John Yarmuth: “But when I was in college, I did my senior thesis on speculation in the 1920s. In fact, there is some remarkable…”

“But when I was in college, I did my senior thesis on speculation in the 1920s. In fact, there is some remarkable parallels between the situation today with the housing crisis and what happened in the 1920s that led to the Great Depression. The similarity is that back in the 1920s, if you wanted to buy stock, you only had to put up 10 percent of the price of the stock. You could borrow the rest of the money. The theory there, because the stock market was going higher and higher and higher, and everybody thought it was going to continue to get higher, happy days are here again, before they disappeared, and that was the psychology. So nobody ever thought about regulating that. Everybody thought that was an endless gravy train. So people would keep buying stock, paying 10 percent down, 10 percent down. When the stock dropped 10 percent, their equity was gone. This happened time after time after time. The same thing has happened now with the housing market when people are lured into markets with low interest rates and then they borrowed against the equity and then when the value started to slip a little bit, they were in a negative equity situation, and that is what precipitated this crash.”