as little as ten percent of the price of a stock. The balance was covered by a loan from a broker, who was advanced the money by his bank, which, in turn, accepted the stock as collateral for the loan. Credit was easy, and the Federal Reserve System did little to restrict the availability of money for stock investment. But mindful of the run of the bull market and the practice of buying on margin, pessimists kept insisting that all was not right with the speculative boom. Many newcomers to the market failed to realize that a stock certificate was only a piece of paper, and that its primary worth was essentially connected with the prosperity of the company that issued it. A strange and frightening fact was becoming apparent to some observers—the increase in the market value of most stocks often had little relationship to the profits or prospects of the issuing companies. The stock itself had taken on a life of its own, based on the circumstance that people were bidding for these equities (stocks) at ever-rising prices. Stock prices represented not corporate profit, but speculative buying of stock certificates. In September 1929 confidence in the market's ability to continue its upward spiral began to weaken. Stock prices turned lower. Apparently investors were turning from "bulls" to "bears" in increasing numbers and were selling short. As the market was crowded with inexperienced but feverishly eager investors who lacked capital reserves, the falling prices produced a shock effect. For the small investor who had all of his/her money tied up in stocks, it became imperative to sell fast before the prices...
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Full Text: COPYRIGHT 1999 Gale Group, COPYRIGHT 2005 Gale, Cengage Learning.
"Stock Market Crash of 1929." Gale Encyclopedia of U.S. Economic History. Ed. Thomas Carson and Mary Bonk. Detroit: Gale, 1999. Gale Student Resources In Context. Web. 14 Jan. 2013.
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