Evening star. [volume] (Washington, D.C.) 1854-1972, 1903-08-08
SPECUL ALTON EVILS
Abuses AttendP Prosperity and
Collapse Follows.
BANKERS AND TIPSTERS
THE RESULTS OF oVERSPECULA-
TON IN STOCKS.
aLines of Speculation" Between Wash
ington and Wall Street
Big Factor.
BANKERS AND TIPSTERS

Nv sererc s Pratt Associate Editor Wall Street
Journal Author of The Work of Wall Street. "
&c.
Speculation, serviceable as 1t Is to the
country when held within bounds, is liable
10 great abuses Chief of the evils is over
speculation. This is a condition resulting
from too great volume of transactions,
accompanied by too rapid an advance IN
prices. causing such expansion of credit
to produce a situation full of peril to the
country. Most of the panics have been the
result of overspeculation. When the crops
Sre bountiful trade is active. the mills and
factories working on full time. labor is
well employed, the railroads carry heavy
traffic and make large earnings. commerce
expands, and there is what is usually called
the boom" This boom is always reflect
ed in the stock market. Indeed 1t is usu-
ally preceded by an upward movement
there, for Wall street has habit of dis
counting future events. When the coun-
try is prosperous. with business and traffic
active, the railroads and industrial corpora
lions pay large Dividends men engaged in
business find that their profits are largely
exceeding the expenses of living. and they
have a surplus to invest. Some of them
may put this surplus into extension of
their own business. Many of them invest
In securities.
Misrepresentation.
This brings into Wall street a large and
wealthy class of outsiders. 1.-THE public is
In the street." the phrase is. Investment
leads to speculation. There is an expan-
sion of the market. Prices advance by leaps
and bounds. Nothing is so attractive as ad-
vancing prices. They Immediately bring in
new buyers. and soon market of great
dimensions is created. For tine 1t is
likely that the advance will correspond
equitably to the actual values resulting
from the increased prosperity of the coun-
try. But sooner or later the speculation
will expand into dimensions that mean in
hation- At this point speculation becomes
overSpeculation.
craze for great profits made quickly
sets In The gambling propensities of the
country let themselves loose. A devouring
fever seizes the markets. There is a great
output of new securities, some good but
some bad, for in such a condition as this
the temptation is strong to float a lot of
watered. and in some cases worthless Sc
curities on a public that is eager to buy
anything labeled stock" For time every
thing goes, and there seems to be no limit
to the expansion. But there is limit The
time comes when there is an explosion.
The inflated balloon collapses with loud
report Prices fall, margins are wiped out,
paper profits are transformed into actual
losses, many are ruined, confidence is shat
tered and panic may set in. There seems
to be no way at times of preventing over
speculation on a large scale. The banks
may check 1t by withdrawing credit and
= they serve generally as the conservative
forces in the market. but even these some
times catch the speculative fever prevailing
throughout the country.
Some of Its Evils.
1t Is in a boom that most of the abuses
of speculation take place. although 1t Is
usually in time of collapse that the evil
of these evils. although they are very OBJ
vious. When banks loan so large a share
of their credit capacity for speculative ven.
lures that mercantile interests find 1t diff
suit to secure accommodations. a stringency
in the money market occurs-that is an
evil which has not tnfrequently developed,
and there can be none graver. Another
evil Is that already referred to- when cor
porations are tempted to increase their
capital and funded debt to extent not
warranted by their business, when new
corporations are created with an excessive
capitalization, and when watered stocks are
unloaded upon the public at excessive
prices. This produces a sort of market
dyspepsia. ]. Pierpont Morgan said q
few months ago that the country was then
suffering from too many 'undigested secur-
tiles"
Overspeculation in stocks leads to over
production in the industries and to overbuy-
ing by merchants. 1t has demoraliz;ng
effect on business and corrupting intiu.
enCe on character, especially of the
1t magnifies many of the special evils OF
Wall street. 1t results in more speculation
based on manipulation and to less based or
values. 1t gives rise to corners and deals.
"Pests of Wall Street"
There is always in Wall street. and espe-
cisly in active times, a great deal of lille
Ultimate speculation. That is a most I'M
wholesome condition, when women and even
children are infamed by the gambling
spirit. and when the prevailing conception
of the stock arket is that it provides an
opportunity for betting on prices. Natural
~, bogus brokers and bucket shops are
bound TO take advantage of this gambling
mania These have been well termed the
pests of Wall street" They often engage
large offices in great buildings like tie
Broad Exchange and the Empire furnish
them sumptuously. hire a retinue of clerks
and style themselves bankers" But .hey
rarely transact any legitimate business. Az
their customers are always bulls. that is &c
say betting that prices will advance the
bogus brokers and bucket shops, the latter
belng the street term for a concern that
preendS TO do business like an exchange
take the other side of the bet. If prices de-
cline they make big profits. II there is a
protracted bull movement they close thcil
doors and the principals disappear. 1t is
Heads. l win; tails. you lose" with these
concerns.
Wall Street "Tipsters."
1iPSttts diSo dpOunU IN the Street-men
who make a speculation of selling infor-
nation that such and such stock is to ad.
vance or decline. Some of these men are
very shrewd in their reading of the market
but they rarely have any certain informa-
ton. and what their customers buy is
simply another mans guess. These tipsters
are sometimes employed by so-called re-
spectacle elements in the street in order tc
help along a deal A bid operator who Is
conducting a speculation of large magni-
tude, either for himself or pool and some
times for corporation, which seeks to nd
vance its credit, will, by the employment OF
the right kind of men, flood the street with
tips to buy or to sell. Sometimes the tips
are true. more often they are false 1t is
speculative adage that IT is wise to 'cop-
Ger a tip; that is TO say. to act exactly
contrary TO It. 1t is wonderful how much
that one hears in Wall street is not so
1hose experienced in the street learn &c
sift the wheat from the chafY They dc.
Velop sort OF instinct by which they sep
arate the true from the false. But the out.
slider gets lost as in maze. 1t is not sur
prfsing that those who Judge merely from
surface indication think that Wall street Is
bad place, and even professors OF political
economy have leotured against It. claiming
that speculation is a parasite of business
But under the surface II is found that ir