Evening star., 1935-11-27

1t is discernible most clearly in the
facts behind the Eccles statement.
His remarks may have been subject
to the Interpretation that the Federal
Reserve Board has decided to keep its
hands off. But he neglected to point
out clearly that the board at least is
having its hands manicured in prepa-
ration.
For instance, every one but bank
ers may hare forgotten that the
Federal Reserve Board has neUer
issued regulation "U." This rould
be the regulation setting forth
margin loan requirements for
banks. Regulation 1T" imposes
restrictions on brokers, so they can
lend no more than SIS per cent on
most stocks. But a Sott-henrted
banker can lend as much as his
heart will let him.
Bank loans on securities are not SUI
ficiently heavy to warrant apprehen-
sion, but there are good reasons Tor
suspecting that regulation " Will
be issued anyway before long.
When this regulation is issued, the
board can proceed thereafter at any
time to stiffen margin requirements
on both banks and brokers. Also 1t
can, any one of these days, increase
reserve requirements of member
banks. Further than that there Is
probably nothing effective which can
be done about excess reserves.
These cautious deterrents are all
understood to have been discussed at
the meeting of F. r. B. officials here
last week, but no announcement was
made about them. If one had been,
the effect would have been opposite
from that of Gov. Eccles' statement.
Officials in Dilemma.
The basic situation behind all this
is that the financial authorities of the
New Deal are agreed that the current
market and business trend is up. They
like it. They have convinced them
selves that it is on firm foundation
They do not want to do anything to
stop it. Nor do they want to lay them
selves open to misinterpretations oi
booming it.
This requires lot of tight-wire
walking, in which there are bound to
be occasional slips on both sides OF
the wire. So far, the New Dealers
have favored the boom side.
Also hanging over them is the fact
that they will have to act, sooner OF
later. They probably could have
started acting this week without any
important reaction. 1t is true that
brokers loans have not increased dur
ing the recent market rise. But, after
all, they do amount to q billion dol
lars. Also, there is no excellent reason
why banks should be permitted to
lend more on margin than brokers
although the Importance Of that sit
uation also is yet to be felt.
Basically, it piI be easier to
take any restrictive steps noD.
Political pressure tUiH be heaDy
merit year.
It may be hard to believe, but it is
apparently true that Gov. Eccles
spoke out, and got himself misinter-
preted, because he thought some con-
fusion existed about the boards pow.
ers Apparently he was nettled by
some criticism he heard at the Amer
ican Bankers Convention. He is Q
straight forward and sensitive man
He though he would clear everything
up.
Uplift Statements Old.
The flrmneSs in the industrial sit
uation is not being overplayed by all
the uplift statements you are reading
currently. 1t is not new. 1t is just get
ting to be official.
There have been three business i'm
provements since the depths of the
depression. The first was in the Sum-
mer of 1888, before the N. r. A
started. This was an artificial furry
based only on the activity Of indus
trialists who wanted to get out lot
of cheap production before the codes
went into effect. The second furry
was in the Spring of 1884. It also was
confined to special lines of activity
The third started early last Winter
1t has been going on nearly year
now. There is no special reason fol
it, no special activity in particular
lines. There was a recession last Sum-
mer, but it did not even get back tc
the top peak of the 1884 high point
of industrial production.