Investment Trusts and Margin Buying
Margin buying during the 1920s was not controlled by the government. It was controlled by brokers interested in their own financial well-being. Prior to October 1929 the average margin requirement was 50 percent of the stock price. On selected stocks it was as high as 75 percent. When the crash came no major brokerage firm was bankrupted, because the brokers managed their finances in a conservative manner. The fact that stock prices continued downward did result in three major brokerage firms going bankrupt in the first nine months of 1930. At the end of October margins were lowered to 25 percent. The level of the margin requirements at the beginning of October compared to the end of October implies that the broker community either thought some stock prices were too high on October 1 or too low on October 31.
In 1929 New York Stock Exchange member firms had 560,000 margin accounts out of 1,549,000 customers. Broker loans increased from $6,735 million to $8,549 million from January to September 1929. With a 50 percent margin the $1,814 million increase in broker loans would support $3,628 million of stock investment.
The market value of all stock securities (common and preferred stock) listed on the NYSE was $89.7 billion on September 1, 1929 ( Stock Exchange Practices, 1934, p. 7). With a value of $67.5 billion in January, the market increased by approximately $22.2 billion dur-