Margin buying was when investors paid only a portion of the price in cash, anywhere from ten percent to seventy percent, and borrowed the rest from a broker, who usually gets the funds from a ban

Consequently, the public demand for their stock was nearly impossible to stand up to. In many instances the value of the shares offered exceeded by two or three times the total value of the stocks and other assets were based on. It was primarily through the channeling of the public's savings by the way of the investment trusts that drove stock valuation ratios to astronomical and unrealistic levels in late 1929. Unfortunately, there was no securities' law at that time to reduce market abuses, manipulations and excesses leading to the bear market, which followed.

On August 8, the Federal Reserve Bank of New York increased the rediscount rate from five to six percent. This increase was approved by the Federal Reserve Board and was the strongest action taken by the board since its letter of February 2, 1929, to all Federal Reserve Banks. The February 2 letter stated, "A member bank is not within its reasonable claims for rediscount facilities at its Federal Reserve Bank when it borrows either for the purpose of making speculative loans or for the purpose of maintaining speculative loans" (Sobel 120). Both of these actions were reinforced by repeated messages from the members of the Federal Reserve Board for banks not to make loans to support speculative investments, reducing the inclination of the New York banks to finance broker loans.

The government did not control margin buying during the 1920s. It was controlled by brokers interested in their own financial well-being. Prior to October 1929 the average margin requirement was fifty percent of the stock price. On selected stocks it was as high as seventy five percent. When the crash came no major brokerage firm was bankrupted, because the brokers managed their finances in a conservative manner (“1929 Stock Market Crash”). The fact that stock prices continued downward did result in three major brokerage firms going bankrupt in the first nine months of 1929. “In 1929 New York Stock Exchange member firms had 560,000 margin accounts out of 1,549,000 customers. Broker loans increased from $6,735 million to $8,549 million from January to September 1929. With a 50 percent margin the $1,814 million increase in broker loans would support $3,628 million of stock investment” (New York Times). At the end of October margins were lowered to twenty five percent. The level of the margin requirements at the beginning of October compared to the end of October says that the broker community either thought some stock prices were too high on October 1 or too low on October 31.

k loan. Buying on margin is a strategy for the short term, since holding on to borrowed money too long could result in a loss. The investor was responsible to meet all margin calls promptly and was responsible to repay all funds borrowed on margin, even if the amount exceeds the value of your account. One of the biggest reasons many people lost lots of money in the stock market crash of 1929 was that they borrowed too much and could not pay back their loans. If a stock was bought on margin, the investor could lose more money than they have. Due to the belief that the stock market w

Some topics in this essay:
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