"In 1921, investor margin accounts totaled one billion dollars; by 1929, the number had risen to nine billion dollars" (Klingaman 139). Since it was so easy and cheap to buy on margin, it became extremely popular. Everyone wanted to buy and get rich fast. .
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.
Likewise, one of the factors that helped to fuel an increase in stock prices was increased speculation and the crash brought the share prices back to a normal level. From 1925 on, American industry was overproducing. In anticipation of eventually selling its surpluses, business leaders brought their profits right back into industry, factories, machinery, and increased employment, all of which led to even more surplus. This overproduction resulted in a fall when the next decline came.
