Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-10-01
BEAR RAIDS PROVE
MENACE TO CREDIT
Use of "Short Sale" During
Financial Crises Decried
by Exchange.
Rnecial D,spatch to The Star.

Special Dispatch to The Star.
NEW YORK, october 1.-The
present agitation over short selling"
has to do with the imposition OF bear
pressure on markets in times Of credit
crisis and not with this recognized fea-
t1ire In trading operations In STOCKS
under what might be regarded as nor
NAL Wall Street conditions.
Those who have insisted that short
selling" should now be either aban-
Cioned or controlled, and among them
are governors of the New York Stock
Exchange, argue that this practice
tends to aggravate conditions already
disturbed by sales of actual stock Tor
domestic and foreign account. Ihey
claim that in an emergency the Stock
Exchange authorities should use emer-
gency measures to prevent the situation
getting out of hand. Therefore, they
are of the opinion that free market"
Is less to be desired under such cir
ctlnlstances than one THAT may be
artificial but retains its balance. Con-
sequently, they have founght for
strict supervision Of all transactions
having the appearance Of short sales y.
and have put into effect what amounts
to a policing of the Stock Exchange
and strict discipline for those members
who have shown a disposition to vio-
late the spirit of the new policy of the
Business Conduct Committee.
Legitimate" Short Sales.
There is no intention to impose pro-
hibitions on those who sell stocks short
when the markets are in a normal state.
1t is recognized that short selling" at
such times has its legitimate place;
that it establishes a healthy balance
against the opposite performances of
the bull party Short selling" pro-
Vides cushion that frequently protects
a market against too violent decline.
A section of Wall Street today argues
that had there not been such cushion
when the New York Stock Exchange
opened last week, while European mar
ketS were generally closed, there would
have been a much more serious decline
here. Short covering then represented
a considerable ratio of the total pur-
chases. In two days operations 1t IS
estimated that the outstanding short
interest was reduced by several million
shares.
The professional Wall Street attitude
on the present Stock Exchange inhibl-
tions of speculative selling is that II a
halter is now to be put around the necks
of the bears. why should not the same
treatment have been accorded to the
bulls in a market such as that OF Au-
gust and September, 1929?
The answer is, of course, that rap
idly rising prices of stocks do not create
immediate financial crises among lndi-
viduals or institutions, although their
ultimate effects may be harmful. On
the other hand, short selling" in
period of panic by just so much in
creases the possibility of institutional
failures while is brings financial distress
to tens of thousands of individuals who
have invested their capital in good Sc
curities, which securities are made to
appear almost worthless by the large
daily declines in them. Terrified hold
ers who own them outright or are carry
ing them on borrowed capital are led
to sell out and to lose practically ali of
their equity. Theoretically, there is
no more reason why the Stock Exchange
authorities should permit the exploita-
ton of stocks, as 1t did In 1929 than
prohibit short selling" in 1881. From
a Practical, and perhaps from the stand
point of public policy, 1t could not &c
otherwise than put up the bars against
the bears to level where they could
not easily be hurdled.
An analogous situation to that in
Wall Street is to be found in the mar
ket for sterling exchange. Here also
there has been short selling" which
depressed the pound until at one time
last week 1t touched a figure 80 per
cent below parity. Again it is the emer-
gency that creates the policy and opin-
ion toward bear operations in sterling,
and not the normal state of affairs.
Snowden's Warning.
Chancellor of the Exchequer Snowden
has made it plain that those who sell
sterling well below its intrinsic value
will incur serious risks" This is the
same sort of implied threat made to
bears on the New York Stock Exchange
who do not follow the injunctionS Of its
policing force concerning artificial sales
of stocks An old Wall Street rhyme
runs: He who sells what isn't his'n
must buy it back or go to prison"
There will undoubtedly be active eff
fort in Washington this Winter to curb
short selling" both of securities and
of commodities. A great deal of vio-
lent language has already been used in
characterization of the chronic bear In
view OF this situation it is we'll to keep
in mind that there are times and stu
atoms in which short selling" is legiti-
mate There are other times and con-
ditions when it creates alarm and Is an
agency for panic. 1t must then be dealt
with by the proper authorities in a way
that may temporarily injure few, but
be of great benefit to the majority af-
fectad nv IL