The
Stock Market Crash
of 1929
The prosperity of the 1920s finally ended when the “bull
market” suddenly showed the strain of overvaluation in the
fall of 1929. The value of the stock market had more than quadrupled
during the 1920s primarily because Americans had purchased stock “on
margin” by using the future earnings from their
investments to buy even more stock. Even though buying stock on
margin grossly distorted the real value of the investments, most
people naively assumed the market would continue to climb. Therefore,
they funded their lavish lifestyles on credit.
When the market buckled and stock prices began
to slip, brokers made “margin calls” requesting investors
to pay off the debts owed on stock purchased on margin. Unfortunately,
most people didn’t have the cash to pay back the brokers. Instead,
they tried to sell all their investments quickly to come up with
the extra money. The surge in stock dumping eventually caused the
most catastrophic market crash in American history on Black
Tuesday: October 29, 1929. In spite of attempts by major
investors to bolster the rapidly declining market, Black Tuesday
marked the beginning of the rapid economic collapse known as the Great
Depression.
