The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1912-05-18
THE BONDS THAT
WALL STREET REFUSED

tCopyrght. 1871 By c. N. Keys New York;
In the big financial cities men carry
on auction sales OF securities in exact
ly the same way that auctions of more
tangible property are carried on else
where. There Is the auctioneer. a man
of persuasive gestures; the list of goods
for sale; the waiting apsthetic crowd
OF bargain hunters and curiosity seek
ers; the red flag at the door-Just an
old fashioned auction.
A couple OF weeks ago in the big
gest of these auction rooms in New
York. down near the end OF the list
appeared a Job lot" consisting OF S25.-
600 first mortgage per cent bonds Of
big cement and coal concern hoated
In 1905 and $4,000 OF stock OF a lum-
Der and development company. quite well
known a year ago TO the public.
The auctioneer read on this Item In
his sounding voice: What am ! bid
for this lot?" he asked. The question
was repeated several times, and finally.
from out in the crowd came an answer.
Five hundred dollars"
The usual coaxing process followed;
but. in the end. 500 took the parcel It
was seemingly simply a gambling bid.
The buyer said he knew little or moth
ing about 1t, but frequently bought in
friendIess packages" Of this sort on
speculation
Two years ago the $4,000 bonds he
bought for a song were full and widely
offered to the public for 5000, with a
stock bonus. The prospectus OF that com
pany painted the prospects in glowing
colors. The stock would almost surely
turn out 70 be a fortune-maker; and the
bonds were absolutely safe" The pros
pectus was mailed out from New York
to 6e,OOO names, OF which 1000 were the
names OF women.
This is an old. old story, and Il Is told
here merely as an illustration. The real
story of the promotion is not quite so
trite and usual.
Shortly after 1901, this money-making
proposition was submitted to the consid-
Grafton of Wall Street. The promoters
wanted 100000 cash. They owned or
had options on a large block OF cement
land and a large amount Of soft coal
land, not worked. Their proposition was
to sell to the bankers OF Wall Street
100000 of first mortgage bonds and
81. 10000 stock for 100000 cash
II was a clear promotion proposition.
The lands had cost, estimated. well be-
low $4,000, and were not paid for at the
time. A dozen cement companies and a
hundred coal companies were lettering
and shaking at the time. Absolutely the
only excuse offered for the purchase was
that the bonds could be sold easily out
in the country" The offer was made to
nine different houses that deal In bonds
and stocks. It was refused by eight point
blank; while the ninth dallied with 1t
only a week before declining the honor.
The regular financial channels failing.
the promoters found a channel of their
own. They organized a selling corpora
ton, hired two skiIlfuI liars TO run II,
bought four selected lists of investors,
and reduced the bond issue to $3,O0O.O00
figuring that II could be sold for s.. 900, 900
with bonus Of stock, and that the cost
would be well below S1.0OO.0O0.
For while, success followed. The
literature was attractive: the liars lied
very well, and the public, mindful of
the late panic, was not at all averse
to listen to the arguments in favor of
securities immune from the disturb
ances of the market" More than $500 =
OcO of bonds were sold before the wells
ran dry.
In time, however, the cost Of selling
crept up and up; and in six months il
cost IS 10 get 500. little later. It
cost 800. Then 1t stopped. The pro-
moters were thunderstorm. They had
bought the land, and had spent some
money. The treasury was empty. The
very first interest date found them with
out caSn 10 pay the coupons.
The sequel is obvious enough. The
fact, Of course. is that the proposition
was doomed from the very start The
bankers to whom II was submitted in
Wall Street saw its weakness at
glance. First Of all, the security for
the bonds did not exist and could not
exist until the proceeds of the bonds
themselves were put to work to create
IL. Therefore It was almost purely a
Construction proposition" Second, the
business was a very speculative BUSH
ness. even for old and well-tried compa-
mics: while the promoters knew neither
the cement business nor the coal bust
ness. Third, the company. had absolute
Iy no credit, and could have none except
by years OF careful operation.
The public. unguided. inexpert. and in
nocent, cannot possibly analyze and clas-
sify an industry. II is the bankers bust
ness, his whole profession. Il Is hard
ly too much to say that no single in
weston who ever had submitted this
bond to a trained investment banker
for an opinion would have ventured a
dollar in II.