The Street

"Although America was poised for a great boom, most people did not know it. When I joined Wall Street, we were in the middle of the longest bear market of the post-World War II period...The bear market was a gift of the Federal Reserve Board, which had raised margin requirements to 100% to head off a speculative frenzy after the war. It is difficult to overestimate the degree to which the psychological legacy of the Depression weighed upon the market in those days. Memories of the role of margin debt in the 1929 crash were fresh in people's minds. The Fed not only raised margin requirements from 40 percent to 100 percent, which forced speculators to sell stock to meet margin calls, but it also imposed a regulation that sellers of stock who had margin debt could use the proceeds of the sale only to further reduce that debt. This knocked the Dow Jones Industrial Average down by 25 percent in the span of three months.

"The investment climate was deeply conservative...Trust funds in New York State could at best keep only 25 percent of their holdings in stock, but most trustees opted to stash their entire portfolios in bonds. The logic of this analysis was that stocks are inherently more risky than bonds and thus should provide their holders with a 'risk premium.'

"Those who did trade stocks were few and did so rarely. In the 1950s, only 5 percent of Americans owned stocks, in contrast to over 50 percent who own stocks today. Tape watchers had to be a particularly patient breed then, as Dow Jones computed its industrial average only once every hour, and even then it was often late."

Leon Levy, The Mind of Wall Street, Public Affairs, 2002, pp. 42-3