Evening star., 1934-04-15


points of view is wide and it goes to
the heart of the new deal. President
Roosevelt once remarked, as an aspect
Of his conception of the function Of
the presidency, that men should be
prevented from doing harm to them
selves. This benevolent attitude of
care by the Government for the indi-
divual goes pretty far. 1t runs direct
ly counter to principle once put in
emphatic words by great intellectual
radical, Henry George, who said, 1T
is no part of the business of govern
ment to save fools from their folly"
In the evolution of the bill to regulate
stock exchanges, the first draft was
written by four of the young men in
the administration belonging to the
group that has come to be called the
"Frankfurter Lawyers" There is no
need to assume that these four men
had consciously in mind as a primary
motive, the wish to take step which
would in considerable part paralyze
the business of the country. 1t is one
of DR.. Wirt's suspicious that some of
the radicals practice deliberate
policy of retarding business recovery
upon the theory that by keeping the
people in distress they, the radicals,
will the more readily be able to bring
about the revolution which DR.. Writ
says they have in mind.
Would Retard Recovery.
The draft of the stock exchange
bill, however, which these four young
lawyers wrote, can be sufficiently ex-
planned on the ground that they set
out with the sole purpose of restrain
ing speculation on the stock exchange
and that they did good job of it.
What turned out was that they did
this particular job so well that the
result would undoubtedly have seri-
ouSly retarded recovery and would
have brought down on the entire busi-
ness structure of the country per-
manent and serious limitation of its
ability to function. Nevertheless, the
state of mind of the drafterS of the
stock exchange bill can be reasonably
explained as concentration of their
intent minds on one point, in which
concentration they neglected to con-
slider any effect of their measure ex-
cept the one they aimed at. 1t
should be added, as a reasonable
criticism of much of the new deal,
that these young men and many of
the others who have written drafts
of new deal legislation, are wholly
without business experience - and
therefore wholly without knowledge of
the practical consequences of some of
their theories and actions.
Speaking broadly, the drafters of
the original stock exchange control
bill aimed to bring it about that no
body shall be able to speculate on
the New York Stock Exchange on a
margin" of less than 60 per cent.
To accomplish this, it was made lille
gal for any broker to loan in excess
Of 40 per cent on any collateral. In
order to make this regulation effective
upon brokers it was then necessary
for the drafters of the bill to go far
af1eld and in effect make it illegal
for any bank-indeed, speaking rough
ly, any person in the United States
to make loan of more than 40 per
cent on any security in the shape of
stock or bonds. The disaster this
would have brought about can be
understood when it is realized that
of all the loans on collateral now ex-
isting in the banks of the country,
probably in 9 cases out of 10 the
loan is upward Of 80 per cent Of the
value of the collateral.
Sale Of Collateral.
Had the stock exchange control bill
been enacted in its original form, it
would have been necessary for the
banks of the country to begin at once,
in anticipation of the taking effect of
the law, to require borrowers to pay
off large part of their loans. Since
most borrowers would have been un-
able TO do this. it would have become
necessary for the banks to begin to
sell collateral on an immense scale.
Sales of the collateral would have
caused prices to go down. AS prices
went down it would have been neces-
sary to sell yet more collateral.
IN other words had the stock ex-
change control bill been enacted in
the original form drafted by the young
idealists, the result would have been
another one of those terrific spasms
of selling, Of lowering prices, of de-
f1ation, which composed the depres-
sion.
Even after the original draft of the
stock exchange bill was modified, even
when the bill was in the form in which
President Roosevelt urged its enact
ment without change-even at that
point the measure contained features
which would have been seriously detri-
mental to business. Because this could
be proved to minded members of
congressional committees, it followed
that Mr.. Roosevelt's urging was dis
regarded. This episode had as much
to do as any other one with breaking
the spell of Mr.. Roosevelt's ascendancy
over Congress.
The same thing happened about the
earlier bill for the regulation of Sc
curity iSSCeS. That the issue and sale
of stocks and bonds inadequately safe
guarded had been a tragedy no one
could deny. That the area of invest
ment banking called for regulation no
one could deny. But the bill to ac-
complish this was written during the
early weeks of the new deal, when the
prestige of President Roosevelt was at
its highest point and when Congress
was disposed to pass without substan-
tial change measures sent to it by the
Executive. In this case likewise the
measure was written mainly by the
young intellectuals in the administra-
ton. They went too far. After a year
of trial it was clear that the too strin-
gent sections of this law were oper-
ating as a preventive of recovery. In
the calmer atmosphere arising lately
there is general conviction that this
measure, like the stock exchange con-
troll bill, must be modified.
Copyright. 1894. New York Tribune. Inc.)