The Deregulation Of The U.s. Economy

1915 WordsNov 20, 20158 Pages
In the 1920s, there was an increase in bank credit and loans. Confident in the potency of the U.S. economy, the stock market became a one way bet. Many consumers borrowed money to buy shares. Firms took out more loans for expansion. Because people took on so much debt, it meant they became more vulnerable to a change in confidence. When that change came in the form of the 1929 crash, those who had borrowed money were left exposed. Moreover, rush to sell shares trying to remedy their debts. Interconnected to buying shares on credit was the practice of buying shares on the margin. To buy on the margin meant you paid between 10-20 percent of the value of the shares; but it also meant you were financing 80-90 percent of the value of the shares. This allowed more currency to be invested, which inflated the value of each share. Numerous investors made millions buying on the margin, the so-called ‘margin millionaire’ investors made millions in profits buying on the margin and observing the rising price of their share. However, it also left stockholders vulnerable when prices fell. During the 1920s, the virtually endless increasing movement of the markets seemed to make this practice practicable, Exacerbating this tendency was the fact that more and more investors were getting bank advances in order to pay the preliminary marginal buy in, Thusly resulting in there being very little tangible currency supporting these stocks’ values. As investors and brokers began to identify

More about The Deregulation Of The U.s. Economy

Open Document