The market wouldn't level out; it would fall precipitately" (Galbraith 29). .
To fully understand the frenzied speculation that was occurring, it is important to note exactly what was feeding the frenzy. In short, the answer was easy credit. Banks offered credit like candy in the final years of the 1920s. "Banks [supplied] funds to brokers, brokers to customers, and the collateral [went] back to the banks in a smooth and all but automatic flow" (Galbraith 25). Easy credit facilitated margin trading, and margin trading proved extremely profitable for all involved. The rush to purchase stocks on margin peaked in the winter of 1928, with brokers" loans increasing by almost one billion dollars from the first of November to the end of December of that year: in November they hit five billion and in December, climbed to nearly six billion. The return on most investments rose from 5 percent at the start of 1928 to twelve percent by the final week of December. With such stunning returns, people were scrambling to buy stocks on margin, which was thought to be a safe, foolproof way to get rich. After all, they reaped the rewards of an increase in prices and didn't have to put up the purchase price themselves. Margin trading turned out to be too much a good thing and would have a great role in the great crash of 1929.
By 1929, individuals within the government, specifically the Federal Reserve Board, were becoming increasingly worried about the steady rise in the market. though concern about the market boom dated back to 1925 with Herbert Hoover advising against the utilization of credit on the market. Charles P. Kindleberger, author of The World in Depression 1929 -1939, states that, "[Hoover] was unable to persuade [President] Calvin Coolidge to speak out against stock market speculation. Coolidge in fact insisted in March 1929, as he left office, that United States prosperity was absolutely sound and that stocks were cheap at current prices" (Kindleberger 109), which undermined the concern of the Federal Reserve Board which had already criticized extreme trading in February of 1929.
