Columbia University Libraries Digital Collections: The Real Estate Record

Real estate record and builders' guide: v. 22, no. 543: August 10, 1878

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Real Estate Record AND BUILDERS' GUIDE. Vol. XXII. NEW YOEK, SATÜEDAY, AUGUST 10, 187«. No. 543. Published Wgekly by TERMS. ONE YEAR, in advance....«10.00. (^oninninicatioiis should be addressed to C. TV. SWEET, Nos. ;145 A.\D 347 Broadway CALL LOANS. The call loan is a form of transaction peculiar to AA''all street, concerning w-hich the uniuitiated maj- be ignorant. Its name convej's by implica- tiou its character. There aro e.s.sential details connected with it, which it maj- be worth while to explain. As a rule, money is never loaned in Wall street without security; aud these call loans (litüer from time loaus in that the former may be called in, or repayment of them demanded, with¬ out notice ; while in tbe latter case repayment etiu only be demtindei at the expiration of the speclfied time. In the earlier history of AVall sti-eet, theso loans were hedged about with manj- safeguards. For instance, they were generally procured from institutions, the strictness of whose rei]uirements were readily complled with, in vie%v of the assured .safety of the collateral security deposited tigainst the loans. In addition to the pledged security, a stock note was also given, which con- Uined, besides its promi.ssory Obligation to repay the monej- borrowed,' a clause authorizing the holder of tbe security to realize upon it in ease of default in fulfdmeut of the Obligation. A l»ower of attorney usually accompanied tbe note iittached to the certificate of stock or the bonds. Oaution and prudence were then exercised in tbe manipulation of these loans, well suited to tho slow going and plodding times of a qunrter of a eeutui'j' ago, and which are looked for in vain in these more progressive days. Loans are now ell'ected of thousands, hundreds of thousand.s, or millions of dollars by tho mere deposit of collat¬ eral, with a memorandum accoinpanying the security reciting, in the most casual manner, the bare details of the transaction. It will be seen that a large amount of mutual confidence is necessary in such transactions. Risks connected with them are reciprocal. The lender relies upon the borrower for the genuine- ness and authenticity of the collateral, while the borrower is obliged to coufide in the lender for the safety of the margin or excess of securitj' over the loan. This margiii uuiy vary from ten to twenty-five or even fortj' per cent. of the loan. The largest margms usually attract timid lenders and influence them to be conteuted with a low rate of interest. Occasionally the lightning flashes with sufilcient vividness into the dark recesses of AVall street to reveal the hidden mysteriös whioh en- velop some of these transactions, Lendere of money at low rates of interest with large margins of security, like the Netters, are able by simply rehypothecating these securitiesto appropriate or utilize a good share of the original margin. A few such transactions serve to show up with what childHke confidence a va.st amount of business in AA'all street is actually done, and point to tbe readiness with which shrewd but re.spectablo roguescan avnil themselves of oppoi-tunities of defrauding credulous and confiding creditoi-s. Tho peciiliarity of the modern method of deal¬ ing in call loans is the waiviag of the promissory note. This custom grew out of the imposition of a stamp tax on notes during the war. This tax was an onerous e.xnctiou in AA^all street, owing to the frequency with which the.se notes are ehanged, and the large amounts of money which they commonly represent. To avoid this taxa¬ tion and to simplify and expedite their business, perhaps in exemplification also of the unbouuded confidence wbich prevaiied in AA'all street during the inflation era, tlie method was adopted of de- postting with the lender the bare collaterals with a simple memorandum. As useful and economical as this .System may have been üi the past, and upon a rising market, it has little to recommend it in doubtful times like these, and upon a failing market. The method compels the lender to look exclusively to the securities pledged, having no reclamatiou in law upon the borrow-er if tbe securities fuil to satisfy the loan. The law imposes an Obligation upon tbe lender to keep himself whole out of the securities pledged. Failing to do so, and when the market price of the collateral Stocks, or bonds, may decline below the amount of the loan, the lender has the Option of selling them and re¬ alizing his loss, or of making them his own, tmd holding them for a rise. This specious and allur- ing form of transaction made, as it too often is, amid the hiu-ry aud rush of A\''all street, has been