To pay for it, he dipped into margin accounts at Goldman and Bear Stearns.
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The Fed is doing investors another turn, which deals with the cost of carry on margin accounts.
The Federal Reserve Board requires long equity margin accounts maintain a balance of 50% equity, 50% margin debt.
The Fed flooded the system with cash by purchasing Treasury bonds and other securities from banks, crediting their margin accounts with cash.
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To pay for it, he dipped into margin accounts at Goldman and Bear Stearns (nyse: BSC - news - people ).
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Now here's Wall Street's dirty secret: Brokerage firms are free to lend out any shares that customers put in margin accounts, the kind of account that allows the customer to borrow against his securities.
For those who need to come up with quick cash to boost their margin accounts, they may turn to the selling of their futures contracts as a way to raise the cash needed to replenish their margin accounts.
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Instead of holding pledged stock in trust accounts for its customers, says the complaint, Credit Bancorp put the shares in cash or margin accounts, sold or borrowed against the stock and kept the proceeds, sometimes buying more securities with the money.
When equity prices decline steadily as they have been these last few days, margin accounts get restricted and in the worst case, if cash or stock is not deposited to meet margin requirements, sales can be forced by the brokers to pay for margin debt used to buy the stock.
Customer accounts have been moved to other clearing firms, but not all positions or monies have accompanied the move and that might have caused accounts that do not have sufficient margin to sell other assets to top off the accounts.
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HighTower brokers also run their own profit-and-loss statements, so instead of keeping 30% to 40% of gross fee production in W-2 earnings, they reap the benefit of all revenue associated with their clients, including interest spreads earned by lending idle cash in cash-rich accounts to other clients buying on margin.
Main Street investors trading for their own accounts should be especially careful about buying on margin into these lows.
Kevin Mountford, of Moneysupermarket.com, said that the margin between the Bank rate and the interest paid by savings accounts was actually very high at present.
Since Windows accounts for 40% of Microsoft, the stock is significantly impacted by Windows OS Operating Margin.
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