Greenspan was asked this morning if he should have increased margin requirements and would this have prevented the bubble. This was before the budget commitee. His answer... " NO , INCREASED MARGIN ONLY HURTS THE SMALL INVESTOR/TRADER" and would have had little effect.
some people want to blame greenspan for everything, but they are just scapegoating. The Fed is just a part of the system, and ultimately the Fed is not totally independent, and not all powerfull. The only thing the fed did "wrong", if you can call it that, was save us from a stock market crash when LTCM went under by flooding liquidity. That was when the bubble really got insane. If the fed would have let nature take its course we could have had our bear market a couple of years sooner and maybe we would be coming out of it by now, but that is pure speculation.
He said only one percent of the markets value was margin debt and that changing margin requirements wouldn't have had any real impact on the bubble. And, that only the small investor that didn't have the large institution's access to other debt streams would have been truly affected if they had changed the margin requirements. And, since the small investor is small, it wouldn't have really done much in relation to the rest of the bubble factors. At least that is how I understood him. He wasn't making a positive or negative statement about small investors in particular.