Causes of the Panic 
§1 
the policy pursued, he was forced, of course, to 
insist upon an excessive margin for every loan in 
order to insure at least a sound margin of safety 
in the event that a collapse did take place.” Thus 
Mr. Cahill finds that “the real major cause of the 
collapse was the rash and reckless purchasing of 
fictitious values on credit.” 
Doubtless bankers thought they knew that stocks 
were being priced at fictitious levels, although the 
evidence on which they thought so is subject to 
review and critical analysis. All that they really 
knew was that stocks had risen rapidly. Undoubt- 
edly bankers were justified in taking alarm, not so 
much over the rapidly advancing prices of securities, 
as because of the vast number and amount of bor- 
rowings of banks on collateral or of borrowing with 
brokers as intermediaries, as reflected in the huge 
totals of margin accounts. Because of this manifest 
Overextension on the part of thousands of bor- 
rowers, the banks were right in demanding high 
collateral. It is tragically true, whether or not the 
high level of stock prices was justified, that bankers 
all over the country, despite their efforts, failed to 
increase their marginal demands for collateral to a 
point where the market could maintain a technically 
sound position. 
As early as August 12th, Senator Nye, of North 
Dakota, had claimed that a “tremendous proportion 
of the country’s money and credit is being sucked 
up from the interior, and, as one high authority 
expressed it, ‘phoned’ into Wall Street.”