Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-05-26
INVESTMENT TRUST
SWINGS MARKETS
New Wall Street Element
Uses Enormous Capital in
Trading Operations.
BY I. A. FLEMING.

sale made contemplatsS the actual
receipt and payment therefor OF good
American dollars
With the enormous operations Of the
last few years the investment trust has
played no small part. One authority
has typifled this new factor In market
operations as a sturdy ram with great
horns taking the middle ground between
the bull and the bear, ready to join IN
the fight between the two old enemies.
as personal interests dictate.
q Market observers have reported time
and again evidences of the part played
in manipulation by the so-called invest
pools rather than investment buyers.
With their enormous capital they use
it to initiate or debate prices. influence
advances and declines to their own
advantage and aid the bulls to advance
and the bears to smash values.
The ease with which large profits
have been taken out of the market in
the last few years by layman traders
has caused such an influx Of new buyers
that it looks very much as IL every one
was specializing while the high rate for
call loans has been q severe test for
some bankers who have actually
strained their own credit in an attempt
to take advantage of high interest rates.
The great rank and file Of the bank
ing fraternity has not been influenced
to action out of the normal kind send
ing their secondary reserve OF the Street
while caring for their regular customers
without advances in rates, save where
leans were desired to aid in holding on
to speculative securities.
The Exceptions.
In this. the fifth regional district of
the Federal Reserve system. some
n1v @of cfA
banking ethics in order to gather in
the interest They have borrowed from
the Richmond Reserve Bank, through
rediscounting. the only avenue open,
greedily, it being charged that their
loans, in rare instances, exceeded the
deposits of their institutions.
Collateral for the lines rediscounted
has probably been one Of the factors in
the betterment in Government Sc
curities. Statements Of many banks. If
forthcoming at this time. would prob
ably show a large increase in bonds
borrowed for use as collateral.
It is even reported that the legal
rate of interest has been exceeded in ex-
ecptional instances where the borrower
admitted that he proposed to margin
securities with the proceeds.
1t is an easy matter to get around the
legal rate when lender wishes to do
So In place of interest starting with
the life of a note, it Is deducted at the
making thereof, discounted" so that
the rate is paid in advance on the
loan. In computing the rate, interest
should also be figured on the interest
deducted.
1t is questionable If local bankers
have taken advantage of the opportunity
to discount important notes, although
on small notes the method is frequently
used but not to evade the legal rate of
the District. Discounting is in general
use by lenders Of small amounts and
moderately large ones to salaried Dor
rowers, not in business and not pre-
pared to give security other than the
friendly Endorsements of fellow EN-
ployes, which are insisted upon and
ioked upon as the real backing Of the
ncte.
Threats Worked Well.
Wednesdays liquidation on Wall
Street was most satisfactory to the
Federal Reserve Board and to others
Interested in the strained credit situa-
ton from the helpful standpoint The
threat In this instance came from the
advisory committee of the Federal Re-
serve Board, which advocated the i'm
mediate increase in the rediscount rates
of certain Reserve banks from to per
cent. These banks are among the in
situations that have been pushed to
limits by speculative borrowing.
No one would have been surprised If
the rates had been advanced Thursday,
but the beard hesitatcd. probably for
the reason that per cent is the rate
now asked by most of the larger banks
from their customers In Legitimate bust
ness.
Trading will probably feel the effect
of the threats of higher rates for few
days at least. and a carving out of the
threat will, in all probability, await the
resumption of trading on the broad
scale and with advancing prices, Turing
more and more traders into action.
Grain Speculation Easier.
In the f1eyday of grain speculation on
the Chicago Board of Trade the wheat
and corn operators had a different way
OF doing their buying and selling. A
sale Of wheat for May delivery did not
contemplate the actual delivery of the
grain. neither the next day nor with
the advent of May save on rare occa-
sions. Only sufficient money was used
in the transaction to safely margin it,
It was generally contemplated that
the transaction should be settled by a
purchase of the amount of grain in
volved, also on margin. and the trade
eliminated. and settled by the payment
to the winner. II that term may be used
whether the seller or the purchaser, of
the difference between the two prices.
SO that unless In exciting times COM
paratively small amounts were needed
compared with the tens OF millions re-
quired to clear days business on Wall
Street Ringing the trade" they
called it,
Corners" infrequently developed on
the Board Of Trade. resulted from the
refusal of some buyer to settle trade,
to insist on delivery of contracts and
the buyer accommodating grain for
specific delivery. until there was much
more grain bought for that delivery
than there was in store and the sellers.
caught short" had to pay the piper.
Quite as often the buyer found his back
broken by the large receipts Of grain.
followed by the fiZzle Of his corner and
financial ruin.
Controller Poles Address.
Before the Maryland Bankers Asso-
citation on Thursday at Atlantic City
the controller of the currency advanced
some decidedly interesting views Of the
situation with regard to the national
banks of the country. With other
things he urged q new banking policy
for the Nation to meet present day con-
ditions. He said
1T is not criticism of the state banks
and trust companies to say that the
Government cannot rely on them to
serve its instrumentalities In the en-
forcement Of a Federal fiscal policy.
If Congress would protect itself
against the loss of its present banking
fundamentally it must make it to the
advantage Of capital to seek national
rather than a trust company charter.
The alternative, perhaps. would seem to