Business: For the Defense

It is one thing when country editors yammer about the iniquities of Wall Street. It is quite another thing when, with bond prices following stocks down the long declivity of Depression,* such influential people as the Republican leader of the U. S. Senate publicly play with the idea of regulating the New York Stock Exchange by law (TIME, Oct. 12).

Last week the Exchange's official voice, which nowadays comes out of the mouth of tall, plump, slick-black-haired President Richard Whitney, was heard in formal defense of that Exchange practice which has fired hottest current criticism: Short Selling.

During the long bull market, the New York Stock Exchange became a focus of interest to tens of thousands of new small investors and speculators all over the land. Since taking over the presidency from Edward Henry Harriman Simmons in 1930, Mr. Whitney has not had time to travel so far & wide through the land making speeches as did his predecessor (only eight formal speeches in 16 months). But had he spoken last week in Houston or Minneapolis, Atlanta or Detroit, Denver, Seattle or San Francisco, he would have had thoroughly attentive audiences. The place where he did speak was in rock-ribbed Hartford, Conn., rich and conservative insurance and banking city. The gentlemen of the Chamber of Commerce who sat before him in the auditorium of the Hartford Club represented a body of investors upon whose good opinion the welfare of New York stockbrokers depends heavily.

Stockbroker Whitney began carefully, quietly with the fundamentals and definitions of his subject. ("A short sale is nothing but a contract to deliver stock in the future.") He quoted the historic decision of the Supreme Court of the U. S., written by Liberal Associate Justice Oliver Wendell Holmes in 1905: "People will endeavor to forecast the future and to make agreements according to their prophecy. Speculation of this kind by competent men is the self-adjustment of society to the probable. . . . This court has upheld sales of stock for future delivery."

Then Broker Whitney rehearsed the practical value of short selling: it was a cushion under any market, since every short seller was a potential buyer. "This is especially true in times of crisis when other people hesitate to buy and the short sellers represent the purchasing power which prevents the market from becoming demoralized."

Then came some news. Taking up the situation of the Stock Exchange in the past few months. President Whitney produced Exchange figures never before made public, gave the actual size of the short interest. On May 25 it amounted to 5,589,000 shares, declined abruptly after the Hoover debt moratorium, rose to 4,480,000 shares on Sept. 11, stood at only 4,241,000 on Sept. 18. At its peak in May the short interest was .4% of the 1,305,516,000 shares listed on the Exchange. The long account carried by brokers on the same date was estimated at 59,000,000 shares or 10^ times the short account. These long accounts were the immediate selling threat in the market, the short account the only compulsory buying power.