Due to this, buying on margin fueled the excessive speculation and only added to the overpricing of stock. However, these were not the only consequences of buying on margin. In his book, Klein stated that if there was ever “large scale liquidation”, the result would be one of the largest drops in stock values ever seen due to 8 million shares a day being forced on to the market (Klein). In October, when prices decreased, this is exactly what happened. Brokers started calling in margins and many investors were forced to sell their stocks in order to pay for back the loan. In attempts to make money, brokers were forced to sell the stocks, further decreasing market values (Klein). This created a cycle that drove prices down further and further, exacerbating the effects of a drop in price and causing the market to crash. Despite the danger that buying on margin presented prior to the crash, the technique went largely unregulated before October of 1929. The only exception to this was an attempt by the Federal Reserve Board to halt the speculation and broker
Due to this, buying on margin fueled the excessive speculation and only added to the overpricing of stock. However, these were not the only consequences of buying on margin. In his book, Klein stated that if there was ever “large scale liquidation”, the result would be one of the largest drops in stock values ever seen due to 8 million shares a day being forced on to the market (Klein). In October, when prices decreased, this is exactly what happened. Brokers started calling in margins and many investors were forced to sell their stocks in order to pay for back the loan. In attempts to make money, brokers were forced to sell the stocks, further decreasing market values (Klein). This created a cycle that drove prices down further and further, exacerbating the effects of a drop in price and causing the market to crash. Despite the danger that buying on margin presented prior to the crash, the technique went largely unregulated before October of 1929. The only exception to this was an attempt by the Federal Reserve Board to halt the speculation and broker