Fifty years in Wall Street
since. Every purchase and sale now made on the floor of the New York
Stock Exchange provides for a delivery on the day of purchase, or the
following day, and payment made therefor upon delivery of the security,
and no law can possibly be passed by Congress, or the State Legislature,
to prevent a broker thus buying securities for a customer on part
payment on terms satisfactory to himself, any more than a law could be
enacted to prevent a dry goods, hardware, grocer, or merchant in any
other line from extending credit to his customers. Nearly all the
business of the world is thus transacted, and could not be done on a
large scale otherwise. In London, however, most of the business is
virtually on an option basis, as it provides for fortnightly
settlements, there being two settlement periods each month, which can be
extended from time to time indefinitely at the option of the parties
connected therewith.
The method of doing business in “futures” prevails on the Cotton and
Produce Exchanges, and could not well be transacted, to the extent of
making an active market for the benefit of the producers, on any other
basis, in my opinion. To do away with dealings in futures would simply
do away with the exchanges, which would be to the disadvantage of the
farmers. A farmer, as soon as he ascertains that his crop is secure,
makes a calculation of how long it will take to put it in his barn,
thrash it out, and transmit it to Chicago, and he sells it to deliver
during that month or a later one, thus ridding himself of any further
risk of fluctuation in the price, and is made happy thereby. If he is
deprived of such a market, it puts him back to the old way of doing
business, when the large dealers from Liverpool, Chicago, and other
quarters sent their agents direct to the farmers at harvest time, and by
bringing all kinds of discouraging influences to bear upon them made
them sell at a fraction above the cost of production; as against this
they are at present able to hold their crop back and get the highest
price. In having the ready market which now exists the farmers have all
become rich. Why, therefore, change the present plan, which has given so
much prosperity to the producers of cotton and other products, to what
might be likely to reverse their present satisfactory condition?
Members of the New York Stock Exchange, in cases of insolvency, are
required, by the rules, to immediately notify the Stock Exchange of
their inability to meet their contracts, and the selling or buying in
“under the rule,” to close defaulted contracts, if there are any,
usually follows the announcement of a failure and failure carries with
it suspension. But failures in the Stock Exchange are very few and far
between, considering that there are eleven hundred members. They are
indeed far below the average of failures in mercantile business, and
they are generally followed by satisfactory settlements and readmission
to membership, and a resumption of business.
This speaks well for both the integrity and the conservatism of Stock
Exchange houses. It is very seldom that what would be called a bad
failure occurs among them. There are, in fact, no abuses on the Stock
Exchange, for trickery and unfair dealing is impossible, owing to the
strictness of the surveillance and discipline constantly maintained over
the members, who are also themselves punctilious in keeping their
contracts and observing the rules, and doing only what is fair and
square in business. This is essential to their own interests and
success, as bankers and brokers, without regard to the penalty of
suspension, or expulsion, for any irregularity. That penalty they
approve of, for it is a protection for all of them, except an occasional
black sheep that they are glad to see weeded out of the Exchange.
How necessary the Stock Exchange is to the banks was shown during the
recent crisis, as in preceding panics, when to protect themselves they
were forced to call in their loans by wholesale, and where necessary to
at once liquidate the collaterals. It was the Stock Exchange that made
this liquidation possible, and saved many of the banks and trust
companies from suspension, as well as many bankers and brokers, who were
enabled by it to pass through the trying ordeal, instead of going to the
wall in Wall Street.
The Stock Exchange therefore obviously performs a great and very useful
and important function in monetary affairs, besides being the barometer
of values for stocks and bonds, as measured by prices, while the cotton
and the grain exchanges perform a similar service with regard to those
speculative commodities.
Yet one effect of the crisis of 1907 has been to give a new impulse to
Wall Street detraction, and sharpen the teeth and claws of the
detractors. While many are mistaken enough to hold Wall Street
responsible for the past year’s financial disaster, many more are
equally mistaken in declaring that President Roosevelt caused them by
his speeches and the Government prosecutions of law-breaking railway and
Industrial Corporations. Both charges are unreasonable and false, but
this consideration is a small matter to those who have no hesitation in
making reckless assertions which they are unable to prove, and who are
as ready to vent their spite as they are their prejudices.
Many indeed without knowing anything about Wall Street speculation, and
who have never speculated anywhere, blame speculation for a host of
evils that are in no way due to it. Some of them would even close the
Stock Exchange to stop speculation there, forgetting apparently that
this would deprive investors and banking institutions as well as
speculators of a market for securities, and make all the stocks and
bonds now listed and dealt in there practically unmarketable. In such an
event there would most certainly be a fall in their prices greater than
any we witnessed in 1907.
