WELLINGTON NEWS

Hokitika Guardian, 14 December 1928, Page 3

WELLINGTON NEWS

ED ENZI ED SPECULATION

t Si* K CIA i. To Tue Gc AUDI AN.]

YV ELLINGTON. Dec. 12

For practically the whole of this year there has been a .speculative boom on tin: New York Stuck Exchange. The

onaiii had its birth in the action of the Now York Federal Deserve Jdank roditring the rediscount rate. Perhaps it may he advisable to describe the Reserve Bank system of the United States. I here are twelve reserve hanks, anti most of these in the several districts are members of the reserve hanks, and the latter are controlled by the Deserve Board in Washington. The member hanks can rediscount hills with tile Federal Deserve hanks and can thus obtain credit at any time. In the European summer of hist year the Federal Deserve banks reduced tile rediscount rate to .'55 per cent, and at the same time bought up large stocks of Government securities and the cll’ecl of these moves was lo make cheap money cheaper. The main object, the authorities bad in view was to encourage the export of gold, and in . this tliev were successful.

But .the cheap money began to find an' outlet on the Stock Exchange and gradually the .general public .were drawn into' The.' gamble until the craze for speculation .in shares became nation wide. The Federal reserve hanks enclea : vt'mred’ to check This by raising 'the rediscount rate to -V per cent, hut this had no effect and llk* hanks were lolli to raise the rediscount rate for fear of imposing hurd'ens on the traders of the country. A good deal of business is done on the New York Slncl-T Exchange on margins. Dial is the brokers finance I heir clients. When the big public was seized with the gambling craze high money rat.es tailed’ to cheek Ihe specula! ion. (‘all money, that is money loaned from day In day. or overnight, and call at any moment Inis not ruled tit less Ilian ."> per rent, lliroughoul Ihe whole of this year, aml twice prior lo this month it was as high as |0 per relit. 1.n.-or rates, dial is from (> per rent, to S per rent, offered no obstacle to snecdlat ton. for it was a •‘iiull” market and shares were constantly advancing, so that a speculator could toleraie a high rale lor <a I money and still make a prolil. Prior to (he !’resident ial election there wa -t some easing of Lite gamble, and the !*) percent, rate caused a check, inti i hone were only lemnorary movepinits, and after the* election there began another boom 'dii.ii the prolcssionals on the Exchange termed the "Ih.orer Boom.”

Call money last month was seldom lower than (j per cent. The high price ol money brought funds to New York from all over the country. Banks that iii ; e not members of the Federal Deserve system, private corporations and private individuals forwarded funds to be loaned, to brokers aL cull. I bus, on Nov. Ist. the New Y’ork Federal Deserve Bitnk reported brokers’ loans at. .i total of -I,!)(»!).Kil.nilJ dots. (OKI. 1552,800) against 15.755 1 . did. 000 dols (£071,-'H 1.000) for the corresponding period of last year, [mans on the bank’s own account were 1,020,()()0.0!i() dols against 1,082,000,1)00 dels a year ago; loans on account ol out ol town banks totalled 1,7:52,000.000 dols and loans on account ol others were 2,1 d 1,000.000 dobs against 1.000.UOU.OOO dels a year ago. This latter has been, humoiously termed “bootleg money’' and v.a.s at I railed to the New York Exchange by tlie* high rates of interest for money and helped to prolong the gamble. Friday, Dec. 7th., will figure in the history of the New Ybirk Slock Exchange as “Black Friday,’’ for call money at the opening was at 12 per cent, and the rate eased a little, the close of the day seeing the rate linn at 12 per cent. Assuming that call loan.' to flic amount of 1.000.000,000 dols. were arranged that day to be repaved the; next day the borrowers would have repaid 1,000,(XX) dols in interest. Expressing the figures in sterling lor £800,()!K),OUd lent for the day at 12 per cent, would have yielded over .€200.(X)0.

The 'gamblers obviously could not stand up to this burden and the brokers were no doubt inundated with “stop loss” orders, that is to soli out the shares and stop further loss. Prices fell continuously on Friday and Saturday so that there must have been frenzied selling where previously there was frantic buying. The large linns of brokers, with perhaps only two or three representatives on the floor of the Exchange, and they are known as “floor members,” must have overworked their Moormen. When Mommem hors have too many orders to exe-

cute they employ other brokers know' as “three dollar brokers” to execute (lie orders These brokers charge 3 dot. for every hundred shares bought or sold and irrespective of their value. If this break is the big break that prominent hankers and financier.-. h.ue predicted then the repercussion will he Felt throughout the civilised world. Ihe hist big financial crisis in New Y era oeurred in 11)07 and the slump in 10(58 was due to that crisis. Europe will of course Ire involved, and it is obvious From the last Rank oF England return that America is hastily drawing gold from London.