The sun., 1914-09-13

stock exchanges, was somewhat
different from any panics which have
occurred during the last twenty years.
This time the big fellows were caught
unawares. Usually these large houses
are expecting panics when they occur
aud have large cash reserves ready so
that they may step In and buy stocks
when the market has sufficiently
dropped to insure them "A handsome
proht.
This was the case in 1897. 1903 and
1907 For months the big firms of New
York had been accumulating cash re-
serves while the average man had been
Bccumulating loans and when the
plug was finally pulled" the little fell
lows were the ones who suffered and
tho big fellows reapcd the harvest. Not
only did the large New York houses Mt
such times have the benefit OF their
own resources. hut also were able to
ui.lizr their foreign connections to dis
tribute some of the bargains abroad
under Joint account and other agree
ments.
On the 30th of last July, however
conditions were entirely different. To
begin with, the large houses were as
fully surprised at the declaration ~
houses. | recall writing letter to New
York in December. 1912. in which
stated that there would certainly be
general European war, started by Aus
trla: and the New York bankers
laughed at me. saying that such a thing
was impossible.
Even two or three days before the
declaration of war these same large in
fhat No Cttsh
conf'agration would occur. In talking
with bankers in the financial district
found almost ALL the large and the
small. a unit in believing that a general
war would he avoided Hence. the
larger interests were just az much sur
prised as the smaller Stock Exchange
firms. and even the rank and file OF in
yestors.
But this Is not all In addition to
being surprised the larger houses were
not as well prepared as the smaller
firms. As every one knows. business
had been very dull for all Stock Fx-
change firms for many months.
The result OF this inactivity was that
most Stock Exchange firms had very
few loans outstanding when war was
declared. Their decks were pretty clear
and their condition entirely different
from what it usually Is when a panic
comes n the end Of a boiling market
Moreover. as average Stock Exchange
firms have no foreign connections. their
capital was either on deposit in banks
or else In their safe deposit boxes in the
form of high grade securities.
Technically speaking the big houses
were also in just as strong position.
They were not borrowing money So
far as their statements went. they were
rs strong as the Rock Of Gibraltar. and
] believe they are still as strong to-day.
Owing, however. to the higher interest
rates procurable abroad and their busi-
ness and social relations with English,
French and German bankers some of
these big houses were loanlng huge
sums I'm Europe-and they still are
In other words. where you. | and the
rest of US average mortals. without i'm
portont foreign friends. had all our
funds In this country when the war
broke out our rich cousins in New York
had goodly part OF their capital loaned
In Europe, and, a. above stated 1t Is
stlll over there. Thus. briefly. is the
Inside story of the situation. I will now
give the outside story. or tho reasons
FOR closing the stock exchanges as
given to me by leading bankers.
There arc in addition To the funda-
mental cause above described these
three other reasons for closing the
stock exchanges on July 30 readers
should clearly understand. Moreover
lot me say right here that think the
governors of the New York Stock Ex-
change did absolutely right in closing
Any one who attempts to criticise them
for such an act shows his absolute ig-
norance Of the situation. Let me give
three reasons which will appeal to every
ono.
~ Many foreign banks had large de-
posts in certain New York banks
Thes So deposits existed for various leGlt-
innate reasons. They are necessary in
connection with foreign exchange and
also In handling foreign trade both ex-
ports and imports. There is no doubt
that tho foreign Governments gave
their bankers an advance tip that
trouble was ahead and advised these
banks to withdraw deposits from New
York and other foreign countries. At
any rate, they did so. and furthermore
demanded the payment Of these deposits
in gold, which they had n perfect right
70 do.
For the benefit Of readers not ac-
Quainted with our currency system let
me say that gold practically forms
basis for loans, although this basis
varies from 10 per cent TO - per cent
in n country bank, 10 25 per cent. in a
New York bank. Taking the country
rs n whole, with n reserve of 100000
600 In New York, loans can usually be
made TO the amount of about $1,000
900 900. owing 10 the fact that only
about 20 per cent. Of gold is necessary
20 use as a reserve. Hence. when gold
flows into the country credits can eX-
pand easily and rapidly.
Unfortunately for borrowers. how
ever, this rule works both ways, and
when gold is Withdrawn from the coun-
try credits are likewise rapidly con-
tracted ard crippled. To follow out the
same irustration, when gold is with
ufdwn from the country loans amount
ing to five times the sum OF the gold
must he paid, The facts of the case are
that during the few days before the
Stock Exchange closed sl00,00O,000 of
gold was withdrawn from New York
by foreign bankers thus causing con-
traction in loans Of $500, 900 900,
C2l But this is not all. In addition
10 many foreign banks having money