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View Diary: Greenspan admits that Bernie Sanders was right (19 comments)

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  •  Big problem was margins (3+ / 0-)
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    WV Democrat, toddpw, farbuska

    A large part of the recent stock market crash can be attributed to forced selling by hedge funds.  Those hedge funds borrowed money at huge margins - such as putting up $1 of their own money for every $25 they bet on a stock.  That never should have been allowed.  The textbooks tell us that buying stocks on margins was one of the main reasons for the 1929 crash.  If the maximum margins had been closely regulated, we would not have had so much uncontrolled speculation with other peoples' money.

    Also, the rapid rise in housing prices in many parts of the country was fueled by the "creative mortgages."  If the regulators had done their job and required that basic underwriting rules be followed, the buyers would not have been able to push prices that high.  Therefore, there would have been less speculation and less of a crash.

    JPZenger was a newspaper publisher whose jury trial in the 1730s for seditious libel helped establish the freedom to criticize top government officials.

    by JPZenger on Fri Oct 24, 2008 at 07:11:18 AM PDT

    •  Not just hedgies. Lots of people use margin too (2+ / 0-)
      Recommended by:
      RFK Lives, imabluemerkin

      In particular, I learned a couple hard lessons about what not to do with margin earlier this year.

      Under the Bush SEC, the stock market has become a huge casino where the house has a dozen tricks to peek at your cards. Every spare dollar that people have been investing is being systematically vacuumed up by the big players -- the same banks that just got "recapitalized" so they could pay out more bonuses and play the market with what's left. They'll start lending as soon as they've bought up all the bargains that everyone is panic selling this morning.

      All the "volatility" and price swings are deliberately induced by those with piles of borrowed money so that anyone trading with protective stops or at the edges of their margin limit will get screwed out of their positions at a loss. And, if they aren't paying attention, they'll miss out on the real price swings that they were correct in predicting to begin with.

      It should be a felony to put fine print in a bill that contradicts the stated purpose of the bill. But then all of Congress would go to prison.

      by toddpw on Fri Oct 24, 2008 at 07:27:45 AM PDT

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