Prewar Suggestion

Such a tidal wave of foreign-owned securities poured into the U. S. market at the outbreak of war in 1914 that the New York Stock Exchange closed its doors, did not reopen for nearly five months. Since then the U. S. has changed from a debtor to creditor nation and its markets are less susceptible to foreign liquidation. Also since 1914 the Government has acquired, in the Federal Reserve and SEC, a degree of financial control far firmer than even the elder J. P. Morgan could mobilize. Thus last week, as official Washington unofficially talked of war within a few days (see p. 15), and as the emotionally exhausted stockmarket fluttered weakly in an attempt to keep up with hourly news from Europe, Government officials busied themselves with plans fof putting the Exchange on a war basis.

To keep distress selling of the estimated $2,000,000,000 to $4,000,000,000 worth of Anglo-French-owned U. S. securities from cracking the market, already depressed by widespread bearishness on domestic business prospects, obvious aids would be: 1) to relax margin requirements to protect investors; 2) to further ease credit through the Federal Reserve; 3) to put a floor under Exchange prices by setting a limit on each day's fluctuation, such as the Government now does in the wheat market. One precaution Administration leaders took last week was to prod Congress into extending until 1941 the President's powers over the dollar and the $2,000,000,000 exchange stabilization fund.

While the nation pondered these prosaic devices to protect it from disaster brewing abroad, up popped a trial balloon for a scheme far from prosaic. The balloonist: William Stix Wasserman, a big, self-assured Philadelphian.

"Wild Bill" Wasserman started his business career with a $1,500,000 nest egg his father made manufacturing carpets. He has substantially enlarged it by managing two investment trusts, the Investment Corp. of Philadelphia and the Delaware Fund, Inc., and by using his sharp eyes in a number of ways. In 1931, for example, he took a look at Russia's bumper wheat crop, concluded that it would depress the world market, and took a short position in sterling that netted him $380,000.

The kind of international banker who, during crises, will spend a day at transatlantic telephoning, Bill Wasserman since the first of the year has traveled 18,000 miles, poking his head into various high places in search of useful information. At No. 10 Downing Street, London, in the office of Neville Chamberlain's economic adviser, Sir Horace Wilson, Banker Wasserman engaged in a conversation that last week proved highly interesting to the U. S. According to Mr. Wasserman, Sir Horace told him that at the outbreak of war the British Government would take over all the U. S. securities held by its nationals, use them as it saw fit. The Philadelphian discussed with Sir Horace the advantage of having them taken over at a "fair price" by some such U. S. agency as RFC, left the matter there.

Last month, vacationing in California, Mr. Wasserman saw European affairs taking a turn for the worse, characteristically dispatched a telegram to RFC Chairman Jesse Jones outlining his scheme. There followed conferences with Chairman Jones, SECommissioner Jerome Frank, Secretary of Agriculture Wallace, Secretary of the Treasury Morgenthau. Last week, after a highly secret conference in his Manhattan office, Mr. Wasserman's proposal burst as a page-one newspaper story in fairly definite form: RFC would put up the money with which a consortium of U. S. investment trusts would absorb foreign holdings in an orderly manner as soon as war broke.

Shocked isolationists interpreted this scheme as an attempt to circumvent the Johnson Act by making a disguised Government war loan to the Democracies.

Shocked investors saw the staggering implications of extending RFC's portfolio and influence beyond banks and railroads into practically every sphere of U. S. industry. Such cries of protest were raised that all parties hastened to deny that any "commitments" had been made.

Many an investment-trust executive said he had never heard of the proposal until it broke in the papers. "I don't think there will be any crisis," said Jesse Jones. "But if there is, our present credit machinery would be ample to take care of it." The SEC denied it had given its "approval, blessing, or sympathy" and Commissioner Frank denied reports that he had made a similar proposal himself during the Munich crisis.

Despite all these denials, observers were not certain that the Wasserman trial balloon was not destined to reappear in one form or another. Said William Stix Wasserman, good-naturedly: "While there were no commitments on either side I had been sufficiently convinced of their friendly interest to feel that further work toward wartime market stability would not be wholly wasted."

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