278 THE WORK OF THE STOCK EXCHANGE
for example, were forbidden by the Act to rediscount loans on
any security collateral except U. S. Government issues. Thus
the central bank system of a country which by virtue of its
economic character requires and enjoys the most widespread
security business in the world, is forbidden to rediscount a type
of loan eligible for the Bank of England and other central
banks in countries whose financial needs are to a greater extent
mercantile.?
That this discrimination against rediscounting security col-
lateral loans has been artificial and legislative rather than
founded on sound economic reasons, has been demonstrated by
the fact that security loans have steadily increased, and have
been depended upon to afford flexibility and liquidity to the
whole New York money market. The attempt by statute-
making to deny or ignore essential economic fact has thus
resulted in artificially separating the security collateral loan
market from the other parts of the New York money market,
in respect to its interest rates and to some extent its conditions
of supply and demand.*
War Time Regulation of Security Loans.—A fter America
entered the Great War, it became imperative to divert as much
as possible of our capital into the flotation of our vast new
Liberty Loans. Yet it was found necessary to issue U. S.
Government bonds faster than they could be taken up outright
by available capital or private savings. Therefore, the Govern-
ment urged the public to buy them on credit or “margin,” and
this naturally led to vast increases in loans on security collat-
eral. Lest the general investment market should compete with
the State for available American capital and credit, an appeal
was made by the “Money Committee” in New York to the
Stock Exchange, and the latter undertook to limit increased
borrowing in securities by its members.’ At the same time
the leading New York banks provided a pool of funds to carry
3 See Appendix XIb.
L See Sen. Doc. 262, p. 9.
5 See Appendix Xlec.
