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<DIV><FONT face=Arial size=2><STRONG>Bruce B. wrote:</STRONG></FONT></DIV>
<DIV> </DIV>
<DIV><FONT color=#008080 face=Arial size=2><STRONG>Today margin is limited to
50%, and US investors as a whole haven't even come close to using that amount
(no margin allowed in IRAs and 401Ks).</STRONG></FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2><STRONG>I too was under the impression that there
was a 50% limit, but I have a friend who claims he can get 20%. I don't trade
equities, so maybe someone else can comment on my friend's
claim.</STRONG></FONT></DIV>
<DIV> </DIV>
<DIV><FONT face=Arial size=2><STRONG>Dennis
C.</STRONG></FONT></DIV></BODY></HTML>
</x-html>From ???@??? Wed Oct 06 06:25:49 1999
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Date: Tue, 05 Oct 1999 21:07:35 -0700
From: "Norman E. Phair" <ericrogers@xxxxxxxxxxxxx>
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To: BruceB <bruceb@xxxxxxxxxxxxx>
CC: Earl Adamy <eadamy@xxxxxxxxxx>,
RealTraders Discussion Group <realtraders@xxxxxxxxxxxx>
Subject: Re: FOMC meeting?
References: <01BF0F10.C8E6DE50.ggautier@xxxxxxxxxxx> <030a01bf0f2e$d4fa9f10$be2a42cf@xxxxxx> <067e01bf0fa0$29f26a40$48dfcea7@xxxxxxxxxxxxx>
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Bruce wrote:
>
> And I agree with him. Back then, investors (speculators) only had to put
> down 10% of the face value of the stock in order to buy it, and even that
> rule was rarely enforced (the SEC hadn't been created yet...). This led to
> massive leveraging in the market, and eventually the crash. Today margin is
> limited to 50%, and US investors as a whole haven't even come close to using
> that amount (no margin allowed in IRAs and 401Ks).
About 5 years ago I received something in the mail
about this long standing statement
that margin in 1929 was 10% I knew it was another one
of those things that gets repeated
so much that everybody believes it. I called the NYSE
and wrote down all the information
about what the margin rules of the NYSE was back in
that period. I do not know where it
is so I can not quote it verbatim. New York Stock
Exchange margin in the late 20's was
between 45% and 60%, I believe the figure was 50%
during the crash. There was no
10% rule that you mention, people could buy stock on
10% margin from a bucket shop.
There are probably statistics that will show that the
amount of stock bought at 10% was
very small. As a result I thing you will find that "
massive leverage caused the crash"
is a misnomer that has been passed down through the
years because it has make good copy.
Again one can find out the real story if they would
take the time to do the research and
make one phone call, which is what I did. This is sort
of like the Post Office tax on e-mail that gets printed
here every so often. If I answered all of the
misstatements that have appeared here
in the last year I would have arthritis. The SEC has
nothing to do with margin requirements. I bought
stock on 10% margin in the early 60's. from a money
lender. Many people do almost the same thing today.
They are called options and futures and it is legal.
Norman E.
BruceB wrote:
>
> > AG is responsible for guiding the monetary and interest rate policies of
> the
> > US and this includes managing and preventing excessive speculation and
> > consumption whether it be in banking, real estate, credit, or stock
> markets.
> > Allowing bubbles to build and then explode wrecks the economy for
> everyone,
> > not just the irresponsible speculators - clearly an area where government
> > has a responsibility to act.
>
> Earl, what is you're definition of "speculation" and "bubble?" I think most
> people (myself included) define these terms as meaning asset prices that
> have been artificially inflated through the use of margined or borrowed
> money. If you agree to that definition, then there is simply no evidence
> for your claim. Over the past 5 years (since the stock market first began
> to take off), the amount of stock purchased on margin as a percentage of all
> stock outstanding has actually FALLEN. In absolute terms, the figure has
> grown significantly, but as a percentage of the whole market, it's down.
> Where's the bubble?
>
> > Early in his career, AG wrote some papers on
> > the crash of 29 which criticized the central bankers for allowing
> excessive
> > speculation and credit to grow unabated.
>
> And I agree with him. Back then, investors (speculators) only had to put
> down 10% of the face value of the stock in order to buy it, and even that
> rule was rarely enforced (the SEC hadn't been created yet...). This led to
> massive leveraging in the market, and eventually the crash. Today margin is
> limited to 50%, and US investors as a whole haven't even come close to using
> that amount (no margin allowed in IRAs and 401Ks).
>
> Just because people are placing a higher value on US stocks doesn't mean
> they're speculating (by my definition...). As I said in a post on the Omega
> List over two years ago, the money flowing into the stock market is "real"
> money. It is not borrowed or leveraged. Once again, where's the bubble, or
> the 1929 scenario here?
>
> > Just a few years ago, AG had it
> > right when he spoke of "irrational exuberance", however he was unwilling
> to
> > pay the (probably very substantial) political price of raising interest
> and
> > margin rates to head off the bubble.
>
> I personally wouldn't be opposed to higher margin rates (as long as they
> don't apply to S&P futures, of course...), but raising interest rates is a
> bad approach to subduing the stock market. You mentioned earlier how
> innocent people get hurt when bubbles burst. Well, nothing hurts innocent
> people more than higher rates (higher car and mortgage payments) in the name
> of punishing speculators. Isn't that kind of like destroying the village in
> order to save it?
>
> > Nor have our central bankers and
> > politicians been willing to bring an end to the import of endless cheap
> > goods which have held inflation in check and spurred consumption while
> > exporting a major portion of the US manufacturing base and building an
> > incredible trade deficit.
>
> Big economics question here, maybe too off topic so I'll skip it!
>
> > Consequently, by most historical measures, US
> > equity and credit markets have bubbled to the point where a prick of the
> > bubble poses a serious threat to not only the US economy, but the world
> > economy as well.
> >
>
> Once again, your definition of bubble comes into play, but if 1929 is one of
> your "historical measures," we're simply nowhere close to that...
>
> Bruce
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