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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Allan Harris who wrote (12205)	3/3/2000 4:31:00 PM
From: Sam	Read Replies (1) \| Respond to of 15132

Allan, a <snip> from the Sy Harding piece sounds like a post I made on this thread just a couple of weeks ago: <<<Instead of raising interest rates further, hitting the wrong targets, the Fed should simply raise margin requirements. By doing so it would target the actual bubble in the stock market; the one hundred or so extremely overpriced hi-tech, internet, and biotech stocks, which account for much of the margin debt, the day-traders and other short term speculators who primarily use margin debt to push those stocks up, and the image of a still strong stock market that creates much of the false wealth effect for consumers that the Fed worries about. The result should be a cooling off of consumer spending, and the desired slowing of the economy. Yet, it would have much less risk of creating a recession than targeting the entire economy with a continuing stream of interest rate hikes. And it would go a long way toward letting some of the air out of the dangerous bubble in the hi-tech, internet, and biotech stocks without necessarily busting the rest of the stock market, in which there is not a bubble.>> If the requirements were raised slowly and deliberately, it would put some pressure on both the market and the economy, but I don't think [emphasize that word!] it would kill everything the way raising interest rates eventually will. Say, if they announced that they would raise margin rates by 5% each month for the next 6 months, giving a one month period where people could adjust their portfolios at leisure. Yes, high fliers would go down, especially at first in anticipation, but eventually stocks would get back to where they deserve to be, and the whole economy wouldn't be killed. Well, I'm not really sure if the above is true or not, but I throw it out to see if anything seems to stick. Sam

To: Allan Harris who wrote (12205)	3/3/2000 5:15:00 PM
From: sea_biscuit	Read Replies (1) \| Respond to of 15132

I think we can all agree on one thing, that raising margin requirements would in all probability serve to bail out the Bears ... It might well do that. But the people whom it will really bail out are the little guys who are getting in on the action now and are borrowing like crazy. This may be anecdotal, but my wife's friend was telling us about how her husband took a home equity loan and was playing in the stock-market. She said that her husband buys stocks and sells them for a profit after a week or two. When I asked her what he would do if the stock went down, she said, "No, no, it won't go down; it always goes up..." I hope, no, I pray, that they continue to live happily in that house for many many years.