Monday, August 11, 2014

How did the stockbroker's income during the 20's on the sale of stocks become one of the factors that led to the 29 crash?

Stockbrokers recieved a salary from the investment firm
where they were employed, however, they also recieved commissions from every investment
they sold. Therefore, the more stock they sold, the larger the commission. The primary
tactic that stockbrokers used to increase their sales was the 'margin sale'. To buy a
stock on 'margin' essentially meant buying a stock on credit. For example, if a share of
stock cost $10.00 the client could purchase the share for $1.00 or 10% using the other
90% as collateral for the credit. Payment of the margin account would be made as the
stock rose in value or if a stock price lingered or dropped the client would have to
make a small payment on their margin account. However, the broker's commission was on
the $10.00 which he recieved upfront. This practice allowed many stockbrokers to sell
any stock good or bad to those who were not really educated in the financial market. By
1928 the market began to spiral out of control, banks were calling in their margin
accounts for payments at the same time people were being laid off from their jobs. By
the time many of the margin purchases were called in the stocks they represented had
lost their value. People didn't or couldn't pay, banks began to fail, the market was
imploding from within, but the brokers had made their money.

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