Evening star., 1920-05-22
WEEK'SL|QU|DAT|0N
IS THOROUGH
~
Wall Streets Need Not as
Great as That of Com
b, merciaI Credit.
BY STUART p. WEST.

NEW YORK, May 22-The process
of industrial defiation 50 long and So
widely discussed is now in full swing
The drastic retrenchmcnt OF CONNER
cial loans and the price cutting whicl
has affected or will affect every com
modify and every article Of merchan
disc may have come as surprise Z
part of the business community, bu
VI has been no surprise to Wall street
1T is precisely what Wall street ha:
foreseen and has been preparing fo'
During the last six months StocF
prices are down from last autumn
nigh 20, 50 and 30 points. The shrink
age amounts to between a third anC
= half Of the selling prices of ias'
November. One cannot feel sure that
even such downward movement
represents the end. 1t always has =
h. taken into account that the Dend4
slum swings as far in one direction
!, previously did in the other. taa- il
times like these prices are pressed as
far below the value line as in ,he pc
rod of speculative enthusiasm theg
were pushed above il.
stocks Are Vow Low.
But this much there is no hastta-
ton in Saying-that at present icve $
most stocks are low and some of theiE
very low by comparison with Wnat.
On any fair estimate. they are red !!
intrinsically worth. The necessities
OF sellers who are unloadin. because
they have to and not because tney
want 10 sell may temporarily Gepress
prices abnormally. But i. is reason
ably clear at the end of the week
that the general run Of stocks and
bonds have reached figures where
they are genuinely attractive 10 in
vestment buyers and that buying
power has been developed which will
before long suffice to restore cQuilib-
rum If it has not done so already.
Wall street has been upset this
week by the price-cutting campaign
and by the advertising of the meas
rres that the banking authorities are
taking TO reduce commercial credits
THAT it has been upset is not because
rhe financial district itself was not
thoroughly prepared. but simply be-
cause a great many business men on
the outside had not needed the pre-
yiouS warnings. These people in the
liberty bonds. of corporate bonds and
Of stocks.
sCnable any longer TO get from the
banks the full amount of credit need
I'd in their business. they were forced
to part with these investments re-
sardless of price. 1t was the sudden
appearance of this liquidation which
overwhelmed the security markets
for a day or two. At the end of the
week there was very fair evidence
that in the first place liberty bonds
and in the second place good part
of the stock list had begun to re-
ceive an adequate investment support.
Welcome DeAation.
From the standpoint of influential
capital the things which have been
40 alarming to the men in the street
are wholly welcome The worst pos
sibiiities of the situation have been
frankly recognized and the proper
correctives have been applied 1t will
take a long time for the measures
adopted by the Interstate Commerce
Commission to do away entirely with
the traffic blockade But rapid prog
ress has already been made and as
sUrance is now afforded that within
the next month or two freight will be
moving as nearly in normal volume
as IL can until the supply of cars and
locomotives has caught up with de-
mand.
This will mean. as is very well
known. the release of vast gums of
so-called frozen credit, and the re-
action upon the high cost of living
and quite as important as the reactlon
upon the banking problem Quite
likely there is ground for criticism
Q. the federal reserve heads that they
A not put their program OF dIscrim-
hating against the less essential and
Of torGbiy curtzilng credits to this
c-zsz o- industries into effect sooner.
Tney were very slow 10 recognize
-lz- the mere raising of discount
-s-es could not obtain the desired re-
so.I because IL only entailed an ad-
ci-5orzl item Of productive cost which
oould rot be passed along TO the con-
suner. Bu, al any rate the program
- now being pushed with energy IL
should begin 10 show IN the bank
sAIsmsnts Of the next few weeks
II the markets commence 10 see fed
sral bank loans coming down heavily
and the reserve ratio rising there is
Ssresiy a doubt that they will take
q brighter view of the outlook.
Panic Talk Crimfnal.
The governor Of the federal reserve
hank IN the Boston district has de-
|. ared that the tax Of panic is al
,uosI Z crime" The corollary from
I nis might wei be that everybody
" no Is responsible for this panic talk
Z I'd who. whether or not for his own
advantage, deliberately and publicly
predicts a panic IS almost a criminal
There Will be no panic for two rea-
sons: First. the situation has been
b A ksn In time as was not the case IN
{ ee7, and second, there is now CEN
raj banking control to supervise the
-
in the crisis of thirteen years ago.
We have. TO be sure, credit over
|-train precisely as we did in 1907. but
1 nen there was no federal reserve sys-
m 10 take matters in hand as is
now being done and force suitable
usidation in commercial lines before
L ne extra strain of the crop moving
|pkriod is upon US. Moreover. the trou-
|sle in 1907 was not SO much that the
redi, supply was actually deficient.
Certain parts Of the country were
|.ery comfortable all the way through.
The difficulty then was that there was
70 machinery for the mobilization of
credit under which the banks in
localities that were better off could
give help at the centers of pressure.
|it was precisely to obviate A recur-
renee Of 1907 that the federal reserve
- ssem was created. Under this sys-
|'em which permits Of the free inter-
L mango of rediscounts when any un-
|c1e strain occurs at certain points
~ can be relieved by prompt help
L from other points
Corrective Measures Effective.
There is no reason why anybody ex-
|cept the blacklist sort of pessimist
| |snouid refuse 10 believe that the cor
ec,ive processes which are now un-
|eer way will not release a sufficient
sum of credit to take care of the
harvest demands and that equalizing
features of The federal reserve organ
'ization will not function properly
Jhen the time comes. The fact that
s,e bank reserve ratio is low COM
AIRED with what il was year ago
or two years ago % Got of vital sig
Inlfcance.
What lie the use of bank reserve
e II cannot be used in time OF emer-
yency? The Bank OF England. which
n former timee used to carry a 40
70 IS per cent reserve against liabil-
ties. did not hesitate to let the ratio
Fall to IL. and to let II stay there.
compared with England. and. Of
|course. with any other foreign coun.
-ry. our present ratio Of 40 per cent
lard more looks extremely high. If