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Norman, maybe I'm just having a bad day or something, but the numbers in
your message make no sense to me. Here are two of your paragraphs to
illustrate:
> In the early part of the century the brokerage hoses
> did not have the capital to lend for margin purchase as
> they do today. They would go the the banks and borrow
> money at the broker call rate. This amount (20% as
> stated above) would be added to the stock exchange
> margin requirement of 25% in 1929 making the effective
> rate 45%.
>
> An individual could go directly to the banks if they
> wanted but they would pay the broker call rate plus a
> margin requirement of 10%, for a total of 30%. Maybe
> this is where the 10% figure comes from.
I think you're "morphing" numbers that are just margin percentages into
interest rates charged on margin loans. They are two entirely different
animals. I'm almost positive the term "broker call rate" referred to the
margin rate brokers could borrow money from banks to purchase stock.
Assuming your figures are correct, it was 20%, meaning they only had to put
up 1/5 of the face value of the stock in order to get the loan. Now, as
for the INTEREST RATE charged on the loan, that is an entirely different
figure. I honestly have no idea what the going rate was back in 1928-9, but
I'd be very surprised if it was 20%. Interest rates on margin loans have
always moved pretty closely in line with the prevailing interest rates in
the rest of the economy. Interest rates in general back then were very low.
It's similar to a consumer buying a house with a 10% downpayment. That's
the same as saying they bought it at a 10% margin rate. However, the
interest rate charged on the loan is not 10%.
As the good DOCTOR pointed out, it is precisely because banks were making
margin loans at 10% that so many of them failed.
Bruce
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