Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-10-29
NEED TO STABILIZE
MARKET IS FELT
Hold Federal Reserve Should
Take Action in Order to
Restore Confidence.
BY DAVID LAWRENCE.

Although New York bankers are try
ing to find a means of stabilizing the
stock market by the use of their own
funds, it is inevitable that the question
should be taken up by the Federal
Reserve authorities in order that con-
fidence in actual values may be re-
stored.
Various proposals are being suggested.
Last week President Eoover himself
issued a statement expressing conf
dence in the business outlook. While
this was reassuring it had no relation
ship to security prices. Only the sta
bilizing influence of large purchases
can now affect the situation insofar
as the decline of stock prices is con-
cerned.
The belief prevails here that the
banks of the country, using Federal
Reserve credit, will operate as a STABILIZE
ing influence though even this use of
Federal Reserve credit may be open
to criticism. The Federal Reserve banks
themselves stand ready to lend to mem
Der banks, but the question Of what Is
the base value of security will have
to be determined before any loan policy
can be developed.
Decline Long Feared.
A violent decline in the Stock Market
has long been feared here and the aca-
dernic question has been discussed as to
what would happen if a precipitate
break occurred instead of an orderly
decline. When the New York bankers
were urging q raise in the rediscount
rate on the theory that it would stop
speculation officials here were unwill-
ing to accept responsibility for the vio-
lent reaction which they predicted
would come. The New York bankers in
sisted that what they wanted was an
orderly decline. Developments of the
last few days have shown that when a
decline begins it is difncult to make it
orderly.
. Elasticity of the Federal reserve sys-
tenn is such that huge funds can readily
be made available to arrest a decline
provided, however, that the water and
speculative. profits are entirely elimi-
mated from the situation. The Govern
ment is just now lending hundreds of
millions of dollars to stabilize the price
of cotton and wheat, and has an
nounced to the Federal Farm Board
that prices were too low and that 1t
stood ready to advance money to CO.
operative organizations to buy crops
and halt the decline. In measure the
funds of the Government will be used
through the Federal reserve system to
bring about an orderly marketing OF
American securities. The principle of
sterilization is just the same. Govern
fnent funds are not used to bolster up
speculative values In wheat and cotton
and would of course, not be advanced
to banks to support speculative prices
on stocks.
The situation is not confined to New
York, but Is spreading to other stock
exchanges Throughout the country. This
would seem to Indicate that if the New
York bankers are unable with their
own resources to stabilize the stock
market assistance will be sought from
other Federal Reserve districts. The
situation is somewhat analogous to a
run on a commercial bank when all
the depositors want to draw their
money out at the same time. The
psychological effect of last weeks break
has been such that mary people who
still have a profit are still trying TO
sell. while the individuals with money
to invest are apprehensive and are
really waiting for the market to reacn
bottom, or at least level based upon
earnings and dividend payments.
Naturally there is some uneasinesS
here, but accompanying it is Q feeling
of confidence that the run on the
stock market car be stopped when II
logically should be arrested.
Copyright, 1927