Question

How did the initially small slide in stock prices lead to the stock market crash?

Answer 1

Most individual investors borrowed money to buy stocks and many of them also bought these stocks on margin, meaning they only actually paid for 80% - 90% of the stock they had had borrowed money to buy. They were called 'margin millionaires' - they actually truly owned very little of the stock. Threes investors became extremely vulnerable to lack of confidence in stock prices when the stock prices fell somewhat and we're the first to line up to sell their stocks. That in combination with the fact that many businesses had borrowed heavily to invest in their businesses, when a stock sell-off frenzy began businesses' stock value feel rapidly, banks couldn't be repaid, the banks collapsed and a great deal of people lost their life savings very rapidly.