Financial industry

“ The financial organization is the medium by which the various parts of the industrial and commercial organism are held in harmony. It is by the financial organization that capital is collected and distributed, that the friction of exchanges is reduced to a minimum, and that time is economized, through credit, between production and consumption. The financial system furnishes three indicators—prices, the rate of discount, and the foreign exchanges—through which we may read the operation of economic forces now that their magnitude makes it impossible to inspect them directly. ”

“ When banks lend on collateral security of corporation stocks to the buyers of those stocks, they are, in effect, financing the corporation itself. [483] Industries differ widely in the extent to which they depend on the money market for their finances. The difference depends often less on the nature of the industry than on the type of the industrial organization. An individual farmer cannot get the bulk of his credit that way! ”

“ The organization of unlike and unrelated industries—manufacturing industries, public utilities, insurance companies, railroads, trust companies and banks brought under the financial control of Morgan and Company or of some other banking syndicate. ”

“ There are more than 14,855 establishments, with arteries in more than 20,000 large business savings and investments. National and state banks and trust companies are located in all your large and small cities. Many of them are members of the Federal Reserve Banks. Your 300 large life insurance companies and all other lesser ones, your great number of private bankers, your financial investment, loan, and mortgage companies, your pawn and stock brokers, and your many other financiers control the loans of money. ”

“ With the third method a permanent increase is secured in the capital funds available for use in the business. Financial policy, governed by the needs of the business and its markets, will always dictate the method to be used for extinguishing or contracting a debt. ”

“ The primary object of a manufacturing business is to produce, and if that objective is always kept, finance becomes a wholly secondary matter that has largely to do with bookkeeping. My own financial operations have been very simple. I started with the policy of buying and selling for cash, keeping a large fund of cash always on hand, taking full advantage of all discounts, and collecting interest on bank balances. I regard a bank principally as a place in which it is safe and convenient to keep money. The minutes we spend on a competitor's business we lose on our own. ”

“ For our present purpose it is enough to have shown that the capital, which is the stock-in-trade of finance, is not a fraudulent claim to take toll of the product of industry, but an essential part of the foundation on which industry is built. ”

“ Contrary to the prevailing notion that there is no public utility in anything which does not produce something, or that does not transform and improve products by the processes of manufacture, or interchange them by the operations of commerce, the Stock Exchange is an institution of the highest utility and of vital necessity in an age and country of progress, of commercial and financial activity and of material development. ”

“ And I believe we need a strong and vibrant financial sector so that businesses can get loans; families can afford mortgages; entrepreneurs can find the capital to start a new company, sell a new product, offer a new service. ”

“ In conclusion, I submit that the whole plan as we've worked it out does not introduce a single foreign element but creates out of our own practices, which have developed out of our own peculiar conditions, a financial and banking system, founded upon sound economic principles. ”

“ He knew about the enterprise which had absorbed the banker's capital, and while he believed it would respond promptly to the returning flow of the financial tide, it now seemed stranded among more hopeless ventures. ”

“ It has already been shown that capital, saved by thrifty folk, is essential to industry as society is at present built and worked; and the financiers are the people who see to the management of these savings, their collection into the great reservoir of the money market, and their placing at the disposal of industry. ”

“ Is it for the best financial interest of the company to borrow on short or long time, to create a floating or a funded debt, etc.—these points require consideration and can, of course, be answered only in the light of the conditions prevailing in each case as to the status of the working capital requirements. ”

“ All these various forms of banking are distinct in character and economically the funds of each perform a peculiar function that must be recognized and observed or we shall make a great fundamental error in constructing what we hope will prove a sound financial and banking system. We must provide that the commercial function, the savings function, the trust function shall be kept apart by separating the funds arising from each, and keeping them completely segregated, in order that the country may always know just what its commercial fund is, as distinguished from its investment fund. ”

“ They soon discount paper for themselves and other stockholders of financial abilities. With this they buy more property to secure more stock, to get more discounts, to buy more property, to secure more stock, etc., etc., and finally they are able to write up a very respectable capital upon which they are permitted to issue double the amount. * * * So long as a few men can draw a profit of more than fifty per cent. ”

“ Through these agencies the banks are constantly placing as relatively permanent investments securities which they have bought or have aided "to float" or which they handle only as commission agents. In any case the real investment banker is bringing to his task special training and a high sense of his professional obligations, and is employing the services of statisticians, financial experts, and of practical engineers to determine exactly the fundamental conditions of each investment. ”

“ It is true that, in the communities in which industry and commerce are practised with greatest success, the contrivances of banking enable the possessor of a larger capital than he can employ in his own business, to employ it productively and derive a revenue from it notwithstanding. ”

“ As financial enterprises, the chartered commercial companies were subject to such great practical difficulties that few of them survived for any great length of time or repaid their original investment to the shareholders. ”

“ I, says debt stock, encourage industry, by taking way your money; and I, says bank stock, by pouring money into your pockets. When, by theory or experience, has it ever been said, that either the redundancy of money, or the loss of earnings, was an encouragement to industry? If the calculation of a false opinion, that industry enjoys her own earnings, is the best mode to which all orders, titled or stock, can resort for her encouragement, it is evident that the mode would be improved, by making the opinion true. Fulfilment would be a stronger excitement to industry, than disappointed hope. ”

