Fifty years in Wall Street
London banker, Mr. H. H. Raphael, a member of Parliament and one of the
most influential and popular financial men in Great Britain, said, in
December:
“We regard President Roosevelt as not only one of the most courageous,
but one of the ablest of all your long line of distinguished Presidents.
We admire him for his courage and independence. No wonder the heart of
the American people is with him; he is giving you a good housecleaning,
and you well need it; and although you are passing through financial
storm and stress now, we know something of the wonderful recuperative
power of the United States, and it will not be long before America will
be forging ahead on the highway of economical progress, cleaner and
stronger than ever.”
This opinion is well worth quoting because of its evident sincerity.
There is no suspicion of politics or office-seeking about the allusion
to President Roosevelt, and if one man more than any other in this great
country of ours deserves the resounding applause of a national “Hip!
Hip! Hurrah!” for his public services, it is President Roosevelt.
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CHAPTER LXXXIII.
WALL STREET AS IT REALLY IS. A VINDICATION.
Many people, and some newspapers, have a false impression that Wall
Street is a gambling arena that does a great deal of harm and no good,
and that it ought to be, as far as possible, abolished, while Wall
Street speculators have been recklessly and unjustly denounced as
gamblers.
But those who know Wall Street well have no such impressions of it, or
its speculators, or of the Wall Street community of bankers and brokers.
They can, on the contrary, testify that there is no more honorable and
responsible body of men in the world than its bankers and the members of
the New York Stock Exchange, and that nowhere is honesty, integrity, and
good faith more resolutely exacted than on that Exchange, as its
constitution, by-laws, and rules clearly show; and nowhere is a black
sheep, when discovered, more quickly and severely punished than there.
The penalties involve expulsion from membership, or suspension for any
length of time the Governors may think proper for violations of its
rules, and they are rigorously enforced in all cases. The same remarks,
I am glad to say, apply substantially to the stock exchanges in Boston,
Philadelphia, Baltimore, and other cities.
During the crisis of 1907, and the exposures of corporate irregularities
that preceded it, no members of the Stock Exchange were implicated in
the wrongdoing that surprised and shocked the public. The men in control
of the life insurance companies that were examined and held up to scorn,
for their misuse and misappropriation of other people’s money, were not
members of the Stock Exchange, nor were they Wall Street men.
The men who wrecked the Metropolitan Street Railway System were not
members of the Stock Exchange, nor were those apostles of unsound
banking, the speculative bank promoters who gained control of the three
chains of New York City banks to promote their own speculative purposes,
and inadvertently paved the way to the panic; nor was a member of the
Stock Exchange responsible for the failure of the Knickerbocker Trust
Company, or at all involved in that leading event of the panic; nor was
a member of the Stock Exchange responsible for any bank, trust company,
or corporation failure, or run that occurred anywhere during the crisis,
or at any time in the panic year.
Of course there may possibly be undiscovered black sheep in Wall Street
as well as elsewhere, for we find them in church pews, and occasionally
even in church pulpits; but we should not heap wholesale condemnation
upon either Wall Street or the churches on that account.
To call the buying and selling of stocks or bonds, on the Stock
Exchange, gambling, is a misnomer, a misuse of the word, due either to
ignorance of the transactions there, or malice. It is so whether the
purchases or sales are by investors or speculators, for speculation on
the Stock Exchange is not gambling. Whether stocks, or bonds, are
bought, or sold, by investors or speculators is immaterial between the
contracting brokers on the floor of the Exchange. They know no
difference whatever. Delivery of the stocks or bonds is made by the one,
and received by the other, in every case, and payments made accordingly,
at the sale and purchase prices, investment and speculative transactions
being treated exactly alike.
A sale and purchase is the work of a moment in the Board Rooms, and no
voucher is exchanged to prove it till comparisons are made at the
brokers’ offices, usually after the Exchange closes. But no contract
thus made in an instant of time is ever repudiated, no matter how heavy
a loss it may involve to buyer or seller, for the penalty of such a
repudiation would be immediate suspension from the Stock Exchange,
followed by expulsion when proved.
Members of the Stock Exchange are not only men of assured solvency and
respectability but of good social position, and generally of large means
and more than ordinary education and culture. Most of them, too, belong
to our best clubs. Any conduct of theirs that was considered prejudicial
to the interests of the Exchange would render them amenable to
discipline, and be promptly investigated by the Governing Committee,
whose duty it is to inflict the prescribed penalties, in such cases,
without fear or favor. The fact that a membership has a market value
varying from $50,000 to $90,000 is a certain guarantee of solvency and
fair dealing under ordinary circumstances. A Stock Exchange membership
thus carries with it a large property qualification, and its owner is a
substantial citizen, who is, as we know, often one of “the Four
Hundred,” or to be seen in our best society, and whose wealth, in many
instances, amounts to millions. Preliminary to admission also he has to
submit to a searching examination by the Committee on Admissions.
