The Causes of the 1929 Stock Market Crash

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On Wall Street on October 29, 1929 stock market prices came crashing down, causing one of the worst economic crises in America. This day would be forever remembered as Black Tuesday, the day the stock market crashed. There are multiple proposed reasons for why the stock market crashed in 1929 such as margin buying, investment trusts, and a build up of a few other factors. One of the most contributing factors to the crash of the 1929 stock market was margin buying. Kurtzman says margin buying is a risky technique involving the purchase of securities with borrowed money and using the shares themselves as collateral (81). This was usually done by using a margin account at a brokerage. During the 1920’s some people had not paid cash for their stocks, but rather bought stock with credit. These people had expected their stocks to become more valuable and planned to pay off their debts to the stockbrokers with the extra money they earned. They would be making money as long as their stock price increased, but if the prices fell then they would be deep in debt (Taranto, The NYSE Crash of 1929). A significant number of Americans borrowed money to buy more stock. By August 1929, brokers were lending small investors more than two thirds of the face value of the stocks they were buying. The rising share prices encouraged more people to invest; people hoped the share prices would continue to raise further. This resulted in the creation of an economic bubble. On October 24, 1929 the market finally turned down, and panic selling started. In a single day 12,894,650 shares were traded in (Salsman 16) .When the value of all the stocks had dropped; those in debt were told to pay up. To pay back the loans, some people were forced to wipe out their savings accounts or sell their businesses (Doak 10-11). Margin buying greatly affected the cause of the crash of the stock market in 1929
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