A margin call occurs when the value of a stock drops below a certain point. To protect their loan, the broker demands that the investor immediately deposit more cash or sell the stock to cover the debt.
The Illusion of Infinite Wealth: Buying on Margin and the Great Depression buying on margin great depression
If the stock price doubled to $2,000, you could sell it, pay back the $900 loan, and walk away with $1,100—nearly a on your initial $100 investment. This "leverage" turned modest savings into overnight fortunes, creating a feedback loop where rising prices attracted more margin buyers, pushing prices even higher. The Rise of the Speculative Bubble A margin call occurs when the value of
A buyer could purchase a stock by putting down only of the total price in cash. The broker would cover the remaining 80% to 90%, charging interest on the loan. For example, if you wanted $1,000 worth of stock in a booming radio company, you only needed $100 of your own money. For example, if you wanted $1,000 worth of
The story of buying on margin in 1929 serves as a permanent reminder: when you trade with borrowed money, you aren't just betting on the future—you are mortgaging it.
This "forced liquidation" created a downward spiral that couldn't be stopped. In a single day, billions of dollars in wealth vanished. But the damage wasn't contained to Wall Street. From Wall Street to Main Street
The 1920s, often called the "Roaring Twenties," was a decade defined by jazz, rapid industrialization, and an almost religious faith in the American stock market. For the first time in history, the average citizen felt the lure of Wall Street. However, this era of unprecedented prosperity was built on a fragile foundation: