Speculation and Brokers’ Loans 22%
has $35 in cash; that “‘C” has $50 in cash; and that
“D" is a broker.
Now let “B” buy the share from “A” at $100
through “D,” paying $35 cash and leaving $65 as
a brokers’ loan, this being provided by a call loan of
$65 from “A” to “D.”
Then let “C” buy from “B” at $150, paying $50
cash and leaving $100 as a broker's loan, the increase
 in the total of brokers’ loans from $65 to
$100 being provided by a call loan of $35 from “B”
to “D.?

As the final result of the preceding transactions
we have the same single share of stock in existence,
but with an increase in market price from $65 to
$150. There is no change in the total cash, which
was originally $85, except that “A” now has $35 and
“B” $50, while “C” has no cash. And the total
of brokers’ loans, or $100, represents not only the
rise from $65 to $150 in market value, but also
the diminished equity of “C” in the share, that is,
$50, as compared with the $65 original equity of
“A”. Furthermore, all transactions have been “paper’’
 transactions and have involved no recourse even
to bank credit.
To continue this example in the reverse direction,
“C” might, after a market crash, sell the share to
“A” for $65, with the result that “A” would have
his original share plus $35 cash, “B” would have $50
cash as before (plus his loss of $35 to “D”), and
“C” would have less than nothing to the extent of
the $35 still owing to “D.”