Hi M,While I agree with your point that comparing margin lending...

Hi M,

While I agree with your point that comparing margin lending with credit card debt is silly, I'd like to make a couple of observations.

1) You stated
"undervalued, highly illiquid, and mostly unprofitable"

Did you really mean "UNDERvalued"?
or did you mean "OVERpriced"?

Afterall, the underlying problem of sub-prime was lending on properties whose prices became overpriced, so when the poor saps couldn't keep up the payments, the bank made a loss on foreclosure.

2) What I suggest we need is a more sophisticated approach to margin lending levels.
That they be based on long term sustainable values rather than instantaneous prices.
Then if a stock price increases at an unsustainable rate the margin level for new lending is reduced.

Consider Comsec lending for CBA

It's level is 70% (same for all big banks)

In July 06, CBA $42, So Comsec would lend about $29/s.
Nov 07, CBA $62, So Comsec would lend about $43/s.
IE MORE than the full share price less than 18 months previously!
I don't think it is rocket science for Comsec to realise that CBA had not in fact sustainably increased in value by 50% in that period, and this was asking for trouble.
March 08 and CBA went below $37 and loans over about $27/s
could have been margin called. (Need to check their fine print here)

Is it really beyond the wit of mankind for margin lending levels to be based on long term sustainable values rather than instantaneous prices? (Same could be said for realestate of course)