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What is the term for a demand that the investor pay the loan at once?Like at the start...

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cenicienta | (Level 1) Valedictorian

Posted April 15, 2011 at 11:58 PM via web

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What is the term for a demand that the investor pay the loan at once?

Like at the start of the Great Depression.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted April 16, 2011 at 12:12 AM (Answer #1)

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I believe the term that you are asking about is "margin call."

During the late 1920s, there was a lot of what was called "buying on the margin."  This was when an investor would borrow the majority (usually around 90% in those days) of the price of a stock that the investor wanted to buy.  The investor would pay off the loan when the price of the stock rose.

After the crash of October 1929, the prices of stocks stopped rising.  The lenders who had lent the money to the margin buyers wanted that money back.  At that point, they issued what are known as "margin calls" demanding that the money they loaned should be paid back.

 

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