Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-01-26

market an extraordinary Willingness 70
buy and an equally extraordinary UNI
willingness. to sell. 1t was this lack of
equilibrium which really made trouble.
1T is now often said that the hold
ing Of securities on margin had become
too great during last Summer. The
problem of regulating the extent to
which the. public shall employ credit
to purchase or hold securities Is one
which cannot be solved by any single
agency. The Stock Exchange, by re-
quiring large margins, can and did ex-
ert restraining influence, but it could
not control the situation, because Ats
rules and regulations apply only to its
members. Many securities are listed on
other stock exchanges besides the New
York Stock Exchange, and many Gus
toners have banks carry their securi-
ties for them, even though the purchase
Of these securities was made for them
by stock broker. '-.' o..
statistics taken OF by the Stock
Exchange from its members question:
naires over the first six months of 1923
showed that the margins In customers
accounts averaged 40 per cent OF the
market value of long stocks which they
were carrying and SIS per cent on their
debit balances with their brokers. I
need scarcely point out how erroneous
these margins were. Never had mar
gins In the New York brokerage BUSH
ness averaged anything like such high
ngureS. These large customers mar
gins had been established through pre-.
cautions taken for some time both by
the New York banks and the New York
Stock Exchange itself. The New York
banks lending money on brokers loans
had for many months required ample
margins on such loans, and had also
frequently marked stocks taken as coll
lateral at prices far below existing
market levels. The result was that
during the first six months of 1929
Stock Exchange houses were putting up
an average of so per cent margin on
the brokers loans which they had con-
Cracted. The Exchange, on its part
examined with great care through its
so-called QUESTIONABLE system" the
condition OF its member firms, and in
sisted that the capital possessed by
these nrms must be maintained at a
dennlte proportion to the commitments
OF the flrm. It was due to these pre-
cautions by both New York banks and
the New York Stock Exchange that the
tremendous and hySterical wave of
liquidation in the stock market during
october and November did not lead t.
the failure OF a single important New
York bank or New York Stock Exchange
house. Thus far, two New York Stock
exchange nrms have been suspended
Tor insolvency, but both Of these Arms
were small out-of-town houses, and
there Is, from what can learn, excel
lent prospects that they will pay eyery
single penny which they owe to their
customers. need not point out that
this represents q magnificent showing
both on the part of the New York banks
and the New York Stock Exchange,
when the severity of the break in stock
prices is recalled. 1t Is evident that the
structure of finance, although naturally
strained, stood the shock Of the panic
magnihcently. I should perhaps mem
ton, too, that the enormous liquidation
OF brokers' loans from, roughly, az bill
lions to billions in two months was
not attended by single less to a lender.
We had reason, however, to expect this
result, because call loans have long been
recognized as the safest and most LIQUID
investment known to American banking.
Public Hysteria. 4..
Nevertheless, under conditions Of
panic and public hysteria, even very
large margins may not prove adequate
to protect the holder Of securities on
credit, however much 1t may assure the
safety Of financial institutions, This fact
has, think, surprised US all and must
be remembered in the future. -
Ordinarily rising prices for stocks
are checked by outright liquidation,
which overburdens the floating supply
ana compels a recession. In the stock
market Of last Summer, however, sew
eral different factors artihcially delayed
and restrained such liquidation-nota-
Oily, great public optimism and also the
income taxes levied on caDital gains
Thus, when liquidation occurred, 1t re-
suited In q much more violent price de-
cline than Is ordinarily the case. Many
outright investors completely lost their
heads and simply emptied their secur-
ity boxes on the market, with harmful
results not merely to themselves, but
also to every one else.
IN addition to the tremendous
amount of domestic LIQUIDATION, the
stock market also had to absorb con-
siderable foreign liquidation, fostered by
the events of the Summer and early
FAN IN Europe. These European devel%'
opments were almost universally such
as 20 cause nervousness and alarm
among security holders on both sides
OF the Atlantic. In London, apart from
the advances In the Bank of England
rate, there occurred the extensive and
very embarrassing HAIRY scandal. the
collapse OF several other groups OF spec
ulatitve security issues and the strain
OF continued gold exports In Germany.
conditions on the Berlin Stock Ex-
change became so critical As to require
the intervention of the large banks TO
support the market. In Austria, the
largest bank IN Vienna had TO be taken
over amid very critical conditions by
the Credit- Anstait. In France. while
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