Evening star. [volume] (Washington, D.C.) 1854-1972, 1907-03-15
A Gamblers Panic Thus Far.

IT, every panic in the stock market the
public is RECALLED with statements showing
the aggregate of money losses due to the
shrinkage in the price of securities These
LOSSES mount into the hundreds of mil
lions, ard present an appalling total If
they were actual losses the industrial and
commercial world would be staggered and
the country would be plunged into the
midst of hard times. But they are not ac-
tual losses. There has been no destruction
of real values in the mere fuctuation OF
market rates for stocks. Certain people
have il is true. lost money in the sense mat
they have lost the chance to make"
money They have. in the language of the
street. lest their paper profits" In the
great majority of cases they have bought
their stocks on margins or with borrowed
money for which they have put up stocks
security, these stocks having in turn.
perhaps, been bought on margins. When
prices begin to fall the brokers call for
more margins and the money lenders for
more security. With the market value of
the deposited stocks steadily shrinking
these securities become less acceptable to
the money lenders This process of de-
probation Is cumulative and advances in
arithmetical proportion. Thus the specula-
sell his stocks in a hurry to get what he
can for them in order to raise money i'm
mediately. This happening to thousands of
people simultaneously the result is a gem
eral slump in prices.
This sacrifice of margin held stocks does
not lessen their real value in the least I'M
less the panic proceeds so far that over
capitalized corporations and recklessly
managed banks suffer from the contra ction
and business is unfavorably affected. 1t
may. and sometimes does, happen that Sc
we're spasms in the stock market reduce the
volume of actual trade by causing specula-
tors in large numbers throughout the coun-
try to curtail expenses to meet their change
OF fortunes and conservative non-specula-
tors to move more cautiously than ever in
fear of the advent of genuine hard times
This in turn affects the mills and the rail-
roads. causing the former to shorten forces
or 10 close and the latter to lose business
These effects quickly reach the lower levels
of trade owing to the reduction of wages
and the loss of dividends. At that stage of
the process actual values are lost. But
until then it is futile to attempt to measure
the magnitude of stock market panic In
terms of so-called losses.
At this stage of the case with no banks
suffering lTOiIl tHe uecnne In the StOC 4
market with trade at its normal level and
with every mill running at full speed and
paying full wages. the real value of the
properties affected by the drop in prices re-
mains the same. Only an actual curtail-
ment of dividends can lower the true worth
of the stocks and only failure to pay in
terest can lessen the value of the bonds
The present panic may extend so far as tc
cause both of these results and then 1t will
be possible to compute the losses.
Ii must be borne in mind that stocks arc
actually worth much as investments as
their earning power warrants If they have
no earning power. that is. II they pay nc
dividends. they are in this regard worth
nothing. even though they may have
quoted value on the market. They are
held either for speculative purposes in the
hope of rise in price, or as prospective
Investments. in the hope of dividends. II
either case their purchase has been in the
nature OF a gamble. and the shrinkage OF
their market prices is to be regarded mere
ly as the loss of the gambler who Is play
ing for stakes in a game the result Of
which is beyond his control As well, there
fore. talk of the values destroyed in con-
sequence of a poker game at the race
track. The money lost by gambler has
been won by another. Thus the sO-calleG
values lost in Wall street have merely
a. the present stage of the panic beer
transferred from one set of pockets to an.