Evening star., 1922-03-05
LOOKS UP MEANING
OF RUN OF FAILURES
Financial Writer Offers Ex'
pIanation for Many
Brokerage Crashes.
nv STUART p, WEST.
BY STU ART r. WEST.

Special DiSDu ten 10 Inc Star.
NEW YORK. March 4.-What is the
meaning OF this succession Of bro
k,rage failures which has been going
tn for the last two weeks? Does IL
point To any serious weakness in the
Wall street structure generally? As
there reason for the investing puolie
to conclude that it is unsafe to put
money for investment purposes into
the keeping of brokerage nrms. anu
that IT is better to stay away
These questions have prooaoi!
arisen in the minds o: almost every
body who is not familiar with con- :,
ditions in the financial district anu
SO cannot differentiate between the
stable and the unstable me - 80
Germs which have been shutting oo~ !
are almost altogether of the hsh'
weight sort. ,u,
Some of them have been ou,-anoLort hoLert
bucket shops, namely. alleged proKea-
ace houses, which have never
cuted orders intrusted to them, oue
have merely taken the other sue ilo,,,
their customers in what are purely
paper transactions
Reach End OF Rope.
Most of the remainder. nave Deen
either little fellows with snoestrins
resources or somewhat larger enter
prises which nevertheless have az
tempted to do much more pusiness
than their capital justified. In theSs
latter cases it was necessary AT al
hazards to cut down bank loans
cause the banks were cailis oaps
more margin on their existing ioans
ana the houses in question had 80.
TO the end of their rope SO iar as
their own capital was concerned.
To cut down these loans the sim
plest thing to do was to sell out tna.l
nd W DA
ceeds pay OFF obligations at the Danhs'
To do this necessitated. OF course,
going short of the same stochs
which their customers we're carrying.
in other words, doing the same tnihE q
as the bucket shops, but dolhg ~
within the Law.
All would have gone we'll with these
bucketing enterprises OF both sorts
had the stock market gone down. ~
that case the real bucket shops "ouiu y
have gobbled the money wnich me-
clients were betting against them.
while the pseudo bucket shops wouIo
have covered in the stocks tney
short of and made round pront oii
the deal But instead the marNe. :,
starting late last summer, oesah ~
20 up and the upward movement ,, ~
on with few interruptions since tneh'
This meant that the customers were
.r,, tine winning side and the bucketeers
on the losing side. 1t Is an oio-. .liie
Wall street saw that nothlns es.ao
fishes the fact of a market oehe
bull market SO much as when the
bucket shops begin to fail-
Failures Hopeful Symptom.
1t will be seen from this that 50
far from. being any serious Significance
in the recent failures, they are aito-
sether hopeful symptom. symptom
of returning good times Now lot
the distinction between the financially
fit and unfit. The great majority OF
houses having membership on the
New York stock exchanges are care
fully and conservatively run. AS
rule, they have a large capital IN
addition to the exchange seat, whlch
is now valued at $SS.00O.
They see to it that they undertake
no larger business than they have
resources to swing it with At any
time they can wind up their anairs,
pay their customers of and nave thelr
own capital free. This is Wall street
business as it should be done and Is
New York and the consolidated ex-
changes.
Where the public makes it's first
mistake is dealing with firms which
have no exchange connections where
il makes its second mistake Is In
opening accounts even with exchange
members without looking up their
banking references and commercial
ratings.
The debacle of the last fortnight
has been very much like the tumble
of a house Of cards Once the ball
was set rolling by the first few bank
ruptcies, and the attendant invest
CATION by the New York district at
torney's office, there came general
run. and this meant that all the lit
tie concerns which had got beyond
their depth and whose capital had
become so impaired by the losses on
their short trades that they were no
longer solvent had to go to the wall.