What were some of the causes of the 1929 stock market crash?

Answer 1

The biggest reason for the Stock Market crash was margin trading. It's not the ONLY reason for the crash, but it's the biggest.

Margin trading is where an investor buys stock with borrowed money. In the 1920s margin trading was unregulated. If you were a really good stock picker and you could convince your broker to loan you 90 percent of the sale price on this super hot stock you wanted to buy a million shares of, it was perfectly legal to do it.

Let's talk of maintenance margin. When you buy on margin you have to maintain a certain amount of equity in your account - cash, stocks, pig futures, whatever. If the value of your equity drops below that maintenance margin value you have to put more money in your account. In 1929 the demand to put more money in was called the Broker's Call; today it's a Margin Call but it's the same thing: get down here with a lot of cash in your briefcase or we'll close your account. When stocks started dropping a lot of broker's calls were made to people whose entire net worth was in stocks bought on margin. And a lot of THOSE people were banks, who were leveraged up to their necks in margin-bought stocks.