Lower federal courts usually invalidated these laws, but in 1917, the United States Supreme Court upheld the constitutionality of such laws. Following these decisions, states began enacting more regulations of the industry.
Immediately following the First World War, small investors began streaming into the securities market. Some scholars believe that this development was the result of the American public' acquaintance with Liberty Bonds during the war. Investment in securities was no longer a mysterious and frightening idea; what had worked during the war should surely work in peacetime. Brokerage houses spread from New York and Chicago to such middle American locales as Steubenville, Ohio, and Gastonia, North Carolina. Brokerages which dealt solely in stock purchases of less than one hundred shares increased dramatically in size. More people began buying stocks on the margin, with loans for such purchases from brokers growing from $3 million in February 1927 to nearly $7 million in 1929.
The United States economy during the 1920s was largely fueled by this "bull" market and the increasingly frenzied speculation in 1928 and 1929. Not only was the market flooded with small investors, corporations injected much of their surplus capital into the market. Corporate profits had dramatically increased during the 1920s (out of proportion to wages) and corporate officers became caught up in the market frenzy. Corporations took part in the market by providing financing for brokers' margin loans to small investors, whose interest rates could reach 15%.
The feverish activity of the market, fueled by genuine investor speculation and secret corporate manipulation, peaked in September 1929, when the market began showing signs of distress. The New York Stock Exchange (NYSE) posted a few losses in September, followed by some minor gains. In October, however, the NYSE took a permanent downturn. The last week of that month s...