USA HISTORY

Detailed explanation-1: -Many were buying stocks on margin-the practice of buying an asset where the buyer pays only a percentage of the asset’s value and borrows the rest from the bank or a broker-in ratios as high as 1:3, meaning they were putting down $1 of capital for every $3 of stock they purchased.

Detailed explanation-2: -Consumption in the 1920s The expansion of credit in the 1920s allowed for the sale of more consumer goods and put automobiles within reach of average Americans. Now individuals who could not afford to purchase a car at full price could pay for that car over time–with interest, of course!

Detailed explanation-3: -Margin buying during the 1920’s was not controlled by the government. It was controlled by brokers interested in their own well-being. The average margin requirement was 50% of the stock price prior to October 1929. On selected stocks, it was as high as 75%.

Detailed explanation-4: -The stocks were bought and sold on stock exchanges, of which the most important was the New York Stock Exchange located on Wall Street in Manhattan. Throughout the 1920s a long boom took stock prices to peaks never before seen. From 1920 to 1929 stocks more than quadrupled in value.