Just a copy and paste I saw online. I know margins are much tighter, but it looks a lot like today...
As people became comfortable buying stocks, speculation became comfortable, too. When stories of overnight fortunes were reported in the news, regular folks wondered: Why not me?
As the boom market continued, people were increasingly willing to buy stocks with borrowed money. The "buy now, pay later" method of credit was introduced to the stock market as "buying on margin." The deal was to put some of the money down, then pay for the rest of the shares with profits when the paper was sold. The concept works, provided that the stock prices keep going up.
Buying on margin became so popular that by the late 1920s, "ninety percent of the purchase price of the stock was being made with borrowed money." Not only that ... the U.S. economy had come to depend on that activity. Before the crash, nearly forty cents of every dollar loaned in America was used to buy stocks.
As more people bought stocks with borrowed money, the demand for stocks increased - as did the prices. In 1928 alone, the stock market doubled.
Applying the formula of the time, a person with $6,000 could buy $60,000 worth of stock because all one had to do was put down 10% of the purchase price. With a market going ever upward, who would have thought about "paying the piper" - that is, the rest (90%) of the purchase price - in the event the value of the stock "tanked?"
Recklessness became part of the national consciousness. "The market takes care of things pretty well," so why not join in?
Calvin Cooledge, then President of the United States, had friends in the financial industry. Regulations, at the time, were so minimal that "the street" could run itself.
(Does any of this sound familiar?)
As people became comfortable buying stocks, speculation became comfortable, too. When stories of overnight fortunes were reported in the news, regular folks wondered: Why not me?
As the boom market continued, people were increasingly willing to buy stocks with borrowed money. The "buy now, pay later" method of credit was introduced to the stock market as "buying on margin." The deal was to put some of the money down, then pay for the rest of the shares with profits when the paper was sold. The concept works, provided that the stock prices keep going up.
Buying on margin became so popular that by the late 1920s, "ninety percent of the purchase price of the stock was being made with borrowed money." Not only that ... the U.S. economy had come to depend on that activity. Before the crash, nearly forty cents of every dollar loaned in America was used to buy stocks.
As more people bought stocks with borrowed money, the demand for stocks increased - as did the prices. In 1928 alone, the stock market doubled.
Applying the formula of the time, a person with $6,000 could buy $60,000 worth of stock because all one had to do was put down 10% of the purchase price. With a market going ever upward, who would have thought about "paying the piper" - that is, the rest (90%) of the purchase price - in the event the value of the stock "tanked?"
Recklessness became part of the national consciousness. "The market takes care of things pretty well," so why not join in?
Calvin Cooledge, then President of the United States, had friends in the financial industry. Regulations, at the time, were so minimal that "the street" could run itself.
(Does any of this sound familiar?)
