Galbraith's Contribution To The Great Crash Of The Late 1920s

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Galbraith explains that one of the weaknesses that contributed to the great crash of the late 1920s was that there was a bad corporate structure. Within the bad corporate structure were investment trust where shares of companies that held stocks and bonds were sold for several times the assets market value. Galbraith argues that investment trusts helped cause the great crash due to the fact that these investment trusts relied heavily on leverage. With investment trusts, investors would buy more of an asset by using borrowed funds, assuming that the income from the asset or asset price appreciation would be higher than the cost of the borrowing price. The risk of relying on leverage involved the risk that the borrowing costs would be higher
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