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BRUCE:
I have made statements about the broker call rate at
least 3 times in my e-mails.
The broker call rate is the rate that brokers pay to
borrow stock from a bank.
Example: You walked into your broker in 1929 and
purchased $100,000 worth of stock.
The broker walks accross teh street and pledges that
stock with the bank and receives
a check for $80,000. The broker then charges you
somewhere at or above the minimum
maintenance requirement at the time. The broker call
rate is in the annals of history.
It is not a facticious figure that has been handed down
through the ages like this 10%,
that you persist in repeating after I have stated many
times that the broker call rate in 1929
was 20%. Lets go back to economics 101. If your bank
wants to charge you 8% for a fixed 30 year loan
I sincerely doubt that you will be able to get a 4%
loan considering all other things are equal.
If the banks post a broker loan rate of 20% that is
probally what the minimum was, if a broker with bad
credit walked in he would probaly pay more. These
statistics are a matter of public record. The 10%
figure is not that I know of. If you understand this
we call go on to chapter 2. But first I would like you
to refer me to published public records that show that
anyone could borrow money at 10% in 1929. In 1927
maybe,or even 1026. If a bank posts a broker call rate
at 20% they are not going to lend money at 10%. If they
did the broker call rate would be 10%. Remember
interest rates were rising at least 2 years before the
crash. There are reasons for this but that is chapter
5. I would like to put this puppy to rest before I
answer the other questions you asked. I do not want to
confuse the issue. i await your reply
I will be away until Monday. We can resume this issu
next week.
Norman E.
Bruc2eB wrote:
>
> 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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