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none of these have yet brought within its practice the field of control over credit to the extent that is involved in the provisions of the present till.

While it might be desirable, and is desirable, in my opinion, to strengthen the control over credit for stock market purposes which now exists in the Federal Reserve Board, there is at least a question whether or not such control would be strengthened by setting up a divided authority and granting a portion of control in that field to the Federal Trade Commission, or to any agency in which the Federal Reserve Board is not represented.

For this reason, the report of the Roper committee suggested that when the stock exchange authority, as there proposed, was taking action in a field which involved credit problems, such as the matter of margins, it should do so in conjunction with the Federal Reserve Bank of the district in which the particular exchange affected was located, and I now want to come to this margin provision of the bill and say just a little more about that in detail.

The objective of this provision is apparently to cut down very greatly the amount of the available funds of the country which flow into the security markets, with the idea that that will prevent the degree of speculation that causes violent oscillations, or such a violent oscillation as we experienced 4 years ago.

To accomplish this purpose, the bill would require at all times the maintenance of a margin of 60 percent, except so far as this might be tempered by the 80-percent loan provision.

This flat requirement, of a fixed margin, I think, ought to be considered from at least two points of view: First, its immediate prospective effect; and secondly, its long run desirability. The bill, as it now stands, call for the margin provision to go into effect along with the other provisions by October 1, next.

The gentlemen who, I believe, have drafted the bill, Messrs. Cohen and Cochran, have informed me that they have made a change in this provision, but as that has not yet been embodied in the bill as it stands before the committee, I believe, I want to speak to what seems to me to be the possible results of attempting to put the present margin provisions of the bill into effect by next October 1. Of course, it is difficult to reduce these things to figures, and they cannot be reduced to absolute statistical accuracy; but still, in order to get some conception of what is likely to happen, I believe that we can rely roughly on some of the figures that have been put in evidence here before you gentlemen of the committee.

For example, I notice a statement in the testimony of one of your witnesses, Mr. E. A. Pierce, that in order to bring the margin accounts of his firm into line with the margin provisions of the bill as they at present stand would require that securities now in those accounts should be liquidated to the extent of approximately one third of the total value of the securities now in the accounts, or an equivalent amount of cash must be put in. That, of course, is the experience of only one firm; but in the absence of any better evidence, I think it might supply us with a clue as to what might be expected all along the line. Assuming the total market value of the securities in the accounts of all of the members of the New York Stock Exchange is somewhere around $2,000,000,000, which I believe is the generally

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accepted figure, and that somewhere in the neighborhood of 17 percent of that $2,000,000,000, or in other words $350,000,000 of those securities, are unlisted securities, which under section 6 (a) of the bill would be ineligible to remain in the accounts, there would remain in those accounts approximately $1,650,000,000 of listed securities. Applying to these the 33-percent experience of E. A. Pierce & Co., it would mean that approximately $550,000,000 of these securities would have to be sold out, or an equal amount of cash put up, in order to bring those accounts into line with the margin requirements of the bill by October 1, and, in addition to that, we have to take into account the $350,000,000 of unlisted stocks and securities which would no longer be available for margin purposes, and would, to a greater or lesser extent, have to be sold out.

So that we see the apparent extent of the liquidation which would have to follow within the next few months if we were to get around by October 1 to meeting the margin requirements of this bill.

The liquidation in so short a period of such a volume of securities would have a natural tendency to depress the market, and, as the liquidation continued, there would be a progressive necessity of liquidating more securities than would be necessary if values remained at the point where they would stand in the absence of such liquidation.

Whatever might be the desirable thing, therefore, from a long-run standpoint of reducing the amount of funds in the stock market, it is at least a question whether it would be sound economic policy to effect this reduction in so short a period at the present time when the efforts of the Government are in the direction of increasing or at least sustaining values.

Assuming, however, that the bill would be so amended as Mr. Cohen and Mr. Cochran have suggested to me, that the proposed flat requirement, the 60 percent margin requirement would not go into effect for a considerable time, perhaps not until the expiration of a number of years, the question still remains whether the fixing of a flat arbitrary margin for all stocks under all circumstances is an advisable method of protecting the economic structure of the country against the disastrous consequences of excessive speculation. The very simplicity of that method proposed for the solution of a highly complicated problem might raise some question as to its effectiveness or its wisdom. The danger of overspeculation consists, after all, not so much in the total amount of funds in the stock market at any one time as in the excessive expansion and contraction of those funds, and you do not get any control over expansion and contraction by a flat margin which applies equally under all circumstances, no less when the market is bare of funds, on the one hand, than when it is tremendously active and flushed with funds, on the other hand. It is a flat provision which does not operate to check when speculation occurs, and which is just as rigid when there is no expansion.

The control over margin trading would seem to require the application of different standards at a time when speculative practices become excessive, from those which are applied when there is only a small amount of speculation. In the words of the Roper report, liquidity as affected by margin requirements changes in importance from time to time, and it seems hardly desirable to freeze requirements into the provisions of a statute.

If it should be said that a discretionary authority to mold margin requirements flexibly could not be trusted to stand up under the strain of mass pressure at a time when there was a strong Nation-wide popular movement for speculation, it might be considered at any rate whether, under those circumstances, we have any experience which justifies the belief that the rigid paper provisions of a statutory enactment would stand up any more effectively against the mass determination or pressure to speculate heavily. We must remember that strong and justified as is our desire, and should be our desire, to reform the speculative instincts of the country, nevertheless this old custom of margin trading has been an integral feature of our financial system for almost 100 years, and that even if we look forward to its ultimate abolition, it is so tied in with the financing apparatus of our credit structure, with the things that our banks loan money on, and with the practice of our people in purchasing securities, that nay abrupt attempt to restrict it to arbitrarily narrow limits by governmental fiat would be likely to have unforeseen consequences in many directions, which I doubt whether any of us would be able to define in advance.

As a part of the general credit system of the country, control of it can be properly vested only in the agency which is our center of credit control, namely, the Federal Reserve System, which can treat it as it should be treated, as a part of the general credit problem in proper relation to the other parts of that problem.

In connection with any reform which attempts to effect an immediate and violent change by governmental fiat in an established practice which was woven itself into the economic structure of the country, I would simply like to refer to a sentence from the President's speech of yesterday, in which he said:

I have never believed that we should violently impose fiat, arbitrary, and abrupt changes on the economic structure.

Turning now from the provisions of the bill relating to the control of credit, and going on to the provisions which deal with control over listing or registering corporations, and which the bill intrusts to the Federal Trade Commission, I am impressed with the magnitude of the task of administration which these provisions of the bill devolve upon the Commission.

In the first place, the Commission is charged with the task of receiving an initial registration statement from each corporation, public or private, which desires to have its securities listed on an exchange so that they may be eligible as collateral for brokers' loans and for the other privileges which the bill denies to unlisted securities.

After the receipt and examination of this initial registration statement and the admission of the corporation to listing the Commission is then, under section 12, to receive certain reports annually, and also quarterly and monthly reports, from each listed corporation.

The object of the bill, it is to be assumed, is to bring about, so far as practical, the registration and listing of all issues of securities in order that as wide an amount of trading in securities in the country as possible shall come under the control features of the bill.

It is also to be noted that the Commission is, by section 14, given the broadest kind of power over so-called “over-the-counter” trading, or trading which does not go on on the exchanges, and in the

accepted figure, and that somewhere in the neighborhood of 17 percent of that $2,000,000,000, or in other words $350,000,000 of those securities, are unlisted securities, which under section 6 (a) of the bill would be ineligible to remain in the accounts, there would remain in those accounts approximately $1,650,000,000 of listed securities. Applying to these the 33%-percent experience of E. A. Pierce & Co., it would mean that approximately $550,000,000 of these securities would have to be sold out, or an equal amount of cash put up, in order to bring those accounts into line with the margin requirements of the bill by October 1, and, in addition to that, we have to take into account the $350,000,000 of unlisted stocks and securities which would no longer be available for margin purposes, and would, to a greater or lesser extent, have to be sold out.

So that we see the apparent extent of the liquidation which would have to follow within the next few months if we were to get around by October 1 to meeting the margin requirements of this bill.

The liquidation in so short a period of such a volume of securities would have a natural tendency to depress the market, and, as the liquidation continued, there would be a progressive necessity of liquidating more securities than would be necessary if values remained at the point where they would stand in the absence of such liquidation.

Whatever might be the desirable thing, therefore, from a long-run standpoint of reducing the amount of funds in the stock market, it is at least a question whether it would be sound economic policy to effect this reduction in so short a period at the present time when the efforts of the Government are in the direction of increasing or at least sustaining values.

Assuming, however, that the bill would be so amended as Mr. Cohen and Mr. Cochran have suggested to me, that the proposed flat requirement, the 60 percent margin requirement would not go into effect for a considerable time, perhaps not until the expiration of a number of years, the question still remains whether the fixing of a flat arbitrary margin for all stocks under all circumstances is an advisable method of protecting the economic structure of the country against the disastrous consequences of excessive speculation. The very simplicity of that method proposed for the solution of a highly complicated problem might raise some question as to its effectiveness or its wisdom. The danger of overspeculation consists, after all, not so much in the total amount of funds in the stock market at any one time as in the excessive expansion and contraction of those funds, and you do not get any control over expansion and contraction by a flat margin which applies equally under all circumstances, no less when the market is bare of funds, on the one hand, than when it is tremendously active and flushed with funds, on the other hand. It is a flat provision which does not operate to check when speculation occurs, and which is just as rigid when there is no expansion.

The control over margin trading would seem to require the application of different standards at a time when speculative practices become excessive, from those which are applied when there is only a small amount of speculation. In the words of the Roper report, liquidity as affected by margin requirements changes in importance from time to time, and it seems hardly desirable to freeze requirements into the provisions of a statute.

If it should be said that a discretionary authority to mold margin requirements flexibly could not be trusted to stand up under the strain of mass pressure at a time when there was a strong Nation-wide popular movement for speculation, it might be considered at any rate whether, under those circumstances, we have any experience which justifies the belief that the rigid paper provisions of a statutory enactment would stand up any more effectively against the mass determination or pressure to speculate heavily. We must remember that strong and justified as is our desire, and should be our desire, to reform the speculative instincts of the country, nevertheless this old custom of margin trading has been an integral feature of our financial system for almost 100 years, and that even if we look forward to its ultimate abolition, it is so tied in with the financing apparatus of our credit structure, with the things that our banks loan money on, and with the practice of our people in purchasing securities, that nay abrupt attempt to restrict it to arbitrarily narrow limits by governmental fiat would be likely to have unforeseen consequences in many directions, which I doubt whether any of us would be able to define in advance.

As a part of the general credit system of the country, control of it can be properly vested only in the agency which is our center of credit control, namely, the Federal Reserve System, which can treat it as it should be treated, as a part of the general credit problem in proper relation to the other parts of that problem.

In connection with any reform which attempts to effect an immediate and violent change by governmental fiat in an established practice which was woven itself into the economic structure of the country, I would simply like to refer to a sentence from the President's speech of yesterday, in which he said:

I have never believed that we should violently impose fiat, arbitrary, and abrupt changes on the economic structure.

Turning now from the provisions of the bill relating to the control of credit, and going on to the provisions which deal with control over listing or registering corporations, and which the bill intrusts to the Federal Trade Commission, I am impressed with the magnitude of the task of administration which these provisions of the bill devolve upon the Commission.

In the first place, the Commission is charged with the task of receiving an initial registration statement from each corporation, public or private, which desires to have its securities listed on an exchange so that they may be eligible as collateral for brokers' loans and for the other privileges which the bill denies to unlisted securities.

After the receipt and examination of this initial registration statement and the admission of the corporation to listing the Commission is then, under section 12, to receive certain reports annually, and also quarterly and monthly reports, from each listed corporation.

The object of the bill, it is to be assumed, is to bring about, so far as practical, the registration and listing of all issues of securities in order that as wide an amount of trading in securities in the country as possible shall come under the control features of the bill.

It is also to be noted that the Commission is, by section 14, given the broadest kind of power over so-called “over-the-counter" trading, or trading which does not go on on the exchanges, and in the

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