Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-10-04
Selling by Foreign Investors
Is Chief Factor in Mar
ket'S Decline.
LIQUIDATION BY BANKS
HAS DEPRESSED PRICES
Wall Street Forced to Buy Enor.
nous Security Offerings From
Many Sources.
BY CHARLES F. sPEARE.

rity-holding public and leaders in the
banking world have not yet been able
to calculate the effects of the gold sus-
pension by Great Britain, followed this
week by similar action on the part of
Scandinavian countries and a general
dislccation of international exchanges
This confusion has led to further
liquidation of stocks and bonds, new low
averages for both and a depreciation in
values in September, continuing into
October, of staggering size.
The new element in this situation Is
the selling for foreign account. t has
msde its strongest impression on public
utility stocks, especially those Of the
preferred class, which have been popu-
lar in the past two years with British
investment trusts and insurance COM
panies.
Volume Of Trade Reduced.
The extent and the duration OF this
selling is the unknown quantity in the
present market outlook. Associated
with it is the possibility of a further
extension OF the area within which gold
is no longer The monetary basis. All
this tends to restrict the volume of trad
ing between countries and for the time
being, adds to the difficulties of ma
lions that have borrowed abroad and
are showing an unsatisfactory trade bal
ance. Immediate obligations, however,
are being met. These include dollar in
terest and sinking fund payments by the
German government and by score or
mere Of German municipalities and cor
porationS: also those due from various
South American and Canadian bor-
rowerS.
1t Is evident that the latest decline in
market values has crippled a considerable
body of American holders OF stocks on
borrowed money, for the selling this
week credited to banks has been a
prominent element in the decline. After
the panic in 1929, when brokers loans
reached the high level of S6,804OoO 900.
there was a rapid shift of such loans
from Wall Street to the banks. In the
intervening period brokers loans have
decreased $685., 900 900. or 80 per cent.
but the collateral loans of the banks
still stand at a high figure. 1t has
persistently been argued by some stu
dents Of the situation that the cor
rection of banking and market condi-
tons would not be accomplished until
the lending institutions exhibited a
collateral loan total nearer to normal
than that of today. This process of
readjustment is now going on. Unfor-
tunately 1t comedies with much selling
Of securities for the account not only
of banks in distress but by those whose
policy it is to build their reserves to
a level three or four times higher than
is regarded as sufficient under ordinary
conditions. The September 80 bank
statements now being published exhibit
the extreme caution characterizing cur
rent banking operations, and explain
the cificulty that borrowers with strong
statements have In obtaining accom-
modations.
Values Are DiSregarded.
The market has long since passed
beyond that point where values based
on present earnings, current liquid as
sets, management, dividend stability
and income yield. are given conSidera-
ton. New York Is today the one inter-
national market into which the offer
ingS Of all other exchanges may be
poured. 1t is beginning to be a Ques-
ton of how much longer it can con-
center wishes to sell to it. The supply
is adjusted to the day-to-day capacity
of the market. so there are no violent
declines and no panic.
There were two constructive develop
ments this week; namely, the agreement
reached by the executives of the East
ern railroads in the long-pending mer-
ger. and the purchase by the National
City Bank of New York of the con-
trolling interest of the Transamerica
Corporation in the Bank of America
It will be years before the railroad con-
Solidation can effect economies to be
translated into higher net operating in
come. Its present value as a market
influence Is mainly sentimental It does,
however, illustrate the way things get
to be done" in a time of national crisis
that are impossible to acco nplish in a
period Of general material satisfaction.
There was about as much harmony
among the Eastern railroad presidents
in their merger conferences as there
has been between the delegates at
Geneva of France and Italy. or between
those of Germany and France and
France and Great Britain. Statesman
ship and the sinking of prejudices and
passions finally conquered in this case,
as they will abroad, because critical
economic conditions compel them. AS
permanent contribution to a more
stable railroad situation, especially in
establishing a rate structure that will
prevent a diSlocation of credit such as
Is now being witnessed, the consolida-
ton, II granted by the Interstate Com
merce Commission, Is of great signifi-
cameo.
The banking consolidation PROMISED
Is important in that it is another step
In reducing financial operations to their
proper sphere. The Transamerica Cor
poratlon was typical product of the
1928-29 era-a twin of the Goldman
Sachs three-headed set-up. It mixed
the functions of banking and of the,
underwriting and distribution of securi-
Ties. In the same way the Allegheny
corporation has attempted to build a
securities pyramid on a railroad trans
portation base.
1t has frequently been pointed out
mere that rs per cent of the financial
troubles exposed in Wall Street in the
past two years have their origin in
the effort OF individuals or institutions
10 make fortune or a record in some
line OF enterprise about which thew
know nothing instead of sticking to
the job in which they were trained.
Trade Outlook Unchanged.
There is little change in the business
OUTLOOK. 1t can hardly be expected
that merchants, manufacturers. dis
trloutors and those engaged in foreign
trade will make commitments in the
lace OF rapidly depreciating security
values and the unknown court of for
elgn currencieS. New York is undoubt-
edly the gloomiest place in the world
today. A banker, returning this week
from Europe. said that he was in Ber-
lin when German institutions closed