Evening star. [volume] (Washington, D.C.) 1854-1972, 1920-08-07
BY STUART p. WEST.

NEW YORK. July THE break in
stocks this week has been so severe
and so persistent as to raise fear
that there is something radically
wrong with the situation which does
not appear on the surface.
In the public mind there has occur
red the thought of 1903 and of the still
worse condition of 1907, and the idea
has suggested itself that perhaps we
may be facing a similar crisis now
1t is well, therefore, to point out the
essential differences between these two
historic periods of depression and the
present situat ton. The main weakness
in 1903 was an overproduction of new
securities, which had been put out
greatly in excess of the capacity of the
investment community to absorb. In
derwriting syndicates consikting Of
banking and bond houses and wealthy
individuals got loaded up with stut
which they could not sell and for which
it was difficult to obtain credit ta>carry
The famous phrase of "undigested Sc
curitieS" was coined to describe the
market of this time, which eventuated
in the equally famous "rich mems
panic"
There is no parallel between the
present conditions and those of 1903.
We have now no such accumula-
ton of unstable new flotations. Here
and there recent undertakings have
not been success, but the great
bulk of the Short-term financing
which has been done within the last
six months has been success. 1t
has been demonstrated time and again
that there are abundant investment
resources ready to take hold of new
issues, provided the terms are made
sufficiently attractive Nearly all the
equipment notes and foreign govern
ment bonds which have been put out
this year are selling today either at
or above their issue price, and this
in spite of the tremendous fall on
the stock exchange
Credit Overstrain Repeated.
In 1907 the trouble was a credit
overstrain, and this is the trouble
now. But the big point of difference
is that in 1907 there was no federal
reserve system to mobilize credit and
make the sections where there was
a surplus contribute to the support
of sections where there was deficit.
Had there been an eQualizing ma
chinery of this sort thirteen years
ago there would have been no panic.
In 1907 the, banking principle was
everybody for himself, each lndlvld-
ual bank considering it's own inter
est and acting to protect itself. re-
gardles of what happened to others.
Under the federal reserve system
things are quite different. There is
a central control which directs the
flow of credit and which can compel
a transfer of resources from the re-
gions which are best off to those
which are most in need. The last few
bank statements have shown the sys-
tenn in operation.
The reserve institutions in the east
and middle west have been lending
| increasingly to the reserve banks of
| the south and west, which Nave tc
| bear the first burden of the crop-mov-
| ing demands.
! The Boston and Cleveland banks have
| been helping out New York and Chi
| cago by taking over some of the lat
ters' acceptance holdings Preparations
| for the harvest financing have begun
this year fully six weeks ahead of the
| usual time. This undoubtedly will
lessen the strain during the autumn.
Undermined Pools.
There is nothing mysterious or OBJ
scure about the causes of the present
| Wall street decline. The mistake COM
monty made in the financial criticism
of a month ago was that Wall street
! had done it's full share in the deflation
| of credit, and that stock exchange
| loans having been reduced to the low
est since before the war, there would
| be no further call for retrenchnent
| in this uuarter