Americans Buy Stock in a Frenzy
But few Americans in the speculative late ’20s had the time to think about possible repercussions; they were too busy making money.
     Stock prices doubled, then tripled. General Motors shattered the 150 mark — an unbelievable mark in 1928. Radio Corporation of America went up to 505; favorites of the week, such as Montgomery Ward, peaked at 466 ?.
     The market value of all shares listed on the New York Stock Exchange had doubled to $64 billion between 1925 and 1929. The stock market had become a frenzied pit of speculation.

Market Keeps Bouncing Back
The fundamental weakness of the Stock Market in the 1920s was that much of stock price greatly outstripped stock worth. Americans involved in the Stock Market (never more than 10 percent of the country even at its peak) were speculating, betting that stocks they invested in would increase, at which point they would have made a profit and could sell the stock.
     Banks made that sort of speculation easy by making money cheap to borrow on margin. In the heady days of the boom, an investor only had to put up 10 percent of the money, and the bank would put up the rest, since a steadily rising market meant that repayment was virtually guaranteed.
     The market would occasionally be besieged by jitters, as investors got cold feet in the wake of some dire warning. On June 11th and 12th, stock values plummeted — Bank of America fell 120 points, one of the most celebrated “crashes.”
     But the market rebounded. On June 13th and 14th, stock prices recovered and surpassed previous levels. Speculators learned the ironic lesson that a crash would always be followed by a resurgence, and became even more confident and wild in their buys.

American Economy Already in Recession
As long as the prices kept going up, this system worked fine. Many Americans became fabulously wealthy “playing the market” without having to put up much of their own money.
     The problem was that the economy was already in a deep recession by 1927. Purchasing power could not keep up with productivity, which basically meant that the workers churning out the product couldn’t afford to buy it themselves. Inventories were crowded with products storekeepers couldn’t move.
     Profits had been maximized and the market was saturated with goods that people had bought earlier in the decade. Farmers had been laboring through a strangling recession through the 1920s — net income had actually dropped 25 percent during the decade.