No More "Others"

On the floor of the New York Stock Exchange, high in the arcade between the main floor and the annex, hangs a two-sided electric board operated from the money desk. About 10:40 a. m. every week day except Saturday two numbers appear on the board big enough to be seen by the oldest member, important enough to be heeded by the youngest. One number is the new interest rate brokers must pay for money loaned to them on call. The other is the renewal rate on old loans.

Since 1917 the Federal Reserve has published weekly brokers' indebtedness on such loans and since 1926 has broken the statement up into three parts:

1) Loans from New York banks.

2) Loans from out-of-town banks.

3) Loans for the account of "others." Last week this third item, amounting to $162,000,000, disappeared from the money market in Wall Street. The Clearing House forbade its members handling these so-called "bootleg" loans. The money market, warned the week before of the impending change, held steady; the official renewal rate of 2% remained unchanged. The anonymous "others" who loaned their money in Wall Street were corporations and individuals with surplus cash anxious to place their money with absolute safety where it could be withdrawn at a moment's notice yet draw interest by the day, often at fancy rates. The method was for "others" to deposit cash in the banks, order them to loan it in the Street. This the banks did in blocks of $100,000. In 1929 when money rates were high and the practice was widespread, banks would take any fairsized sum, say $30,000, from one man, combine it with other such accounts, then loan the block of $100,000 and credit each with his share.

So secure were these loans that best accountants allowed a company to combine them with the "cash" item in its balance sheet. So profitable was it that in October 1929, when brokers' loans hit their all-time high of $6,498,000,000, about 55% of it ($3,602,000,000) was loaned by "others." But long before this the practice was criticized by conservatives, disliked by the banks. The money market, said conservatives, was too dependent on nonbanking money. Banks saw their own field invaded, a source of big profit for them in the hands of "others." During the stockmarket panic of 1929 conservatives felt justified as the "bootleg" loans tumbled from $3,907,000,000 on Oct. 2 to $1,548,000,000 at the end of December. Loans by banks fell $1,021,000,000 in this time, would have been more had they not been forced to close the gap left open by the panicky withdrawal of "others."

Since 1929, when the call rate averaged 7.792%, banking profits have diminished, largely because they can find no place to employ their surplus funds. Brokers' loans last week made a new low since 1921, gave the Clearing House an opportunity to make its reform with little chance of repercussions. Bankers were pleased and a wobbly prop was removed from under the credit structure. With the New York Clearing House leading the way similar rulings were expected in other money centres to prevent loan 'legging from starting again.

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