This from Financial Times..........
Fed chief takes hard look at margin debt
By Stephen Fidler in Washington
Alan Greenspan, Federal Reserve chairman, said on Wednesday that the central bank was concerned about sharp growth last year in margin debt used to buy shares and other financial instruments - but had made no decision on whether to act on the issue. Mr Greenspan was speaking before the Senate Banking Committee, which was considering his nomination for a fourth term as Fed chairman.
"I don't want to suggest that we're about to do anything at this stage, but I would confirm that we obviously are doing a good deal of thinking about the whole process," he said.
Senators indicated that, as expected, they would rapidly approve his nomination for a fourth term at the helm of the central bank he has headed since 1987. Phil Gramm, the committee chairman, said he expected the panel would vote on the nomination on Tuesday and that he hoped for a quick vote after that in the full Senate.
Mr Greenspan's comments on margin debt were in response to questions from Charles Schumer, Democratic senator from New York, who cited statistics showing margin debt had increased by 62 per cent last year, the fastest pace in 16 years. The year culminated in margin debt rising 13.2 per cent in November and 10.8 per cent in December. "These are extremely, extremely troubling numbers," Mr Schumer said.
Mr Greenspan confirmed the Fed was concerned. "If we weren't worried, we would not be engaged in trying to understand the process and what it means," he said.
He said the Fed had been reluctant to raise margin requirements because there was no evidence the level of stock prices was related to margins. Moreover, raising margin requirements would be discriminatory because larger institutional investors had other sources of funds and would not be affected.
It was, he said, a complicated question. "It's getting involved with margins, both initial margins and maintenance margins, relevant to futures markets, options and a whole variety of other instruments which are related to this particular area," he said.
He gave no clues about the central bank's next move on interest rates ahead of the meeting next Tuesday and Wednesday of the policy setting Federal Open Market Committee. This left most economists unchanged in their expectation the Fed will raise by a quarter point to 5.75 per cent the benchmark federal funds rate. Mr Greenspan said he saw the Fed's job to prolong a vigorous economic expansion.
"Our challenge in monetary policy is to foster, as best we can, the financial conditions that will allow this economic expansion and technological revolution to continue as long, and as vigorously, as possible."
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