When, therefore, the Bank rate is high and money is dear, a check is immediately given to speculation on the Stock Exchange, because those persons who have bought securities for a rise prefer to sell at a loss before the settlement rather than pay excessive contango rates. It follows, then, that dear money greatly reduces the dimensions of the accounts open for the rise.
The banks, too, often become alarmed by the magnitude of the account, and having demands upon them for capital elsewhere, they grow nervous and lend less freely, at greatly enhanced rates, and then jobbers and money brokers have to refuse a large number of applicants. The result may be either a fall in the securities dealt in by a particular market or a general depression throughout the House. Then the "bears" come in and buy, take their profits, and are jubilant.
Conversely, a plethora of money and a low Bank rate encourage speculation, as was the case before the boom of 1895. Continuation rates are low, and capital comes out of trade into the better-class securities, which begin to rise in consequence. Then, for a little while, the "bulls" have it all their own way. But why does the Committee pose as the friend of the bonâ fide investor? It is a little difficult to see where he comes in, unless it be in at the top and out at the bottom. As a matter of fact, there is so much gambling in securities taking place in the House that the genuine investor, if he do not understand the market, falls an easy prey to the "bulls" and "bears," who, by studying the habits of his kind, anticipate their requirements, and, after taking a large bite, pass on their hypothecated shares. On the other hand, the investor who studies the markets sometimes waits patiently for exhausted "bulls" or sells to frightened "bears." So, to those who know the game it is about as broad as it is long.
CHAPTER XIII.
The Banks as Stockbrokers.
Were business on the Stock Exchange solely of an investment nature, it has been suggested that that institution could dispense with over fifty per cent. of its members, for, during recent years, a large amount of the investment business of the country has drifted to the banks, which place their orders in the hands of a few brokers, with whom they divide the usual one-eighth per cent. commission. The large banking companies are outside brokers, and so eager are some of them to attract this class of business that they offer their clerks half the commission received from the broker upon all business introduced by them. Seeing that the average bank clerk is absolutely without experience of the markets, touts of this variety are a source of danger to the public.