Evening star., 1919-11-16
FEDERAL RESERVE SYSTEM IS
WORKING SATISFACTORILY
Was Not Organized as an Adjunct to Stock
Speculation, But Rather as Aid to
Business Activity.

BY I. A. FLEMING.
Some financial publications hav'
been putting the blame for the recen
severe slump in stocks on the fedora
reserve system. calling attention t.
the repeated statement that lit will
prevent panics," and charging tina
the system was not functionins
properly.
Any criticism of the reserve system
or the ruling board in this connection !.
far-fetched and will not hold water.
II there was one thing that the fedora
reserve banking system was not pro
vided for 1t is Wall street and its Sc
curities. These latter are almost tht
only kind Of collateral upon which
member bank may not borrow from the
federal reserve banks.
IL was not to further the kind Of
speculation that Wall street has known
during the year 1919 that the law was
created, but rather to move the crops
grower. the exporter, the manufactures
and to tide business over the periods ol
great activity whom money was largely
employed. and these things 1t has served
and served well.
That the law did not take In stocks as
banks has not been criticised as unwise
by conservatives. as 1t would admittedly
require resources unlimited and the wis
dom Of Solomon to keep out the worth
especially with the printing presses rum
ming night and day turning out the evil
dences of worcestershire partnership IN
corporations.
That the reserve system should have
been Of help to the greatly manipulated
Arav hyylt a
eliminated on Thursday, for the pur-
pose of relieving the overextended spec
ulative market is unthinkable.
Indirectly, at that, the system may
have been partially responsible for the
existing condition by reason of its al
lowing liberty bonds to function as
money through its discount system.
Note Record Card Index.
Apropos of the serious slump sus-
tained in the stock market last week
it seems in line to call attention to a
little comment by b. A. Bowles of the
Potomac Savings Bank At the annual
convention Of the District Bankers
Association at Deer Park.
I'VE keep q card index Of all col
lateral notes. do not know how
many other banks do this. but 1 do
know that I'd hate to have to search
through the collateral notes to find
the stock market was going to
smash"
The quotation may not be literal.
but 1t covers the point.
With stocks breaking 20 to 100
points in less time than 1t takes to
tell it, any scheme that helps the
banker to keep his finger on collateral
loans is valuable
Fortunately. however. there are
comparatively few Washington bank
ers with collateral loans on Wall
street securities.
Washington is heavily represented
in loans on stock collateral in New
York, but the interests of local bank
ers there are under the care of New
York fiscal Institutions, which con-
make report Of net results to local
bankers.
Local bankers and private wire
houses with New York connections
have had one Of the widest weeks
in their experience. but they should
not have been caught by the smash
ing breaks unprotected. for the down
turn has been predicted for weeks
back. There was soma mighty lively
margin. calling around local ofliess de
wild speculative operations will not
be rssYmed on An lenlarged. scale
again darthe the current year-that
Is, probably not.
Do Not Look So one-sided.
That the United States Supreme
Court should have delayed the deci :.
sions in the two most important cases
now under consideration. from a mar
ket standpoint, gives some of the
moro skeptical followers Of the ticker
q nervous feeling. In that they hold
the delay to be an evidence that the
cases are not as one-sided and simple
as the street believed.
The order for rehearing in one of
the cases would seem to confirm the
views of this minority which doubts.
The cases Of the Southern Pacifics
right to the mineral lands in its land
grant and the question of the stock
distribution being income free from
tax are vital factors in the market
they have been for weeks.
Traders with enormous profits have
hung on hoping that the latter ruling
would give them larger stock div
idend, worth in the aggregate. per-
haps: as much as If not more than the
original stock, and yet relieve the
trader from certain percentage of
income taxes. Many of them would
be willing to give the government its
share II they could be rehabilitated a.
OF Tuesday morning.
Tho Southern Pacific decision will
have direct effect only on that stock,
but 1t is extremely important.
The street has, or rather had up to
the big slump. discounted a favorable
decision in both instances.
High-Grade Investments.
One of these days the conservative
investor will study conditions back
of the security that he buys. The ultra
conservative wants bonds. high-grade
issues, and will have naught to dc
with stocks; the conservative Of the
future will look with favor on the
stock of a corporation that has nc
bonds outstanding-for bonds are
after all, but an evidence Of cor
porated debt to be paid on or before
a certain specified time. He will
choose a corporation without pre-
ferred stock, for preferred stock
must have Its dividend. II not one
year then In the next. and 1t 10 usually
preferred al to assets and dividends.
This would eliminate all but the
corporation with one stock, with nc
interest on bonds to be deducted an.
nuaily before the stockholders re-
ceived their dividends There are a
few corporations Of this character
now in existence. There will be more
as time goes on and the habit OF
financing betterments from profits be-
comes more general.
There are scores Of examples where
fixed charges via bonded Indebtedness
have been millstones around the neck
of corporationS. Each bond issue Is