“The 1929 crisis was a stock-market disaster. The 2008 crisis is a bond-market disaster. Yet they have important elements in common. Through much of the 1920s, the Federal Reserve made easy credit available to the nation’s banks, which lent money to masses of people to buy stocks on margin. As long as the stock was worth more than the loan to buy it, all was well. The more people got into the market, the higher the prices of stocks went and the easier it was to use the stocks they had borrowed money to buy as collateral to borrow more money to buy more stocks that they did not pay for. Stock prices rose for so long that people came to believe that in the new, modern economy of the 1920s, prices could only go one way. Substitute the word ‘house’ for the word ’stock,’ and you see what the great grandchildren of 1929 did in the 2000s.” (10/06/08)