The Washington times., 1930-11-17
FURTHER DROP
IN LOANS SEEN !.
NECESSARY
Despite Fact That Brokers'
Loans Are at 1929 Level,
Expert Sees Further Decline
BY LEWIS HANEY

BY LEWIS HANEY
Director NctO York University
Bureau of Business Research
and Former Economist of
Federal Trade Commission
Another big decrease in
brokers loans last week - this
time amounting to $4,000, 900.
That reflects the decline in stock
prices through Tuesday, and
shows a very heavy liquidation
Of speculative accounts.
This time the chief decline in
brokers' loans came in the loans
made by the New York banks on
their own account. Such loans
fell $177, 900 900.
How low are brokers' loans
now. We see statements to the
effect that they are the lowest on
record. But such statements do
not mean much. They refer to
records which go back only
through 1925. AS a matter Of
fact, we have figures for much
earlier periods that are substan-
TALLY identical. These earlier
figures show brokers loans are
still rather large.
The fact is that brokers' loans
are now about where they were In
May 1925. They are little If any
below where they should be,
judged by long time trend line.
Only $7OO,OOO,OOO in 1921
At the bottoms of earlier stock
market depressions, they have
been much lower than now. In
1928 they fell below IL billion
dollars. In 1921, they fell below
100000. Now they are %
billion dollars. I do not mean to
suggest that brokers' loans will
fall as low as in earlier recessions.
but we should realize that they are
not extremely low, and may well
go somewhat lower before the re-
ceSSion ends.
The most important fact, how
ever, is the continued high level
Of total security loans. including
loans made by banks directly to
SPECTATORS and investors, as we'll
as the loans made indirectly
through brokers. There has yet
been very little reduction in these
total loans on stocks or bonds.
They are actually some three
billion dollars larger than in
May, 1925, when brokers' loans
were about the same as now. The
loans on securities made by New
York banks directly to individual
spectators and investors are q
billion dollars greater than in
May, 1925.
These facts show us Cd that
what is going on is a great pro-
cess of shifting the holding of
securities from brokerage house
traders to the hands of actual or
potential investors. and (2) that
this process is at present drawing
heavily on direct bank credit.
OF course, there has been con-
siderable outright purchasing for
cash. The reports from brokers
and the increased number of
stockholders in large corporations
show this. But more largely still,
it is clear that stocks are being
carried on loans made direct to
holders by banks. Such loans win
in part be paid off by people
who will buy the securities. (These
may be either new buyers or
those who will pay up on old
loans).
But in part, the bank loans on
collateral are doubtless temporary
and made to tide over the process
of liquidation. This part of the
loans is too large. It will come
down to normal only as the bor-
rowers are forced to sell and as
stock prices get SO low that out
right buyers can be found.
I look for reduction in the
total loans on securities of more
than one and one-half billion
dollars before the next bull