What Caused the Stock Market Crash?
One of the major causes of the crash of 1929 was due to Americans investing heavily in the stock market. If they did not have the money, they would borrow from their brokers. At one time, there was more than $8.5 billion in loans which was more than the amount of currency circulating in the United States. On October 24, 1929, panic selling started and the market turned down. A person may have previously borrowed $1000 from their broker and stock was purchased. When the crash took place, their stock may have only been worth $500 but they still owed the broker the original $1000. This is what is called buying on margin. You hope your investment will grow, where you can repay the loan plus pocket money. Unfortunately, people who were once wealthy, were now broke. Stock market prices at the time had hit an all time high but as we know now, there is always a correction that takes place. It may takes years for it to happen, but it always does.
