Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-05-12
WARBURG BACKING
SETTLEMENT PLAN
Supports TrayIor's SuggeS-
ton Against Present
Daily Practice.
BY CLAUDE A. JAEGER,
Associated Press Financial Editor.

Associated Press Financial Editor.
NEW YORK, May 12-Wan Street
has long been inclined to boast over the
marvellous mechanism with which 1t set
ties its security transactions.
Virtually all transactions on the Stock
Exchange are settled for cash through
the stock clearing corporation within
"a hours, whether 1t is 100000 or q
10000, 900 share day.
The busy Wall Street broker is In
clined to regard somewhat condescend-
ingly the European practice of settling
Stock Exchange transactions once Q
fortnight.
1t was something of shock, therefore,
when Wall Street read in the afternoon
papers week ago today that a promi-
nent Chicago banker, in addressing the
International Chamber of Commerce in
Washington, had singled out the day-to-
DAY settlement as a crude Wall Street
practice. which, for the general eco
nomic welfare, should be abolished.
WarburG Books TrayIOr.
But what the rank and file in Wall
Street may regard as the somewhat
radical view of the daily settlement
taken by Melvin A. Traylor, president Of
the First National Bank of Chicago,
finds an occasional strong supporter in
eminent Wall Street banking circles
Most prominent of these Is Paul M.
Warburg, chairman of the Manhattan
Co. and one of the founders OF the
Federal Reserve System Mr.. warburg
wrote in favor of the periodic settle
ment as long ago as 1907, and SUISSE
quent events, particularly the stock
market boom and crash Of 1929, have
only strengthened his conviction.
Aside from the fact that it may re-
suit In an unnecessary amount of labor,
there Is little objection to the day-to-
day settlement of stock exchange trans
actions of itself, but 1t is felt that its
counterpart, the day-to-day call loan
market causes a serious distortion Of
the New York money market.
Under the present scheme, brokers
loans are placed for a single day only.
Call loans are so designated because
they are payable on demand. The ex-
treme liQuidity of the call loan market,
therefore. makes it the chief reservoir
Of Short-term funds. It is the boast Of
the stock exchange that not cent has
ever been lost to a lender in the call
loan market. Banks, corporations and
individuals who have large sums for
temporary employment are accustomed
to put at least part in the call loan
market.
Short Of Expectations.
Mr.. Warburg explains in his recently
published two-volume work on the Fed
eral Reserve system that the present
call loan market so dominates the
impossible the establishment of an
adequate market for bankers &C
ceptances. Mr.. Warburg has taken a
prominent part in the efforts to build
up an important bankers acceptance
market in America. Considerable sue
cess has marked these efforts. but it
has fallen far short of the more OPP
timistic hopes.
The bankers acceptance is the lead
ing instrument of credit in financing
foreign trade. London still stands as
the chief financier of foreign trade,
through its huge market for sterling
acceptanceS. Despite the rapid growth
of the dollar acceptance, the sterling
acceptance is still supreme.
The bankers acceptance, further
more, is an extremely liquid form OF
commercial credit, and its usefulness
Is not limited to foreign trade alone.
Its sponsors have hoped that its use
might spread rapidly In domestic trade.
Mr.. Warburg believes that the di-
version of fluid money away from the
stock market into the acceptance mar
ket would, in effect, divert 1t from
speculation into commerce. II the
Stock Exchange adopted, say, q fort
nightly settlement, the bulk OF STOCK
Exchange loans would become time
loans and banking control over them
would be considerably increased.
Real Danger Seen.
At the same time, since rates would
hold over fortnightly periods instead OF
fiuctuatinR from day to day, measure
of stability would be achieved. With
Call money renewing at l per cent TINS
week for the first time in % years, the
30 per cent peak touched in 1929, and
the 80 per cent level touched in 1919,
are wildly recalled. At least, since
establishment of the Federal reserve
system, there has been no duplication
of the 125 per cent rate reached in 1907?
The Federal reserve efforts to curb
the expansion of brokers loans during
the bull market orgy of 1929 were al
most wholly unsuccessful. Mr.. War
burg sees in this lack of control Of the
chief market for fluid funds real
danger.
ct is impossible to believe" Mr.. War
burg has written, that country ex-
ceiling in business acumen will perma-
nently submit to the hazards of a syS-
TEN that perpetrateS the wastes and
risks involved in varying a structure of
many billions of dollars of loans callable
and renewable from day to day."
He acknowledges that g change to q
term settlement plan should be under
taken gradually. and points out that it
WOULD need certain safeguards In pre.