Margin Requirements in 1929 not 10% as rumoured:
Margins were not low in 1929; a residue of caution
had caused most brokers to require customers to put up
in cash 45 to 50 per cent of the value of the stocks
they were buying. However this was all the cash numerous
of their customers had. An increase in margins to,
say, 75 per cent in January 1929, or even a serious
proprosal to do so, would have caused many small
speculators and quite a few big ones to sell. The boom
would have come to a sudden and perhaps spectacular
end. (The power to fix margin requirements was
eventually given to the Federal Reserve Board by the
Securities Exchange Act in 1934, a year in which the
danger of a revival of speculation about equaled that
of a renascence of prohibition.)
The passage continues to give a little appreciation of
the horrible choices afforded Alan Greenspan:
Actually, not even new legislation, or the threat of it, was
needed. In 1929, a robust denunciation of speculators and
speculation by someone in high authority and a warning that
the market was too high would almost certainly have broken
the spell. It would have brought some people back from
teh world of make-believe. Those who were planning to
stay in the market as long as possible but still get out (or go
short) in time would have gotten out or gone short. Their
occupational nervousness could readily have been translated
into an acute desire to sell. Once the selling started,
some more vigorously voiced pessimism could eaily have
kept it going.
The very effectiveness of such a measure was the problem.
Of all the weapons in the Federal Reserve arsenal, words
were teh most unpredictable in their consequences. Their
effect might be sudden and terrible. Moreover, these consequences
could be attributed with the greatest of precision to the
person or persons who uttered the words. Retribution would
follow. To the more cautious of the Federal Reserve officials
in the early part of 1929 silence seemed literally golden.
The Great Crash 1929 by John Kenneth Galbraith
page 32
-- Carl
P.S. Hi Defrocked. Thought I'd share this one with the
Kahuna thread, as it busts a common belief (which a
coworker told me even this morning) uttered by the
cows to explain why "This time it's different." |
