"On October 29, a day remembered throughout history as "Black Tuesday," the New York Stock Exchange lost one-third of its entire value and dumped 16 million shares. More money was lost during that one day than ever before, stocks hit rock-bottom and thousands were financially wiped out" (Klein 207). During the 1920's, the economy was booming, wages and consumers spending were up, and everyone wanted a piece of the action. People started investing their life-savings, mortgaging their homes, and cashing in safer investments to try their luck on the stock market. Observers believed that stock market prices in the first six months of 1929 were high, while others saw them to be cheap. After the stock market crashed in 1929, many theories came about and tried to explain what caused the market to crash. It took nearly twenty-five years for many of the stocks to recover from the crash. The leading causes of the stock market crash were margin buying, speculation, investment trusts, a bad banking system and the Federal Reserve Policy.
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 bank 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 would only go up, people dumped their savings into the market often buying on margin.
