Evening star., 1928-12-31

Street had given heed to the voice OF
bankers raised against 1norrdinate
speculation and concretely hindered by
an advance in discounts from 312 to
per cent. But it is to be remembered
that this was period not altogether
favorable to the promotion Of specu-
lation, for trade was dull in the first
quarter of the year, there was great
deal of unemployment, gold was going
out rapidly and election uncertainties
were looming on the horizon. The size
of brokers' loans then was more Seri-
ously considered than it was some
months later when they were 40 per
cent higher.
If the governors Of the Federal Re-
serve had had the power to reverse
their policy they would probably have
made their discount rate in March 4l2
per cent instead of 4 per cent and that
of July at least SIC per cent and pos
sibly per cent. Some Of them freely
admit today that they were too timid
and too fearful of the effect on COM
mercial loans when they established the
July figure. There is, however, serious
doubt, in view of subsequent manifeS-
tations of speculative insanity on the
part of the American public, whether
a per cent discount rate last Summer
would have been effective in curbing
the market excesses Of october and
November.
Coolidge and Hoover" Markets.
What happened was that following
the per cent rate in July and within
period of the most stringent money
conditions that the country had wit
messed since 1920-call money IL per
cent, time loans per cent-the aver
age price of stocks, which was "a in
February and los in July, had risen
to las at the end of November. 1t
was then higher than ever before with
a sheer rise of 125 per cent since the
Coolidge market" began to be later
absorbed and overshadowed by the
Hoover market"
From the middle of August to the
end of November there was stock
average advance of 371a points, with
353 900 ,000-share turnover. 1t is
doubtful if this record will be dupli-
Gated for some time to come.
At the end of 1927 brokers' loans
were $3.717,000. In the second week
of July they had risen to $4,242 1000, 900.
cember there was a steady rise, growing
ed. until loans reached approximately
SIS, 100000, an increase in five
morths of nearly 80 per cent. The
Importance of the years expansion was
that it occurred mainly in the loans
OF those whose operations the Federal
Reserve could not control, the increase
from these sources amounting to
81, 1892, 600, 900, or las per cent.
This was an entirely new situation.
1t reflected the strong financial posi-
ton OF numerous corporations as well
as lenders from every important f1nan-
c1al center in Europe and the with
drawal of large buyers Of securities, as
banks, investment trusts and estates,
from the market in order to obtain
the alluring rates which the money
market offered But it created a con-
dition that fed the fires of speculation
and remains one of the problems for
1929 to solve.
Every effort has been made to mini
mize the Importance of this ascending
scale of credit placed at the disposal
OF the stock market. It nevertheless
is the nub of the situation. Fortunately
there has been no serious handicap to
business from the use of superabundant
funds in stock speculation. The Fed
eral Reserve has been able to maintain
moderate rate for commercial loans
and TO use its various methods for cas-
ing the strain when business demanded
ltS maximum seasonal requirements.
There Is the same danger, however,
from easy access to credit by operators
In stocks as developed in the past from
turning this same credit into the pur-
chase of unimproved land, buildings or
commodities