Evening star. [volume] (Washington, D.C.) 1854-1972, 1913-09-17
MONEY 1|GHTNESS
LAID TO BROKERS
John R. Dos Passes Tells Sem
ate Committee of Evils of
Wall Street Operations.
SUGGESTS A WAY FOR
TRUE BANKING REFORM
Declares Funds Used for Stock
Transactions Should Be at Dis.
posal Of Actual Business.

p0Sol OF Actual Business.
Charging that tightness Of money in
this country could always be traced to
operations in Wall street, John r. Dos
Passos Of New York. for thirty-five years
connected with the great financial center
In New York. today told the Senate bank
ing ana currency committee that he be-
lieved the entire currency question could
be solved by enacting legislation which
would prevent brokers on the stock ex-
change from borrowing money Of the
banks to be used In speculative adven-
lures.
II appear before the committee as an
Independent" said Mr.. Dos Passos. For
the last thirty-nve years I have been
connected with large transaction In Wall
street and as a lawyer for big corpora
TONS"
Mr.. Dos Passos presented to the COM
mittee q printed statement. for which he
asked consideration, and made arrange
ments to appear before the committee
again next Friday to 60 further into
the relation of Wall street to the cur
fency question.
In his statement left with the commit
tee he said, In part:
IT believe that the first step toward true
banking reform would be to divorce the
transactions of the stock exchange from
the banks-to prevent brokers from using
the money Of these institutions In specu-
lative adventures.
1.-THE operations Of the exchange, as
now conducted, require the banks OF
New York to furnish a vast sum OF
members. When one gives an order. for
example, to purchase. say. 5000 shares
Of New York Central railroad stock In
the stock exchange It involves the rais-
ing of say about 10000 OF which the
customers ordinary margin contributes
10 per cent. $4,000. and 10 per cent $50
GOO, is furnished out of the capital OF the
stockbroker, making 100000.
Brokers Borrow on Stock Pledge.
"As the broker must pay for the stock
on the following day. he is required to
60 into the money market and borrow
500. 900 by the pledge Of the 5000 shares
Of stock bought. Now as IS per cent OF
the transactions Of the exchange are
speculative. in the case put 100000 is
furnished by the banks 20 aid purely
speculative venture ana milton AZ on sbs Sas
Of stock are dealt with in day. which
has been a common occurrence, the az
gregate sum Of money drawn out OF the
banks would be simply colossal
again in the banks, to be used in some
other speculative deal, but the fact re-
mains that hundreds Of millions or dol
ployed by the stock brokers for the
| fertilization of purely speculative trans
actions. This system IL wholly unneces-
sary and useless. It should oe enmin ia
ton a thousand shares OF stock never
sees the certificates Of stock. never
wants to see them. and is interested
only in the rise and fall Of the market
He is playing for a profit. The Dor.
rowing Of money and the financing or
the transaction are entirely with the
and the customer or Spectator never
sees or handles the securities in which
he is trading.
Hardship on Corporations.
I'm addition to this misuse of bank
ing funds, that ought to be at the dis
posal of the industrial and Commercial
community. the system of actually
financing each TRANSACTION is great
hardship upon t. corporations. Each
corporation chose stock is actively
dealt in = subjected to enormous ex
pense End Inconvenience by being COM
PEELED to furnish and issue fresh GER
tificates Of stock each day. The cor
porations to effectuate these useless
transfers are compelled to have en-
graved and on hand thousands of GER
tificates by which transfers can be
quickly made on their books; they are
compelled to furnish gratis these en-
graved certificates which cost very
large sums of money and in the course
Of the day when the operations in a
particular stock are very large, and
the transfers upon the books contin-
uous. the corporations are compelled to
employ clerks to do the work, or trust
companies and transfer agents to ia
cilitate deliveries and to attest the
regularity OF the transfers and the
forms OF the new certificates.
There Is no spectacle of Wall street
so ludicrous as to behold the messen-
gers running around with certificates
of stock. demanding large checks
purely speculative transactions. This
ridiculous and unnecessary process
goes on day after day and these huge
sums Of money are drawn out of the
banks when the funds should be held
to meet the legitimate business trans
actions
1.-The exchange should be compelled
to make bi-monthly settlements, as is
and to close the transactions by the
payment of differences. or delivery OF
securities, as the parties require. The
New York Stock Exchange IL no bet
If 1t does not take the initiative in
this respect 1t should be compelled by
law to do so.
Benefits Of Bimonthly Settlements.
'The benefits which would arise
from bimonthly settlements are these:
First. the funds Of the banks would
not be used daily for the speculative
purposes of the stock exchange; Sec
ond. high and fluctuating rates'of in
terest would never prevail.
such a situation as interest at the
rate of 50 per cent. 100 per cent or 300
per cent or 400 per cent is never wit
messed in Paris or London. simply be-
cause stock exchange transactions are
settled by the payment OF differences
through bimonthly settlements. The
transactions OF the exchanges are on
tirely segregated from regular legiu-
mate banking operations. The opera
lions as there conducted are either for
the account or for money. which
means cash One can always buy
for cash and have quick delivery of
any stock required.
But these transactions are rare-the
bulk OF the business Is for the account