Evening star., 1930-05-23
|STUDY OF NATIONAL
INCOME IS URGED
Bankers Commission Also
Urges Frequent Analyses
of Money Market.

Studies of the New York money
market and the condition OF the ma
tional income available for absorbing
new securities, by a qualified commits
sion representing all interested elements,
are possible on the basis of available
data along lines that should 60 far
toward averting market disasters, 1t Is
declared in a report of the Commerce
and Marine Commission of the Amer
lean Bankers Association made public
by the chairman, Fred !. Kent.
American business has been seriously
affected by three principal causes. the
report says, naming overproduction,
uncertainty caused by prolonged delay
in tariff legislation and overissuance
Of securities beyond the power Of the
public to absorb, accompanied by ex-
traordinary developments in the stock
exchanges.
Brokers' Loans.
Brokers loans increased half a
billion dollars in O few weeks during
last September and october because
Of the issuance Of securities which
could not be absorbed by the public
and had to be carried" the report de-
clares. There is no question but that
If the brakes had been put on the
issuance of new securities in time much
harm could have been prevented In
order to put on such brakes it would
only have been necessary to place the
facts before the investment BANKERS, for
1t IS not conceivable that they would
have deliberately arranged the ISSUANCE
OF new securities II they could have
seen that the national income available
Tor their purchase had been more than
taken up and that attempted distribu-
ton was certain to be attended by
catastrophe.
THE Commerce and Marine Com
mission in April, 1929, and the San
francisco convention of the American
Bankers Association in October, 1929,
In its resolutions recommended that a
study be made Of the money market bv
the Federal Reserve System, represent
ing the public; the New York bankers,
representing the leaders, and the Stock
Exchange, representing the borrowers
of the huge sums covered in brokers
loans.
mo one apparently has attempted to
measure the ability of the United States
10 absorb new issues, as its potential
wealth was 50 great there seemed to be
no limit to the ability Of people to take
up securities. The combined net in
come Of the people plus their ability to
borrow must measure their ability to
absorb new securities. National income
provided, on the average for the five
years closing January /, 1929, about
$500, 100000 q month for utilization for
investment in new securities or deposits
in savings banks.
New Securities.
During the first three months Of
1929 securities issued amounted to
about two billion eight hundred million
dollars. The rights that had to be taken
~
making total Of over four billion dol
lars in securities that had to be taken
up In three months. National income
available for the purchase OF securities
was about billion eight hundred mil
lion for the three months. New securities
were being issued at much greater rate
than We could absorb, ana It was time
| to call halt.
I'm September and October, 1879, Sc
curities were issued to a total Of bill
lion six hundred twelve million dollars.
The liquidation in the stock market was
( such that brokers' loans would have
fallen en- a normal basis five hundred
| million dollars, but instead they went
up five hundred eighty-four million,
showing that of the billion six hundred
| twelve million in securities issued III
those two months fully q billion dollars
| went into brokers' loans because they
could net be distributed.
Following the stool, market break In
November, 1929, issuance of new Sc
curities was practically stopped, with
| the exception of those which could not
be postponed. The drop was from an
average per month for 1929 Of $9I5.-
913 500 to Size, ,000 1t came down
| under the national income available for
| such purposes. The prompt easing in
money and the ability Of financial
America to protect itself without finan-
cial failures was due in important meas
ure to this stoppage Of the issuance
OF new securities.
III commission such as We have
| recommended, made up of representa-
uves OF the Federal Reserve Bank of
New York, the New York clearing house
ana the New York Stock Exchange.
should make study of this situation
there would seem no question but that
they could develop a series of going
dgures that would put them in position
TO give information to investment bank
ers that would enable them to euide
their security operations more scien-
tifically.
There would probably be very few
occasions when q warning would be
necessary II the question OF the Issuance
OF new securities could be scientifically
studied by investment bankers"