the Instrument of many and signal losses to men who imagined they were possessed of all the con- servatism retpiisite for the preservation of monej'. Through sudden and rapid changes in nmrket value, these collateral securities, so called, held bj- institutions and individuals, have shrunk out of all Proportion tothe amount loaned upon them. Under the circumstances, including, perhaps, failure of tho bon'ower, no redre.ss could be sought, and no restitution will be made to the lender. AVe believe that loose and reckless methods of conductbig busine-ss in AA^all street are graduallj- undergoing reform, in response to tho more con¬ servative spirit of the times and the exactions of those w'bo now have the handling of money. It will be well for the whole Community when a more cautious spirit pervades AVall street. There is no detail of traiusacting business there that calls for a more complete regeneration than this one of call loans. The maimer in which securities have been tossed around frora band to band, like so many newspapers, and the carelessness and lack of security which have marked the acceptances of collaterals, have often involved capitalists in unnecessai'y risks and fostered a reckless and de¬ moralizing spirit in the Operations of the street. AA^hen rates of money were high, at 7 per cent. or more, the call loan was a formidable compet- itor of the mortgage loan, although dififering so immeasm'ably in character and security. Now, when the callloaninterest, even with wildcat col¬ laterals, is only a paltry percentage, the predom- inant desire is to avoid these mercurial and im- stablo Stock Exchange securities, and to iuve.st money in good mortgages. Many who have been in tho habit of cultiv.nting the call loan in past yeai's give a preferenco to depositing their monej- in tbe triist companies at the prevailing low rate of interest, rather than incur the extra¬ ordinary hnzards of call loan securities for the sake of an additional fraction of interest. Before the final ciilmination of tho revolution, which fiuancial and mercantile matters in this countrj- are now undergoiug, we venture to as,sert that investments will be esteemed and sought after iu this order of precedeuce: Ist, prime mortgages; 2d, goveniment Stocks: ;id, trust Com¬ pany; 4th, call loans, and .öth, miscellaneous se¬ curities. COMBINATION AND COMPETITION. For more than ii decade of j-ears the business of this countrj- has been adjusted to the guuge of organized and raniified monopolj-. Enclosed within a Chinese wall of high protection, strength¬ ened within bj- the illusory support of an irre- deemable paper currencj-, presitied over aud fostered by a paternal government dealing out subsidies and land grants with a bounteous band, tho reaction and revulsioii through which w-e have beeil slowly passiug during the past five j-eai-s refiect, uiimistakablj% tho extreme arti- ficialitj- and teusion that have pervaded our pre¬ vious business methcls. The Potential example set bj- government in its enormous system of centralized monopolies was (.juicklj- copied by the miusses of the people, and held to represent the true Standard of busines,s precedure. Organized rings or combinatioiis were set up in all branches of trade. From the largest to the smallest, all schemes were formu- lated under this great co-operative sj-stem, pri- niarilj- inteiided to plunder the manj' for the benefit of the few-. In all clo-sses of uiauufactu- ring, through all the ramifications of mereantile life, in all lintincial Operations, in politics, iu all developments of labor the punuuount aim was to elfect combinations designed to give one interest or chuss prioritj-.Und superioritj' over kindrcd interests. The weakness and fidseness of this business pol¬ icy are now being demonstrated and uro likely to be inipresscd with such poignant emphasis on our people, that the verj^ nurne of ring or combina- tion is destined to be one of the most odious in the vocabidary. It is diflicult to teil which is most to be won- dered at, the simplicitj- or tho infatuation of the advocates of this method of combination. A bodj' of princip.als representing allied interests, meet together and lay down certain inviolable rules of business procedure, the principle one be¬ ing that the commoditj- in which they deal shall be held at an arbitrary price. This fixed price is in advance of the natural rate. For a while all the participants in this combination are happy in the consciousness of having suddenly added to their wealth. The more sillj- and shal¬ low of them set to work immediately to adjust their business and family expenditures to their ideas of enlarged financial resources. Necessary wants in the Community have to be supplied, and the movement may bear the appearance of suc¬ cess, owing to the imperativeness of the demand