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Politics : Ask Michael Burke
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To: Tommaso who wrote (77944)3/16/2000 10:29:00 AM
From: Freedom Fighter  Read Replies (1) of 132070
 
T,

One of the things that will kill it besides frictional costs is that there isn't enough income from the companies (dividends) to support the margin debt. The positions require capital gains to support them. That's not a theoretical problem as long as profits are growing fast enough to support the difference between borrowing costs and the dividend yield.

Right now on an overall basis they are not. So the only way you can support the debt is to bubble up the system further. Surely there must be some limit to this before the amount of money required blows out everything. So even if people don't start willingly withdrawing from mutual funds, 401Ks etc... margin calls will eventually do some damage.

Wayne
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