One way of making money during the 1920s was to buy stocks and shares. Prices of these stocks and shares constantly went up and so investors kept them for a short-term period and then sold them at a good profit. As with consumer goods, such as motor cars and washing machines, it was possible to buy stocks and shares on credit. This was called buying on the margin and enabled speculators to sell off shares at a profit before paying what they owed. In this way it was possible to make a considerable amount of money without a great deal of investment.
In an article entitled Everybody Ought to be Rich John Jaskob claimed that by investing $15 a month in stocks and shares it would be possible to make $80,000 over the next 20 years. Another investor, Will Payne, stated in 1929 that it had become so easy to make money on the Wall Street Stock Exchange, that it had ceased to become a gamble. He went on to say that a gambler wins only because someone loses, when you invest in stocks and shares, everybody wins.
On 3rd September 1929 the stock market reached an all-time high. In the weeks that followed prices began to decline. Then on 24th October, over 12,894,650 shares were sold. Prices fell dramatically as sellers tried to find people willing their shares. That evening, five of the country's bankers, led by Charles Edward Mitchell, chairman of the National City Bank, issued a statement saying that due to the heavy selling of shares, many were now under-priced. This statement failed to halt the reduction in demand for shares. On 29th October, over 16 million shares were sold. The market had lost 47 per cent of its value in twenty-six days.
Although less than one per cent of the American people actually possessed stocks and shares, the Wall Street Crash was to have a tremendous impact on the whole population. The fall in share prices made it difficult for entrepreneurs to raise the money needed to run their companies. Within a short time, 100,000 American companies were forced to close and consequently many workers became unemployed. As there was no national system of unemployment benefit, the purchasing power of the American people fell dramatically. This in turn led to even more unemployment.
It was later discovered that some Wall Street bankers had been partly responsible for the crash. It was pointed out that from September 1929, Albert H. Wiggin had begun selling short his personal shares in Chase National Bank at the same time he was committing his bank's money to buying. He shorted over 42,000 shares, earning him over $4 million. His earning were tax-free since he used a Canadian shell company to buy the stocks.
As William E. Leuchtenburg, the author of Franklin D. Roosevelt and the New Deal (1963) pointed out: "At a time when millions lived close to starvation, and some even had to scavenge for food, bankers like Wiggin and corporation executives like George Washington Hill of American Tobacco drew astronomical salaries and bonuses. Yet many of these men, including Wiggin, manipulated their investments so that they paid no income tax at all. In Chicago, where teachers, unpaid for months, fainted in classrooms for want of food, wealthy citizens of national reputation brazenly refused to pay taxes or submitted falsified statements."
Senator Burton Wheeler of Montana argued: "The best way to restore confidence in the bankis would be to take these crooked presidents out of the banks and treat them the same way as we treated Al Capone when he failed to pay his income-tax." Senator Carter Glass of Virginia claimed: "One banker in my state attempted to marry a white woman and they lynched him."
The panic increased when Ivar Kreuger shot himself in March 1932. It has been estimated that since the Wall Street Crash he had lost between $50 million and $100 million ($750 million and $1.5 billion in today's currency). The following month it was revealed that he had been a swindler who had forged $100,000,000 in bonds.
Soon afterwards the leading utility magnate, Samuel Insull, fled the United States to France. Insull was the chairman of the boards of sixty-five companies that folded, wiping out the life savings of 600,000 shareholders. When the United States asked French authorities that he be extradited, Insull moved on to Greece, where there was not yet an extradition treaty with the United States. He later moved to Turkey where he was arrested in 1934 and extradited back to the United States. He was defended by famous Chicago lawyer Floyd Thompson and found not guilty on all counts.