Question

In 1929, what major trend in the U.S economy led some to worry that the values of stock could fall?

Answer 1

Investors were buying stocks on margin, that is they were borrowing money to buy the stocks. With margin buying, if a stock fails to advance fast enough, the investor can actually lose money due to interest charged on the loan they essentially took to buy the stock.

Answer 2

thanks a lot.. =)

Answer 3

Buying on margin does not actually mean "borrowing money to buy stocks", it really means borrowing shares with the intent of repaying the seller in like shares at some point in the future. The difference meaning if I borrow 100 shares of IBM for 6 months and the price is now $5/share, I was loaned $500 - but that does NOT MEAN I owe the seller $500! In 6 months, if the price is down to $1/share I just made $400.

Answer 4

We mustn't forget the problem that is still with us namely too much debt. When things turned sour the banks wouldn't even lend to each other for fear of bankruptcy by other banks. Over borrowing was a trend before the 1929 and recent crashes, when people needed money they sold the most "liquid" of their investments to cover debt and the aboementioned margin calls.