The ‘20s: Culture, Consumption, and Crash 153A block of White Sewing Machine stock, for example, went for one dollar,
down from a high of $48 a share. Making matters worse, many bigger inves-
tors bought their stocks “on the margin,” or with a line of credit, meaning
that they only paid 10 or 20 percent of the value of their shares up front, and
thereby borrowing the other 80-90 percent against the future value of the
stock. If the stock rose and made money, margin buys were no problem. But
in the late 1920s, they made the market rise “irrationally” because the stock
purchases gave the impression that the product had value, when in fact its
price was rising because of the debt incurred by investors who bought at
margin prices. When prices fell, however, those margin investors could not
afford to pay their brokerage firms for the stocks they had bought, and the
brokerages/banks had to eat the debt. Consequently, within one short week,
the bull market of the 1920s [all of the stock exchange’s profits] was gone.
Within a year, the average value of a share of stock fell 90 percent. From the
beginning of the crash in October 1929 to June 1932, the nation’s markets
lost close to $180 billion in value. With surplus capital and inadequate trad-
ing opportunities, men of wealth speculated on the market, and lost, big.
Banking and Credit. If stock markets are in crisis, then, inevitably, banks will
be too. In the 1920s banks provided both commercial and investment services;
they offered bank accounts and home loans as part of their commercial role,
and sold securities and stocks to investors. With a flood of money coming
their way in the 1920s, commercial bankers became more speculative. They
offered huge loans to corporations to expand, and to consumers to buy new
goods, all of course, at interest. Bank income, however, is not simply the
amount that individuals put in banking accounts or the interest on loans given
out; banks themselves invested heavily in the stock market, helping it reach
the heights discussed above. Banks, because they too were in the stock mar-
ket, issued excessive loans, often unsound, to the companies in which they had
invested and, even riskier, advised their clients to invest in those same stocks.
The combination of easy money from banks that had invested in a particular
company, along with that same bank encouraging other investors to buy stock
in that same company, was, realistically, a financial shell game, and it 1929 it
fell apart.
Making conditions worse, bank failures were common, meaning investors
would lose all their deposits. While Wall Street banks dominated the industry
and could go to the government and Fed for help, there was a significant