Now, neither myself nor the Scheftels corporation is responsible for brokerage conditions as they exist, nor for the laws as written. Custom and practice are responsible. The purpose here is to communicate the exact nature of the business methods of the Street as I found them and to lay particular stress on those that are open to criticism.
THE SCHEFTELS COMPANY AGAINST MARGIN TRADING
The Scheftels company did not encourage margin trading by its customers. In fact, it railed against the practice. Time and again the _Mining Financial News_, editorially, denounced the business of margin trading. The Weekly Market Letter of the corporation sounded the same note. On several occasions, in large display advertisements published in the newspapers, the Scheftels company decried the practice and urged the public to discontinue trading of this character.
There were selfish reasons for this. In the marketing of its promotions the Scheftels company found that not more than 20 per cent. of the public's orders for these stocks given to other brokers were being executed, or, if executed, that the stocks were at once sold back on the market, the brokers or their allies "standing" on the trade.
Had the Scheftels company been able to destroy the practice by its campaign of publicity, it would undoubtedly have been able, during the nineteen months of its existence, successfully to promote three or four times as many mining companies as it did, and its profits would have been fourfold.
It, however, appealed to the public in vain. Loud, frequent calls to margin traders to pay up their debit balances and demand delivery of their certificates, which would compel every broker to go out in the market and buy the stocks he was short to customers, failed miserably.
The lesson of this experience was that the speculating public did not "give a rap" whether their brokers were short of stocks to them or not. All they wanted, apparently, was to be assured that when they were ready to close their accounts, their stocks, their profits or their credit balances would be forthcoming.
What is the evil of short selling of the kind described herein? The only evil that I could ever discover was that the market is denied the support which the actual carrying of the stock is calculated to afford. This hardship weighs heaviest on the promoter. There appears to be no cure. Even if a broker does buy the stock and does not himself sell it out again, there is no law that denies him the right to borrow on it or loan it to somebody else. And it is to the interest of the broker, because he gets the use of the money, to loan the stock always. Stocks are rarely borrowed by anybody except to make deliveries on short sales.