What Caused The 1929 Stock Market Crash?
In the years leading up to the stock market crash of 1929, the stock market had gained much popularity as a way of making money. Because stocks prices had been on the rise, they gained the reputation of being a safe way to invest. Many investors believed stocks were their ticket to riches. A great number of investors were purchasing stock on the margin, meaning they put 10% of the investment and borrow the remaining 90%. For example, if $10 worth of stock was purchased, the investor put in $1, while the mortgage broker put in the other $9. It was a good deal as long as stocks were gaining value. However, if the stock lost value, the stockbroker would issue a margin call requiring the investor to pay back the loan. In the example above, not only did the investor lose the $1 he invested, he also had to pay back the $9 he’d borrowed. How Mass Trades Lowered Stock Prices All was well for most of the 1920s. People believed that stock values would never stop rising. But, in 1929, some of the
