Marrakech- Market traders on the London Stock Exchange are borrowing record amounts of cash to invest in the UK’s rising stock markets, according to an article in The Daily Telegraph.
A similar borrowing streak caused the big stock market crash in 1929, the article points out. Substantial rises are being seen in world stock markets. The level of margin debt that traders are using to buy shares in the stock market reached the highest levels on record, according to the latest data from the New York stock exchange reports the Daily Telegraph.
US traders reportedly have borrowed $460 billion from banks and financial institutions to back shares leaving traders dangerously exposed and banks heavily extended. The situation is now worse than the so-called dotcom bubble which burst in 2007.
The article laments that the lessons of the crash of 1929 and the depression of 2008 have not been learned. A sudden collapse of confidence could again lead to financial disaster. The problem comes when selling suddenly takes over as investors feel they are over exposed and a margin call leaves traders and investors out of pocket. Prices fall in line with collapsing confidence. Profits are wiped out. Banks and financial institutions collapse in a worst case scenario.
As many potential first time house buyers are borrowing heavily to get their foot on the ownership ladder, a crash could leave them with negative equity and properties they cannot sell, the same disaster that happened in 2008.
Banks are still extremely vulnerable and economies are weak. Populations are trapped by heavy taxation and salaries which are not increasing. European and American economies are by no means out of the woods.