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 in- 
crease 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 “pa- 
per’’ 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.”