Lords of Finance: The Bankers Who Broke the World

by Liaquat Ahamed

In the fall of 1925, Miller had also become particularly alarmed by the data on so-called brokers’ loans. These were loans provided by banks to stock brokers who used the money to finance their own inventories of securities or to lend to their own customers to buy equities on margins. Typically such margin investors only paid 20 to 25 percent of the value of stocks with their own money and borrowed the rest. The total volume of such brokers’ loans, which had averaged around $1 billion in the early years of the decade, had suddenly ballooned to $2.2 billion at the end of 1924 and looked likely to reach $3.5 billion by the end of 1925. Miller saw these loans as a symptom of speculation, and he was firmly convinced that it was somehow more “inflationary” for banks to finance stock market purchases than for them to finance other activities. Again, we now know this to be fallacious—the inflationary consequences of easy credit have much more to do with the total amount the public borrows and very little to do with the purposes for which it does so.