We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
THE ECONOMICS OF BROKERS' LOANS.
- Authors
Eiteman, Wilford J.
- Abstract
The particular problem of this article is to examine the origin of brokers' loans, the mechanisms through which they are made to derive from the facts of brokerage practice a convincing answer to the question: Does stock speculation absorb funds? According to the orthodox theory, brokers pay for stock purchases by borrowing the difference between their customers' margins and the cost of the securities purchased. In actual practice they borrow only to meet adverse clearinghouse balances and cash withdrawals of customers. Clearinghouse balances cancel out in the aggregate and tend to cancel out for each Individual broker. The total of brokers' loans depends therefore upon the deposits and withdrawals of customers rather than upon the volume of marginal purchases or the level of stock prices. The total of brokers' loans measures the amount of credit withdrawn from speculation and furnished to legitimate business at the risk of speculators. The total of brokers' loans measures the amount of credit furnished to legitimate business at the risk and call of speculators. The classification of such loans as brokers' loans merely means that customers of brokers will eventually be called upon to meet the obligations created by the retiring speculators and does not indicate that the funds so loaned are being used in speculation.
- Subjects
UNITED States; BROKERS' loans; EXPORT brokers; STOCKS (Finance); MARGIN accounts; CLEARINGHOUSES (Banking); STOCK warrants; STOCK prices
- Publication
American Economic Review, 1932, Vol 22, Issue 1, p66
- ISSN
0002-8282
- Publication type
Article