The Wallace miner. [volume] (Wallace, Idaho) 1907-current, 1919-02-13
HOW THE BROKERS MAKE
NETWORK MONEYCENTER
CALL LOANS TO BROKERS' is
CHIEF DEPENDENCE OF
MANY BANKS.
lBy II. b. Kingsbury, manager brok-

Sio6S oSPai IiRcilt VI ". "A. DIN co. J
The broker is invariably heav
borrower from the bank. Most of tn
brokers' customers are speculative
they desire to operate with as littl
money OF their own as possible, an,
they realize that their profits in pro
portion to their capital invested
would be greater, were smalle
amount invested, than 1t would be i
they bought their stocks outright. 4
man, for instance who buys on,
thousand shares of Hecla at SIS, would
have $4,000 invested If it advanced
to So he would make $1,000 or a profit
or 20 per cent on his investment. If
however, he bought one thousand
shares of Hecla on margin at IS pei
share, he probably would only have
to advance $1,000 and the balance OF
$4,000 would be furnished through the
agency of the broker. The profit in
this would be about the same !;
but instead Of making only 20 per
cent on his investment, he would
vestment For this reason, spectators
usually prefer, even when they have
large financial resources, to buy
stock on margin. Therefore the pur-
chase OF stock on margin involves the
payment of a relatively small amount
of money by the brokers customer
and the furnishing of the greater pro-
portion of the price of the security
by the broker.
Buying HecIa on Margin.
Take the Hecla instance again The
broker must provide $4,000, together
with the $1,000 his client advances, in
order, to purchase the one thousand
shares of Hecla at SIS per share. Out
of this $4,000 the broker probably
furnishes out of his own funds 81, 900
and the balance of $4,000, he borrows
curity. The customer pays the ruling
rate of interest on $4,000 which is
sufficient to cancel the charge of the
bank, and renders the broker some
self. has advanced. If the market
for the stock is very satisfactory, and
the fluctuations are small and there
are no disturbing conditions to change
the price In the stock, it Is sometimes
possible for customer to buy on an
even smaller margin, sometimes less
than ten per cent of the purchase
price.
lit Is easily understood why the
brokers are such heavy borrowers
from the banks. A large percentage
of their transactions can be financed
only with borrowed money, and the
banks are the institutions from
which this money must be secured.
There are two kinds of loans.
which the banks make TO brokers,
The first is the time loan,' in which
the banks loan the money for defi-
mite period, The second is the "call
loan" and the greater percentage of
the loans are of this class. The 'call
loan," theoretically speaking is loan
at any time.
Why New York Is Money Center.
In any ordinary market, there are
millions and millions of securities
purchased and held for speculation.
While these securities are regarded
as belonging to the spectators, who
have bought them, they are in reality
N possession of the banks as collat-
eral for loans they have made on
hem. The banks and money lenders,
therefore, have the largest amount of
money invested as loans in specula-
I've issues and the greater proper
ion of this money is the surplus
money of the country banks loaned
o the New York banks
The New York banks secure large c
percentage of the surplus and reserve i
rnds of the entire country. 1t is 6
veil known that a very large proper d
ion of the loans of the New York il
anks are made to stock brokers' b
his class of business men make the n
iost Important customers or the New "
'ork banks: in fact, some of the "
argest banks of the country have W
nw customers outside of the stock n
rockers. 1t is the brokers who create f,
ne enormous demands for money a
'hich enables the New York banks n
, absorb all the surplus funds which "
re offered to them from all sections ir
the country, and make Wall street Il
lie money center 81
lose Connection Between Banks and b,
Brokers. D,
without the brokerage business, tf
any banks in the financial center of g,
lie country would have to go out of w
'siness Owing to the close affilia- W
on Of the brokers and banks in the
y financial center, a panic or big ia
ilure on either side affects the C,
her, and the whole moneyed power n,
the country, A failure of big as
okerage house might draw several
& banks with it, as well as other
okerage houses. This Is the reason W
at during the panic ON any of the pl
rye exchanges the banks nearly al ny
avs come to the assistance of the tn
ock brokers. &C