Evening star., 1935-10-13
RESERVE BOARD POWER
OVER SECURITIES SEEN
Need for Policies to Anticipate
Effects of Excess Credits in
Speculation Stressed.
BY CHARLES F. SPEARE.

inflow of gold Is that 1t ADDS each
week to the total OF excess bank re-
serves and SO increases the abnormal
ity of the money market.
1t is one of the factors that Presi-
dent Gay of the New York Stock
Exchange had in mind when, on Wed
nesday, he warned against possible
initiation in securities similar to that
which brought the destruction OF for
tunes just six years ago and aggra-
waited an industrial depression that
was in the making.
Psychological Danger Cited.
There are lot of people who would
like to see another market like that
in 1929, believing that they could get
in it and out of it before their profits
had been lost, just as there are those
who Justify wars on the score of busi-
ness ga:us and wide employment. Mr.
Gay finds the situation at present "en-
tirely sound from the standpoint OF
credit directly employed in the secur-
ity markets
Brokers' loans are only small per-
centage of those in 1929. There is no
widespread use of money in securities
by banks and corporations or by for
elgn lenders, subject to call on the
slightest suspicion of reaction. The
ratio between stock prices and current
earnings is not unreasonable except in
a few instances.
tc hn
public psychology which, when it be-
gins to affect securities, is more in
fiuential than any other. either on the
up side or on the down side OF mar
kets. 1t is the one most feared now,
when there is so much capital unem-
ployed and the posseSsors of it may,
to use Mr.. Gays apt phrase. respond
to a reckless boredom over the pro-
longed idleness of money and begin
to execute mad dance in Wall Street.
Apparently some few decided on
Thursday to take the first steps in
Cpe.
Loses Some Effect.
1t Is significant Of the change In
the policies of the New York Stock
Exchange that its spokesman today is
preaching caution while the traffic
lights are set to go ahead, for. in 1929,
and long after the danger signals were
evident to impartial observers, former
officials of that institution fed the
speculation by their prophecies OF
prices in new era" that would make
those of August and September, 1929,
look cheap.
The difficulty now IN convincing the
public that initiation or credit expan-
sion threatens is that this doctrine has
been SO persistently preached for SO
long and by so many of thos, with
whom it is political argument. that
it has lost some of its effect.
There is this. however. to be said
for its proponents. which could not
have been admitted year ago,
namely. that the nuee intake of gold
not then expected and the lag in the
anticipated volume of commercial
borrowing has accentuated the danger
of imitation and of the reckless use of
credit.
Declared Boards Duty.
It is the business, therefore, of the
board of governors of the Federal Re-
serve System to begin framing policy
that will anticipate the effects of ex-
cess credits on speculative markets
and not delay its application until the
danger zone has been reached and the
damage to business and investment
has been done. They have the power
to counteract, to a considerable degree,
the speculative effect of easy money
and to support the promise of the ad-
that a movement toward
a balanced national budget will be be-
gun next year-a condition necessary
in carrying such program into effect.
Just as it is not conceivable that
the New York Stock Exchange will
again risk its life by abetting another
speculation like that Of six years ago.
so is it reasonable to expect of the
governors of the Federal Reserve
Board that they will avoid the just
criticism of the past by dealing with
q money condition that contains ele-
ments of danger with the prudence,
Judgment and courage that it deserves,
and in proper time.
Warning Reaction Varies.
NEW YORK, October IL Pp.-Re-
of the imitation warning
of Charles r. Gay, president of the
New York Stock Exchange, are still
to be heard in Wall Street. Comment
rejecting varied shades Of opinion
have been piling up.
The view held in most quarters,
has crystalized somewhat as
follows: Gay said nothing which had
not been realized in well-informed
circles for several months. His speech
merely served to train the spotlight Of
publicity on the fact that an enormous
amount of idle credit is lying around
which, if touched of, could well bring
a speculative conflagration.
Some commentators, however, seemed
to think that the Sock Exchange pres
ident is unduly concerned over the
credit situation and pointed out that
there remain such restraints as the
spectacle of 100000 or so unem-
ployed.
Mass Emotion . Factor.
Others feel that Gay in no sense
has taken an alarmist position. The
in these quarters Is that
the market Is q COM
posite Of mass emotion which produces
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