Do you think that 1929 crash has de facto tightened the monetary policy as credit channel has weakened as a result of stockmarket and margin debt losses?
I see some important differences between 1929 and 1987. In 1929 market participants have underestimated the volatility of the market and the level of margin debt was excessive and unsustainable. In 1987 market participants have also underestimated the volatility of the market, but this time it was reflected not in the excess levels of margin debt but in the unsustainable portfolio allocation decisions of unlevered investors who have used the so called portfolio insurance strategy. So 1987 crash had smaller effect on the credit channel of monetary policy. This smaller effect was completely neutralized by extraodinary actions of Greenspan.
