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Margin calls certainly accelerated the crash, but the cause of all crashes I
think, is a lack of buyers. I suspect you can see a lack of buyers even when
margins are non-existant.
BruceB wrote:
snip................
> History has clearly
> shown that leveraged money is the fuel for market crashes (on this point
> Norman and I agree completely). Our current market, while reaching
> valuations comparable to the 20's, doesn't have a fraction of the leverage
> built into it. No leverage, no crash. It's that simple.
>
> When the market "corrected" last fall to the tune of 20+%, who was it that
> sold? It was hedge funds, who were heavily leveraged and had to sell to
> cover margin calls. The average investor sat on his hands and was well
> rewarded for his resolve.
>
> Bruce
>
> ----- Original Message -----
> From: Earl Adamy <eadamy@xxxxxxxxxx>
> To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxx>
> Sent: Friday, October 15, 1999 6:06 AM
> Subject: Re: FOMC meeting?
>
> > The material Bruce attached was interesting and carried some eerie echoes
> > including the Fed's easing of rates in 1927 to help the Europeans.
> However,
> > I didn't find much in the way of specific info regarding call rates except
> > for two passages:
> >
> > a) "The practice of buying a large number of shares of stock with a very
> > small amount of one's own money (as little as 3% during the 1920's) and
> > borrowing the rest from the broker."
> >
> > b) "On Tuesday, March 26, 1929, the trend intensified and the rate on call
> > money went to 20 percent."
> >
> > The first is pretty generic as it applies to an entire decade while the
> > later is more specific as it applies to the period some months before the
> > big one let loose. There is no indication regarding the length of the
> period
> > to which the 20% applies but I see nothing which refutes Norman's
> statement.
> > While I have extensive historical data, one item I do not have is call
> rates
> > back to the 20's ... if anyone has monthly call rates for 1929 we could
> put
> > this part of the discussion to be and move on to new material.
> >
> > Earl
> >
> > ----- Original Message -----
> > From: BruceB <bruceb@xxxxxxxxxxxxx>
> > To: <ericrogers@xxxxxxxxxxxxx>; BruceB <bruceb@xxxxxxxxxxxxx>
> > Cc: <droex@xxxxxxxxxxxx>; Earl Adamy <eadamy@xxxxxxxxxx>; RealTraders
> > Discussion Group <realtraders@xxxxxxxxxxxx>
> > Sent: Thursday, October 14, 1999 10:05 PM
> > Subject: Re: FOMC meeting?
> >
> >
> > > Sorry Norman. After a grand total of 5 minutes of searching on the
> > > internet, I found enough info to invalidate your opinion. Attached is a
> > > text file containing passages from two different sites on the web
> > discussing
> > > the 1929 crash. The first passage makes it clear margin rates for
> > investors
> > > in the twenties got as low as 3%. The second passage makes clear that
> the
> > > broker call rate (referred to as the "Call Market") did not go to 20%
> > until
> > > AFTER the crash was underway.
> > >
> > > Now, if margin rates got as low as 3% during the twenties, and didn't
> > reach
> > > 20% until after the crash, is it really so hard to believe that the
> market
> > > spiraled upwards at an average margin rate of 10% before crashing?
> >
> >
> >
> >
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