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Few brokers argue for lowering the margin below 50%. They, too, remember 1929. And they recognize that to many investors, low-margin buying symbolizes not a welcome increase in purchasing power but the psychological threat of being liquidated in case of a market shakeout. Before the crash of 1929 and the Securities Exchange Act of 1934, customers could put up as little as 5% margin on stocks, and few put up more than 25%. The excesses were aptly described by Eddie Cantor: "They told me to buy this stock for my old age. It worked wonderfully. Within a week I was an old man." But things have changed. At the height of the 1929 speculative fury, there were 1.5 million stockholders v. 12.5 million today. Investors then owned shares worth $89.7 billion on the New York Stock Exchange—an estimated $10 billion to $15 billion on credit. Today, N.Y.S.E. shares total 6.3 billion, worth $298 billion; but only $4.2 billion is on credit.
Though margin changes may have little effect on the course of market prices, they are both a guardian against credit excesses and an important part of the Fed's whole system of monetary checks and balances. Taking a broad view of market movements and the state of the economy, the Fed is able to stimulate or check overall business activity by interplaying margin changes with its open-market operations and with its power to change member banks' reserve requirements and the discount rate (which it recently lowered). Like all economic measures, margins must be used flexibly, would be less effective if they were set at the fixed 50% requirement sought by Wall Street. Wall Street will continue to debate just how flexible margins should be—but the Fed is not apt to pay much heed. Its view extends far beyond the world of Wall Street.