Question

[Easy] margin requirements permitted the investor to enter the market on a shoestring. By buying on margin, the investor had to pay only a fraction of the quoted price of any particular security. The additional money needed to cover the purchase was supplied by the broker, who obtained these funds from a bank with which he had deposited his customer's stock as collateral. The margin buyer was particularly vulnerable to even a small decline in stock quotations. With any decrease in security values he would have to pay the additional money to cover the corresponding decrease in his collateral. If he should be unable to supply this money - and usually he could not - the broker would be compelled to sell the stock to protect himself at the bank. Once this process had started there was always the danger that it could not be stopped. (P)rices would be further depressed, and more margin buyers would be compelled to dump more stocks on the market. The circle would then be complete, for there was no apparent way of checking this downward spiral after it had been set in motion.

- Harry J. Carman and Harold 0. Syrett, A History of the American People, 1952.

1.1) Summarize this document. How does this document relate to the causes of the Great Depression?
1.2) Is this a primary or secondary source?

Answer 1

1.1) This document describes the practice of buying stocks on margin, where investors only had to pay a fraction of the quoted price of a security and the rest was covered by the broker using funds from a bank. It highlights the vulnerability of margin buyers to declines in stock values, as they would have to provide additional money to cover the decrease in collateral. If they couldn't supply the money, the broker would sell the stock, potentially leading to a downward spiral of falling prices and more margin buyers being forced to sell their stocks. This document relates to the causes of the Great Depression by illustrating the speculative and risky nature of the stock market during that time. The practice of buying on margin contributed to excessive speculation and overvaluation of stocks, which ultimately led to the stock market crash of 1929 and the subsequent economic downturn.

1.2) This document is a secondary source. It is a historical account written by Harry J. Carman and Harold 0. Syrett in 1952, reflecting on the events and practices of the past. It is not a firsthand or contemporaneous account of the time period it discusses, making it a secondary source.

Answer 2

Step-by-step explanation:

This document is a passage from the book "A History of the American People" by Harry J. Carman and Harold 0. Syrett, published in 1952. The passage describes how margin requirements allowed investors to enter the stock market with only a fraction of the quoted price of any particular security. The additional money needed to cover the purchase was supplied by the broker, who obtained these funds from a bank with which he had deposited his customer's stock as collateral. The margin buyer was particularly vulnerable to even a small decline in stock quotations. With any decrease in security values, he would have to pay the additional money to cover the corresponding decrease in his collateral. If he should be unable to supply this money - and usually he could not - the broker would be compelled to sell the stock to protect himself at the bank. Once this process had started there was always the danger that it could not be stopped. Prices would be further depressed, and more margin buyers would be compelled to dump more stocks on the market .

This document relates to the causes of the Great Depression because it describes how margin requirements allowed investors to enter the stock market with only a fraction of the quoted price of any particular security. This led to an increase in speculation and overvalued stocks, which eventually led to a stock market crash in 1929 and contributed to the onset of the Great Depression .

This document is a secondary source because it is an interpretation of historical events based on primary sources such as newspapers, government documents, and personal accounts .

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