Back in the distant past, when I was in high school, the history courses taught that one of the reasons the stock market collapsed in 1929 was because there was too much buying of stocks on margin. "Buying on margin" is a fancy term for getting a loan from your broker. The risk, of course, is that if the market tanks, you go broke. If a lot of people can't pay back the loan when the broker wants his money back (a "margin call"), then the brokerage goes bust.
Because of the abuse of buying on margin in the 1920s, the Securities and Exchange Commission enacted rules to limit the amount of debt that a brokerage house could carry. In 2004, the SEC waived those rules for five brokerage houses: Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, and Morgan Stanley.
Bear Stearns, Lehman Brothers and Merrill Lynch are gone. Morgan Stanley is trying to find someone to buy it.
Nice minding of the store, capitalists.
The next question, which is not being asked by anyone other than one blogger, is this: If companies such as AIG, Freddie Mac, Fannie Mae and Bear Stearns (as well as GM and Ford) are "too big to fail," are they also "too big to exist?"
A Pox On You And Your Inconvenient Historical Facts!
22 minutes ago
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