Take up the morning newspaper almost every day and we find the crude essence of this misinformation paraded in a way that makes us sorry for a public that cries for such stuff. A custodian of public funds, collected for the purpose of erecting a monument, is found very recently to have squandered the money entrusted to him. One of his co-trustees, who must have been somewhat lax in his duties, bewails the loss and seeks to enlist sympathy for himself by hazarding the opinion that “the money must have been lost in speculation in that hell-hole, the Stock Exchange.”
This from a former army officer and a gentleman, who subsequently states that he has no idea what became of the funds, but “cannot think of any other explanation.” “Hell-hole” and the “Stock Exchange” constitute a good repast; the headline artist contributes his quota to the feast, and so a portion of the public that feeds on this meat arises from the table with the satisfying conviction that another awful indictment has been leveled at the Exchange, notwithstanding an utter absence of proof or evidence of any kind tending to show that the delinquent trustee had lost a dollar in Wall Street. And suppose he did so lose it, what then? Is the Stock Exchange or any other market-place a “hell-hole” merely because a thief whom nobody suspects squanders his money there? Suppose he had spent it in automobiles, or in real-estate speculations, or in campaign contributions, or in foreign missions, would the same amiable characterization apply?
Another familiar instance of making Wall Street the scapegoat is seen in the “explanations” of defaulting bank clerks. “When a young bank employee,” says a financial journal, “with a wife and two children in Flatbush, and a salary of something less than $2000 a year, takes to entertaining angels, more or less unawares, in the Great White Way, and matching his trained financial mind against ‘bankers’ of another kind, he always blames Wall Street when the inevitable smash comes. He has been ‘speculating in stocks,’ he says. He thinks, and a great many people equally silly agree with him, that he thereby shifts the blame for his extravagance and folly to other shoulders. Entirely well-meaning people, without the slightest conception of the real purposes for which the financial centre of a nation exists, say: ‘Here is another indictment against sinful Wall Street. Let us kiss away the tears of this misguided young man, who now promises to be good.’ They never think of asking the misguided young man to show documentary evidence of his losses, which of course every broker must necessarily provide, and must keep in duplicate as a matter of record.”[46]
A police officer whose salary has never exceeded $3000 a year is arrested, and it is shown that he possesses a fortune of $100,000. Where did he get it? Why, he made it in the course of nine months of remarkably successful speculation in Wall Street, and one of his henchmen, too stupid to know that everybody in Wall Street keeps a set of books, promptly came forward to endorse this explanation. Proofs were sought by the authorities, and the lie was, of course, exposed, but the readiness with which the frugal officer sought to fall back upon this hoary explanation shows that it is a permanent fixture of the crook’s property-room, and that in the stage-setting for his sordid accumulations there must be the familiar Wall Street background.
Another notorious pastime, that seems to be well known to every one but the officers of the courts, consists in the practice of fraudulent bankrupts in producing in court a mass of worthless securities as evidence that the bankrupt’s money has been “legitimately” lost in speculation. The certificates thus exhibited are beautifully engraved memorials of defunct mining concerns, sold at so much a pound by well-known dealers. It is related that a person who wished to keep ever before his eyes a lesson and a warning once papered the walls of his house with a wagon-load of this junk, which he was able to purchase at less than the price of ordinary wall paper.
Any scamp who intends to “lie down” on an unprofitable contract can buy $1,000,000 nominal of the stuff at waste-paper rates. He is assured of the sympathy of his family and friends, and, if it does not occur to the lawyers to inquire who his brokers were, and when, where, and how these purchases were made, he stands a good chance of going the way of all undetected swindlers, notwithstanding the fact that documentary evidence of his purchases, if there were any, is always available. In this way another indictment is framed against Wall Street in the minds of thoughtless people. They seem to ignore the obviously improbable nature of the story, preferring rather to make Wall Street the scapegoat, and by “Wall Street,” in the majority of cases, they mean the Stock Exchange, yet the Stock Exchange had no more to do with it than Trinity Church, at one end of Wall Street, has to do with a stevedore’s crap-game at the other end.
So far as concerns the case of the crooked bank clerk, it is perfectly well known, or at least it should be, that no member of the New York Stock Exchange is permitted under its rules to have any speculative or investment relations whatever with employees of banks or trust companies, or of other brokerage houses. The Exchange authorities enforce this rule to the letter. Disgrace and expulsion faces the man who would attempt it. More than that, members are unusually careful in investigating customers’ accounts for reasons involving their own safety in actions that may be brought in the courts; so rigorously is this care exercised that accounts are repeatedly refused where the bona fides of the customers are not fully understood by at least one of the firm’s partners.
Furthermore, any negligence on the member’s part in this important matter, or in other matters affecting the general welfare of the Stock Exchange, places him at once within the all-embracing grasp of that one of the Exchange’s by-laws which has to do with “any act detrimental to the interests of the Exchange.” This is a large order, and its importance is well understood by the members. They know, and all those who so freely criticise the Stock Exchange could find out if they inquired, that the power of the Board of Governors to supervise every action of its members is vastly greater than any power that could be vested in the courts. There are constitutional limits to the authority of common law; there are no limits whatever to the powers of the governors in dealing with members.
This leads us to consider another popular criticism of the Stock Exchange, based on its unwillingness to abandon its present organization and incorporate under State regulation. The public seems to feel that this reluctance to submit to State or Federal control shows that the institution is trying to conceal something, yet nothing could be further from the fact. The Exchange does not incorporate because the interests of the public, which it is bound to conserve, would suffer enormously by such a step. “In its present form,” says the Wall Street Journal, “the Stock Exchange is a private organization. It can inspect any member’s books at any moment. If it suspects him of wrongdoing it can tap his telephone wire, and has done so in the past. It can terminate his membership for conduct which no legislation could possibly touch. One reason, in fact, for its admittedly high standard of probity is the power, at once democratic and despotic, exercised by the Governing Committee elected by all the members.
“But if the Stock Exchange were reorganized under State supervision, much of this power would be taken away. Members would possess rights which no governing committee could ignore. They could resort to practices legally right and ethically wrong, which under the present system would be visited by swift punishment. Any member of the public, now, who can show the Stock Exchange committee an act by a broker toward him legally defensible but morally wrong, can secure that broker’s expulsion from the Stock Exchange. Under State incorporation he could only obtain redress by prolonged litigation.... No legislative safeguards are needed. The Stock Exchange now possesses a power of supervision over its members which neither Congress nor the State legislature could give. The only power our lawmakers really possess in the matter is to limit that supervision; and for this, if for no other reason, the Stock Exchange should fight incorporation to the last, and should take every proper means of publicity to range public opinion behind it.”[47]