Margin Lending Blamed

An interesting comment on SBS by a doom & gloomer economist. He stated that shorting the market has led to falls, as have others. But he also took a swipe at margin lending saying that it had artificially inflated the price of shares through aggressive lending. That seems an odd position as you can reflect the same concept to any lending on any item, commodity or product. Certainly interest free lending hasn't forced plasma's up!

I'm fairly new to margin lending but I would think it has been around for a while. After all, banks lend at varying LVR against assets. Be they property or shares & their lending policies reflect the underlying security ie LVR against the asset.

Is the fall reflective of inexperienced investors margining to high & now having to sell to meet margin calls? ie poor cashflow management.

Or is it the liquidity of the underlying asset? If a house falls and you meet the % payments, the bank are more likely to leave you alone. If the shares/fund fall and you meet the % payment, they still place a margin call.

Not being critical, just learning. After some comments please.

 

Hi Rambada,

This is what happened in the US, welcome to subprime...