New-York tribune., 1920-09-13
Producing Securities Is
''Street's % Big Industry
One of the Most Lucrative and Important Tasks
of Finance Now Costs Borrower Much More
Than Formerly; How Large Loans Are Floated

Wall Street is essentially distribut-
ing and trading center, yet 1t has one
important manufacturing industry. The
financial district produces securities.
Out Of the factories Of dnance-the
great investment banking houses Of
issues-comes q perpetual stream Of
securities, worth as nigh as $3.50, ,000,-
900 month.
Creating securities is one Of the
most lucrative and important tasks Of
fianance. Economically, the service Of
the underwater consists of gathering
funds from those who save throughout
the country and making the sum total
available for corporate or governmental
borrowers. Aside from the technical
tasks Of bond creation and selling, the
underwater assumes risk. He guar
antees the full amount Of the loan to
the borrower, and expects to reimburse
himself-and his associates-by retail
ing the resultant bonds to investors
scattered throughout the forty-eight
states.
Before the way> and the Liberty Loan
campaigns, when bond buying was less
popular and more exclusive pursuit, the
whole character Of the bond manufac-
turing and distributing business was
different. In the old days, large is
stitutions (savings banks and insur-
ance companies) and by individuals of
great wealth. Taxes have discouraged
the possessors of giant fortunes from
purchasing bonds which are not i'm
mune from the forays of internal
revenue collectors, and the ultra
wealthy have instead shown a predilec-
tion for the tax-exempt issues OF muni-
clpalities, states and the Federal gov
eminent. BY the sheer force Of neces-
sity, the bond distributors have there
fore been driven to search for new
classes of customers. The exit Of the
plutocrat from the investment market
has elevated the position Of the per-
son OF moderate means, who in the
struggle to keep alive has managed to
earn moro than his budget calls for. AS
selling proposition, it is more expen-
sive to distribute bond Offering to 100
customers than to ten, and consequent
ly this enlargement of the field has
added greatly to the cost of running
investment houses, according to the
testimony Of the captains Of the trade.
This condition Is reflected in higher
commission rates. The unfortunate
borrower not only has to pay the high
ess interest rates that nave prevailed
| in half q century, but also must give
viz uAucIWElLeI d larger lee. Inc IN
tcrstate Commerce Commission has in
timated that it felt the railroads were
beng asked to bear too great burden
when they entered the money market
in quest Of funds.
At a hearing at the close of last
week George M. Whitney, one of the
new partners Of ]. P. Morgan & Co.,
explained why the bankers recently
charged the New York Central lines 8 X
per cent for arranging loan. AS
serting chat the charge was reasonable.
the banker explained that the bond
salesman who comes into contact with
the ultimate consumer gets one-hal9 of
l per cent as his reward Moreover,
bond houses which exceed their quotas
get an additional one-half Of per cent
on oversales. After these deductions
were made, and also the regular COM
mission for distributing houses and the
accompanying expenses, Mr.. Whitney
said that only one-half of per cent
net profit was left for his firm. He
argued that this fee was moderate, con-
sidering the risk involved and the mag
nltude of the operation. If this proper