The Daily Alaska empire., 1935-11-05
Controlling the Next Boom.
(Kansas City Star.)


 If runaway stock market boom should set in tomorrow on the basis of the expansion of credit theoretically made possible by the unprecedented amount of gold now being held in the United states would there any better chance of bringing 1t under control and of protecting the country against the consequences of another collapse than was the case in the later 1920s? The question has been raised in an address recently delivered by Charles R. Gay, President of the New York Stock Exchange and while the danger does not appear imminent the implications are serious enough to warrant consideration
 MT Gay has called attention to the various legis- latve steps taken to prevent recurrence of such speculative frenzy stocks the that eliminated lin 1929 with results that still reasonably fresh in our minds. These consist of provisions in the two banking acts of 1883 and 1885, which MT. Gay de- scribed as the "fire-fighting apparatus" and the creation of the securities and exchange commlsson which he called the policeman"
 Roughly the banking statutes, in so far as they affect stock market operations are destined to give Federal Reserve Board extensive powers over the supply of credit available for such operations Thus the board may establish limits upon the amount that member banks may lend against stock and bond col lateral; it may increase (to designated maximum) the reserve requirements of member banks, thereby restricting their credit and 1t may similarly expand contract those through it's newly acquired control the open market operations of the entire Federal Reserve System whereby bank funds may be absorbed by the purchase of Government securities or released by their sale.
 Finally, the board may vary the margin require ments on brokers oans thereby making the purchase of stocks on margin less Cor more) attractive The Securities and Exchange Commission has broad authority to make regulations under which the regu- lar trade in securities may be conducted on the stock exchanges. In MT. Gays words the police duties of the commission ito watch out for pyromaniacs and that careless person throws lighted match into the excelsior.
 It is evident that much more machinery now exists, least paper for halting speculative boom, than there was in 1929. Would it be effective? MT. Gay was not prepared to predict on that point. But it should be noted first that the increase in stock prices above the low of 1892 has not been accompanied by any corresponding increase in brokers loans and second that the Federal Reserve authorities by no means consistently wise in handling what power they then had for controlling speculation in the last boom In other words, considerable rise in stock prices has been achieved apparently without much of credit suggesting that the method of credit control has distinct limitations and past experience affords guarantee that the machinery will be effectively directed
 The country seems to have been supplied consd- erable amount of potential protection against the evil of uncontrolled speculation in stocks but there is reason to suppose that this protection is either plete automatic The final responsibility still checks back the investor that prices not bid up far beyond the intrinsic value of the securities involved