What are the top 10 reasons why the stock market crashed in 1929?why did it crash.. because of what

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larrygates | College Teacher | (Level 1) Educator Emeritus

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I doubt that there are ten specific reasons for the crash; but the ultimate cause was speculation by inexperienced buyers purchasing stocks on margin.

Purchasing stocks on margin is a common practice, in which one pays only a percentage of the price, the broker pays the difference as a loan to the buyer, and the buyer repays the loan when the stock is sold. Current practice allows for purchases with a minimum margin payment of 50%. During the 20's, the minimum margin was a mere five percent. There was the common belief that the market had entered a period of perpetual growth, and anyone could make money in the market simply by buying on margin and selling a short time later. A striking similarity may be seen to the recent real estate bubble in which buyers purchased homes well beyond their means anticipating re-selling the home later at an enhanced price. In both instances, the same thing happened. The buying frenzy actually drove the market higher, until it reached an unrealistic level, at which point it collapsed under its own weight. Both markets collapsed catastrophically.

A famous anecdote of the stock market crash is that J.P. Morgan once received a "hot tip" on a stock purchase from a shoe shine boy. On hearing the news, Morgan immediately sold everything he had in the market; when unskilled laborers were playing the market, it was only a matter of time before it collapsed. As a result, he escaped unscathed, while many lost everything. This perhaps explains the silliness of the times and how so many people were destroyed by the silliness.

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