Mortgage Bonds for the Small Investor

Abstract

This chapter looks at the postwar boom in mortgage bonds. The market heated up at the close of the 1920s as lenders marketed mortgage bonds to American families. With families now acting as investors in an unregulated financial market, these bond sales reflected the new logic of the shareholder democracy. The crux of the shareholder democracy was not just that Wall Street's markets could welcome small investors, but also that those markets should be unregulated. As the boom grew into a full-scale bubble, sellers had more reason to exploit the ignorance of small investors, and there was no real government oversight in place to stop them. Emboldened by the wartime bond drives and courted by Wall Street and advertisers, many Americans jumped into the shareholder democracy by investing in mortgage bonds. This was, in retrospect, a recipe for disaster. The collapse of this market in the early 1930s wiped out the private market for mortgage bonds completely and led to regulatory prohibitions against small-investor purchases of mortgage bonds.