It is true that in the manipulation of stocks matched orders may have
been occasionally resorted to, despite the rule against it on the Stock
Exchange, but it is only because of the difficulty, or impossibility, of
discovering or proving it, for there is no body of men subject to
stricter discipline, or more amenable to it, than the members of the New
York Stock Exchange, nor any more patriotic, as their generous acts
during the Civil War, and at other times, have abundantly shown.
Neither should it be forgotten that they pay the State of New York a tax
of two dollars on every hundred shares of stock they sell, which is an
important source of revenue to the commonwealth. That the Stock
Exchange, as a free market for securities, is indispensable to the
country is beyond question. It is necessary to our national needs, and I
am proud of being one of the oldest of its members, my membership dating
from 1864; and I am able from long personal experience and observation
to testify to the integrity, soundness, and general good character of my
fellow members and the banking community of Wall Street.
Therefore take my word for it that Wall Street is not as black as it is
painted, and that anyone’s money is as safe there as anywhere in
business, if properly placed, and handled with good judgment. If any of
it is lost it is by its owner, and he has only himself to blame for his
ill luck. But it is always to the interest of his banker and broker to
have him make money, for when a customer loses his money his broker in
some degree shares the loss by losing him as a customer.
In conclusion, I hope that if any of you ever take a flyer in Wall
Street, you will come out of it, with flying colors, on the winning
side, and with a good opinion of the Street proportioned to the
magnificence of your success!
------------------------------------------------------------------------
CHAPTER LXXXIV.
THE FINANCIAL AND TRADE SITUATION, PAST,
PRESENT
AND FUTURE, REVIEWING THE CRISIS OF 1907, WITH CAUSES AND REMEDIES.[10]
Footnote 10:
An address delivered by Henry Clews at the annual meeting of the
Pittsburg Chapter, American Institute of Banking, at Pittsburg, Pa.,
on Tuesday evening, February 25, 1908.
It gives me no ordinary pleasure to address an audience of Pittsburg
bankers, for Pittsburg is the hub of our iron and steel industry, and as
it has no rival in the manufacture of iron and steel, it may well feel
proud of its supremacy. It is no exaggeration to say that the rise and
progress of that industry in Pittsburg is one of the marvels of the age.
A few years ago Pittsburg was known in New York as the Smoky City. A
little later she became known as the City of Steel and Coal. Now,
through the alchemy of the brains of your wise men, she is known as the
place where smoke and coal and steel are in some mysterious way mixed up
in such a form that they fill your pockets with pure gold. To the
millionaire of to-day we bow in deference to his wealth. But to the
grimy sons of toil, who planted the seed and bore the burdens of the
earlier days, we take off our hats with reverence. The founders of your
city chose wisely in selecting this spot for settlement, at the river’s
junction, in the midst of rich deposits of coal and iron. It seems
rather odd that your two greatest products should be glass, which is
brittle, and steel, which is tough. You also excel in producing cork,
which is light, and iron, which is heavy. Surely extremes meet in your
city as well as rivers. Down our way we wonder what you do not produce
when we learn of the diversity of your wares. It certainly seems to me
that a man could learn a whole lot if allowed to visit all your various
foundries, factories and mills, but it would take him nearly as long as
to go through college, as their name is legion. The welcome which you
have given me touches me deeply, and I assure you that in future I shall
preach the doctrine that there are others in Pittsburg whose mission it
is to dispense happiness besides Mr. Carnegie.
If we glance at the history of steel manufacturing in the United States,
we find it centered in and very largely confined to Pittsburg, and if we
recall the enormous fortunes made in that industry by Mr. Carnegie and
many others, under the protection of high tariff, we see one of the
greatest wonders of trade development and modern enterprise.
Yet it was not until after the beginning of the war between the North
and the South—the great conflict waged from 1861 to 1865—that any large
or even considerable amount of steel was manufactured in the United
States. But now we lead the world in making it, and Pittsburg is our
great source of supply. At the same time, we can justly say that the
march of invention and modern improvement in other directions has kept
pace with the growth of Pittsburg and our marvelous progress in iron and
steel-making.
This reflection is particularly gratifying in view of our recent
financial crisis, in which New York was the storm-center, and Pittsburg
almost as stormy for a time. But both cities, like the country at large,
stood up bravely and made the best of the situation by all the means at
their command. Both fortified themselves by a good emergency measure and
issued Clearing House Certificates, according to their needs. Pittsburg,
however, went one or two better than New York, and, like many other
cities, issued scrip; and better still no one in Pittsburg refused it,
not even a car conductor for fares. Here was public spirit rising almost
to the height of patriotism.
Now, Pittsburg in common with the rest of the country is again about on
an even keel financially, with its banks on a cash basis, its cashiers’
certificates and scrip redeemed, and its Stock Exchange reopened. But