Rising margin debt

Tom Lehman uswa12 at Lorainccc.edu
Thu Jan 27 10:15:03 PST 2000

Here's a good question---are these various brokerage houses providing 401(k) and other retirement investment vehicles allowed to buy on margin? Let's say a Fidelity fund manager that buys on the margin for the Fidelity fund he manages portfolio.


Jordan Hayes wrote:

> I'm looking for some good research on this subject, so if anyone
> comes across any, send it along. One thing could just simply be
> the explosion of margin accounts by people who had previously been
> invested in things (mutual fund families, for instance) where you
> don't get a margin account -- a variation on my earlier "debt for
> debt sake" argument. Watching the number of brokerage accounts
> could provide some support for this.
> This of course could give you the impression that not only are
> levels of debt not "too high" but indeed they are "too low" --
> restrictions on credit still leave a large number of people who
> could manage debt wisely out of the game because there's no way to
> do it. Are they like those who couldn't get mortgages in the 30s?
> Margin debt grew by 46% last year, but overall consumer debt didn't
> come anywhere close to that. So maybe some people are just rotating
> out of unsecured high interest/high headache credit cards and
> consolidating their acconts in a CMA at Schwab or Fidelity?
> I think the real indicator here is default and bankruptcy, not how
> much debt people take on. Debt isn't a priori 'bad' or 'good' --
> it's just an exchange of risk. For many people, exchanging a
> mortgage for a house that is their's is "worth it" -- despite the
> higher net cost of the house over time. The same can be said of
> autos, on down the line to big screen TVs in time for the Super
> Bowl. Borrowing to buy a high-flying stock can also have it's
> rewards, as (like we saw last week on this list) can getting student
> loans, gambling that your increase in credentialed schooling will
> give you a better life in some unspecified way.
> /jordan

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