“ Two-thirds of American industry is concentrated in a few hundred corporations, and actually managed by not more than five thousand men. More than half of the savings of the country are invested in corporation stocks and bonds, which have been made the sport of the American stock markets. Fewer than three dozen private banking houses, and stock-selling adjuncts in the commercial banks, have directed the flow of capital within the country and outside it. Economic power is concentrated in a few hands. ”

“ Every corporation whose securities are listed on the stock exchange is obliged to make a full and comprehensive report to the exchange at least once a year, and these reports can be found in any brokerage office; they are always open to public inspection, and no one need buy any stock or [91] bond without first satisfying himself regarding the nature of the industry, capitalization, earnings, management and other details. ”

“ And so it goes in every business but finance—finance, the most important of all, the business into which is merged all other businesses, the business of taking and preserving the results of all other businesses, of all other human endeavor. ”

“ The moneyed capital thus employed is invested for that purpose in securities by way of loan, discount, or otherwise, which are from time to time, according to the rules of the business, reduced again to money and reinvested. ”

“ Thus he can apply far more directly than the manufacturer or railroad manager the economies and efficiencies of Big Business.
Banking—the business of dealing in money and credit—is the most logical of trusts. And in practice it has justified the theory. Where banks have become larger they have become stronger, where co-operation and concentration have gone far, there safety and effectiveness have reached a high pitch.... Banking is the one central business of all—it is the business of businesses. ”

“ A large part of the business of investment banking in the United States is conducted by corporations and firms organized for the purpose of buying and selling investment securities, especially bonds and mortgages. ”

“ We build railways, put millions into steel plants, "boom" land sites, and form combinations of all kinds, employing the credit facilities granted by the banks, or throwing the securities on the stock market. We "water" the stock or, if that be forbidden by law, we drive the market quotations to a high point, because we think that this is warranted by prospective earnings. ”

“ Industry has created wealth as with the touch of a magic wand; and this rapidly growing wealth has been made available capital through the instrumentality of the corporation which, by means of stocks and bonds, has gathered into giant organizations the property of hundreds and even thousands of individuals. The industrial corporations have been greatly assisted in their work of concentrating and applying capital, by the banks and other institutions that have enlarged credit and made a given amount of property capable of performing a much larger work. ”

“ The unique powers of commercial banks to accept demand deposits, provide checking account services, and lend against fractional reserves permit the banking system as a whole to create a supply of 'money,' a function which is indispensable to the maintenance of the structure of our national economy. ”

“ Arbitraging transactions, as between different places, time-speculation, transferring labor and capital from one enterprise to another, increasing the supplies of some goods and reducing the supplies of other, changing land from wheat to corn, etc., etc.,—all these things are sources of gain, and they will be done, whatever the origin of the values involved. The new, dynamic enterprise, before it becomes actualized in concrete machinery, factory building, etc., and long before its income is actualized in money-receipts from the goods it is destined to produce, becomes an object of value. ”

“ The many thousands of brokerage offices throughout the country were jammed to the doors by eager onlookers and participants who devoted themselves exclusively to the market from the opening to the close. Office boys, elevator men, manicures, hotel waiters, hairdressers, cab drivers, and even rural farmers initiated themselves into the game and discussed mergers, split-ups, stock dividends, and all such subjects in high finance with more profuseness and profundity than was ever displayed at a bankers’ convention. ”

“ You have been enticed into high finance, stock exchanges, boards of trade, and commodities—all of them types of gambling producing revenue. It is a wonderful system to fleece you of your savings. Your big financiers with their executives, whom you helped to elect with your proxies, have a permanent stranglehold on all your basic industries. They always aim to have you 'the public,' invest your money into their companies and corporations, in fact, become majority holders of their securities. ”

“ After paying the expenses of their business, all the rest of the interest they receive is clear gain. But as the circumstances of banking, as of all other modes of employing capital, will on the average be such as to afford to a person entering into the business a prospect of realizing the ordinary, and no more than the ordinary, profits upon his own capital; the gains of each banker by the investment of his deposits, will not on the average exceed what is necessary to make up his gains on his own capital to the ordinary rate. ”

“ In large cities the brokers naturally unite for convenience of business in the so-called stock exchange, in which the market price of all current forms of indebtedness or deferred payments is fixed from day to day, or from hour to hour, by the higgling of the market, just as the price of produce is fixed in the produce exchange. Naturally, as in the case of produce, a fictitious business, purely speculative, grows up around the legitimate dealing [pg 163] in stocks and bonds. ”

“ It is the invariable custom in all stock subscriptions for the corporation which is being offered for sale, or the bank or bankers assuming responsibility for the proposition, to set forth at length the facts essential to a proper understanding of the enterprise: if a new corporation, its reason for existence and the security offered; if old, its history and the immediate purposes for which additional funds are asked. It is the same in finance as in ordinary business. ”

“ Such business cannot be included in the commercial affairs of the country, economically speaking, because they are essentially trust transactions, and the funds, generally, belong to the investment class. ”

“ They say that the active manager of industry, the business man or entrepreneur, in the first place is always more or less in debt; in the second place, is always buying labor, or materials, or goods, with the intention of selling a product at a later date at an advance in price. He habitually measures his gains in terms of money, and not in terms of the commodities he can buy with the money. In times when prices are falling, he finds it harder to meet his debts, and to dispose of his goods in hand at a money advance over what they cost him. ”