Carl -
[...For understanding the events of 3/4 of a century ago, it seems to me like the book we want to rely on is a book written by John Kenneth Galbraith, not a book written by Anonymous...]
Actually, JKG has a pretty lousy reputation for economic reality. The REAL book we want is 'America's Great Depression', by M.N. Rothbard, ISBN 0-945466-05-6.
Despite the title, much of the book is dedicated to the cause of the depression, i.e. the enormous credit expansion of the 1920s engineered by the Federal Reserve System.
"...One important aid to stock market inflation was the FRS policy of keeping call loan rates (on bank loans to the stock market) particularly low. Before the establishment of the Federal Reserve System, the call rate frequently rose above 100 percent, but since its inception, the call rate never rose above 30 percent, and very rarely above 10 percent. The call rates were controlled at these low levels by the New York Federal Reserve Bank, in close cooperation with, and at the advice of, a Money Committee of the New York Stock Exchange. The New York Fed also loaned consistently to Wall Street banks for the purpose of regulating the call rate...."
Page 124-125.
Although this doesn't address the margin requirements, it seems likely that the real systemic dangers were not that the speculators themselves would crash and burn, but that their brokers and their supporting banks would be irreparably harmed from over-exposure.
Regards, Don |
