Sunday, January 3, 2010

What was a major part of the housing bubble???

In an article in Bloomberg, Federal Reserve Chairman Ben Bernanke said that low interest rates did not cause the housing bubble. Here at the dog we already knew this information (Examine our early 2009 posts). In our humble opinion, what was a major factor in the housing bubble was amending the SEC's "Net Capital Rule" in 2004 (Which basically lowered capital requirements). This rule is as old as the SEC and a major reason for its existence (The rule is part of the 1934 SEC Act). Back before the "Great Depression" there was a booming economy. During this time period (The roaring 20's), "Margin Financing" was used to help fuel the boom. Margin financing today is called "Leverage" or borrowing money. Guess what happens when you borrow too much??? (More than you can afford). The Net Capital Rule (1934) was there to keep safe capital levels in relation to debt. Currently, the government or more specifically the Financial Industry Regulatory Authority (FINRA) is attempting to raise capital requirements which in our opinion is an essential part for a potentially stable future. Click on the following link which is the new proposal for your review. (SEC Link Here)

Tell us what you think.................................