Recent attacks upon the character of the New York Stock Exchange are
entirely unjustified and have been prompted by either ignorance or
prejudice. If the Stock Exchange were abolished great enterprises would
soon be paralyzed. Without its medium it would be impossible to raise
the capital for conducting our great railroad and industrial
corporations; investors would be deprived of the means of finding
profitable employment for their capital, and there would be no free
market for the many millions of securities there dealt in. Abolish the
Stock Exchange and the free play of market forces which best develop
real values; then investors would be kept in the dark and their
properties would be exposed to grosser manipulations than ever thought
of by stock market operators. The New York Stock Exchange, it should be
remembered, is nothing more than a well-systematized market place for
the exchange of or trading in securities. From the very nature of its
purpose and its organization it cannot exercise any direct control over
the management of the corporations whose securities are dealt in by its
members. It may establish certain rules as to the conduct of business by
its members, and may insist that only securities of certain standards
shall be dealt in on its floor. Beyond that it cannot go; and buyers and
sellers alike, as in all matters of business, are expected to exercise
their own intelligence as to the merits of investments. One thing is
certain, that whatever its shortcomings there is no organized body of
business men where the standards of integrity are higher and more fixed
than on the New York Stock Exchange. Its transactions are carried on
chiefly by word of mouth; the spoken word being as sacredly kept as
signed contracts. Further, there is a Board of Governors to whom any
complaint can be carried, whose purpose is to prevent all abuses within
its power and to maintain the highest possible standards of business.
All infractions of the rules are promptly punished. Certainly, whoever
begins throwing stones at the New York Stock Exchange should first look
and see if his own window-panes are not in danger.
A great deal of nonsense is also heard about speculation. Now,
speculation, like many other good things, may be carried to excess, and
is then injurious and open to the severest criticism. But speculation
within reasonable limits is most beneficial. It is one of the main
incentives to enterprise. Crush this disposition to venture, or the
willingness to accept a risk, and enterprise would languish, trade and
industry would decline, and we should gradually settle down to certain
industrial and commercial decay. In the present highly developed state
of modern civilization speculation is a motive power of the first
importance, and being a part of human nature itself cannot be
eradicated. In the course of ordinary business, speculation is the
natural balance wheel of trade, furnishing a class of operators who are
willing to buy or sell when others for various reasons are disinclined.
Moreover, by keeping up the conflict between a large body of buyers and
sellers the true value of securities or commodities is more safely
determined than when speculation is entirely absent. The short seller is
always a buyer at a lower price, and therefore a supporter in case of
decline. Conversely, the long buyer restrains undue advances by selling
to secure his profits. Again, the banker is better able to judge the
value of collateral in a free and active market, a factor which is much
to the advantage of both legitimate borrowers and lenders who may not
have the remotest interest in speculative movements. The giving of
credit and the making of loans is very largely dependent upon a thorough
test of values such as speculation only often determines. Of course
speculation is sometimes carried to excess, and much injury results in
consequence. Such excesses which are the consequence of defects in human
nature must always be expected and are better corrected by experience
and public opinion than by any artificial regulation. Who has not the
right to profit from good business judgment, especially if that judgment
incurs the risk of the future; and who should complain if his own
judgment leads him into losing transactions? Concerning speculation
there is also another foolish misconception. Speculation is frequently
confounded with gambling, although the two are radically different.
Speculation is based upon knowledge and facts, whereas gambling deals
solely with chance. It is a fallacy to suppose that any but a small
percentage of transactions on the New York Stock Exchange come under the
head of gambling. What difference is there between buying stocks and
bonds on part payment, or margin as it is often called, and buying land
or houses or other property with only one-fifth in cash and carrying the
balance on mortgage? Such transactions are speculative, are strictly
moral, and entirely a matter of business judgment. All operations
entering into the future are necessarily speculative. So far as the New
York Stock Exchange is concerned its rules are drawn for the strict
purpose of protecting legitimate trading, and an actual transfer of
property is required for every transaction. Of course, abuses exist in
all trades and will continue to exist, rendering it the more necessary
to use a little intelligent discrimination before condescending to loose
denunciation, which may easily do much harm and no good.
The President’s attack on options in his recent message to Congress
certainly cannot apply to any business transacted on the New York Stock
Exchange, as options are not dealt in there. Options of from three to
sixty days were dealt in a great many years ago, but were abandoned long