SPDR S&P 500 (SPY)

[Agoura Guy]

"When the market crashed in 1929, banks issued margin calls. Due to the massive number of shares bought on margin by the general public and the lack of cash on the sidelines, entire portfolios were liquidated. As a result, the stock market spiraled downwards."

"From late 1928 through the summer of 1929, banks and brokerage firms tightened margin requirements from about 10-20% to about 50%, levels that were without precedent. The Federal Reserve recognized the excessive speculation and attempted to stem the momentum by tightening monetary policy."

The great margin call: The role of leverage in the 1929 Wall Street crash

The year 1929 was the climax of a decade of unbounded optimism, reflecting unprecedented prosperity and a rate of sustained economic progress that had not been seen for at least a generation. The dissemination of new technologies such as electricity and radio spurred contemporary analysts to speak and write of a ‘New Era’ of plenty, characterised by major advances in both production and productivity.1 Inflation-adjusted earnings per share for S&P 500 companies rose from $9 per share in 1922 to $20 per share in 1929. Yet in the fall of 1929, the United States stock market crashed, losing nearly half its value in two months, foreshadowing the Great Depression. Ultimately, stocks bottomed out in 1933 about 90 per cent below their 1929 peak.

Reasons for the crash and why it occurred at that particular time are still debated among economic historians. In a recent comprehensive account of financial bubbles from the eighteenth century until modern times, Quinn and Turner postulate a key role for investor leverage made available in the form of broker loans:

"The quantity of outstanding broker loans in the autumn of 1929 meant that any sufficient fall in prices would lead to a significant number of margin calls. This in turn would force traders to liquidate, depressing prices further."

SORT OF LIKE NOW WHEN WALL STREET FREAKS OUT AT THE SLIGHTEST SELLING PRESSURE AND PANIC PUMPS THE MARKET BACK UP!!!!!

.... WHAT ARE THEY AFRAID OF??????

LOL