Surge in Margin Loans Has Some Economists Worried
By Ianthe Jeanne Dugan
Washington Post Staff Writer
Wednesday, March 29, 2000; Page A01
NEW YORK ?? Chuck Kellner, a retired Ford engineer, had never in his life borrowed to buy stocks. But after watching Intel surge last year, he could no longer resist.
He got a loan from his online broker and bought twice as much of the chipmaker's shares as he otherwise would have been able to afford. In just a few months, he watched his net worth double to $1.8 million.
"It's like a bank and I don't have to ask someone, 'Can I borrow--please?' " said Kellner, 67, who is from the Detroit area. "I make those judgments myself."
The frenzy to make money on the dot-com boom is renewing interest in an old-fashioned market strategy--buying stocks on margin.
The trend has helped power technology stocks to record highs. But regulators, lawmakers and even the brokerages that profit heavily from these loans are increasingly worried that margin debt may also be setting the market up for a more painful downturn.
"Margin use is getting worrisome," said Robert J. Shiller, a Yale University economics professor. "The market is hinging on a lot of new debt. And it is going to become very significant if the market turns down."
Until very recently, the amount of margin loans was rising at the same pace as the market in general. But in the last six months, the amount of money people borrow from their brokers, using stock as collateral, has surged 50 percent, to $265.2 billion, (cont)
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