Street. Anew form of buying stock became popular, it was buying on margin. It operated on the same principle. The bank or brokerage loans you an amount of money at a certain interest rate per month. Buying on margin allowed one to buy a large amount of stock with a little amount of cash up front. It was quite common for someone to purchase shares while paying only 3-5 percent of the cost. This scenario works as long as the market continues to go up. If the share increase is a greater percentage than the interest rate one can make a lot of money in a short period of time. Investors were pouring profits back into margin buying as they telescoped continued success and new highs in the stock market. As the Federal Reserve began to raise interest rates and decrease money supply along with some major investors realizing the extremely high valuations, the market started trading volatially. This volatility continued for a couple of weeks, but margin buying continued. On October 24, 1929 the house of cards collapsed. The stock market lost more than 4 billion dollars in a single day. (Davis 1) Banks and brokerages who had loaned large amounts of money for margin buying suddenly felt the pressure. These banks and brokerages started mass margin calls asking for investors to put up more cash. Problem, investors did not have much cash, all the money was in the market. For those who could not pay the margin calls, the banks and brokerages had to sell the stock to get the money that was owed to them. All the buying that had taken place over the previous couple of years turned to panic selling. The market continued its fall and lost 15-20 billion dollars worth in a little under a week, under massive volume of 1.3 billion shares. (2) The drastic amount of margin calls, Federal Reserve moves, and sudden drop in the market shattered investor confidence and led the way to the collapse of the stock market.When dealing with the issue of Econ...
