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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Night Trader who wrote (82667)	8/3/2000 9:30:38 AM
From: echarite	Respond to of 132070

Martin Here here,....I loved that quote. I was in a meeting yesterday when the topic of how high is high and an old timer said "somone has to dream it pretty" and I thought that line was appropriate for this market. e PS Now I know where Michael's 1/3 rule came from.<g>

To: Night Trader who wrote (82667)	8/3/2000 11:28:03 AM
From: Knighty Tin	Read Replies (3) \| Respond to of 132070

MK, One of my alltime favorite books. However, nobody has proven that Livermore wrote it, though that is the common assumption. Now, it is not the public using margin with their odd lots. It is the big banks and brokerage firms who are betting pennies on the dollar on derivatives and stock issues. Sometimes, as in the case of LTC, they are betting billions on a few million in collateral. Of course, they are too large to be allowed to fail. <g>

To: Night Trader who wrote (82667)	8/4/2000 2:55:38 AM
From: Bilow	Read Replies (1) \| Respond to of 132070

Hi martin knight; Re "you may think it's leveraged today but back then you could walk into a brokers and buy $10,000 worth of stock with $500!" Maybe this was happening at bucket shops, where people basically bet on stocks without any real shares changing hands, but it was not in any sort of general practice at real brokerages. It would put the brokerage at too much of a financial risk. Imagine how much the risk would be, and compare it to the tiny gain that is possible, just the commission. No business would ever lend money to the general public to buy stocks at that kind of margin rate, not here, not then, not in Japan during their top, not ever. It just doesn't make sense. There has to be some other thing going on. At the bucket shops, for instance, the shop itself wasn't on the hook if a customer went severely negative. Instead, the guys who were holding his script wouldn't be able to collect. While there wasn't actually an SEC regulation that prevented brokerages from lending money to stock buyers on 5% margin, the fact was that if your average joe showed up at their door there was no way they would give him more than about 50%. The brokers back then were not stupid, and you will note from the history of the time that it wasn't the margin lenders that lost money in the crash, it was the public in general. Rich people, (who had other assets that could be taken in the event of their being unable to pay back a stock loan) were undoubtedly sometimes given high margin, but this was not general practice, and the basis of the loan was not the stock's value, it was the net worth of the borrower. Another way of describing it would be unsecured credit. A great reference to the margin practices of the 20s (and lots of other information about the Crash) is the classic by J.K. Galbraith: The Great Crash, 1929 by John Kenneth Galbraith: search.borders.com If I had my copy, I'd type in the exact quotes and page numbers. It may not still be in print, the above link was the first I could find. The rumors about excessive margin causing the crash was one that was (1) used as an excuse for the SEC's creation, and (2) used by brokers to convince the public in later years that it was now safe to own stock as 1929 would never again be possible. Of course with the modern system, it is now possible for mom and pop to buy stocks with huge leverage, using options, but again the brokerage houses are not actually risking their own money. To risk big money in order just to try to make a 1 or 2% commission on the deal would be beyond insanity. -- Carl