The Hatry Crisis.
WE shall best appreciate the true gravity of the collapse in the Hatry group of companies if we consider it less from the point of view of money losses— which are undoubtedly reparable—than from that of future relations between the Stock Exchange and the new type of investor. Nothing has been more remarkable in commercial and industrial finance since the War than the vast expansion of the investing public. The " small man " has discovered the Stock Exchange. The shilling share is not beyond his purse. He knows that though he may lose his money Stock Exchange investment at least provides more opportunities for wisdom and circumspection than a bet on a horse.
Before the War the typical wage-earner did not look much further afield for the investment of his savings than the Post Office Savings Bank or a Building Society. If he would not trust a money-holding institution of any kind—and suspicion was prevalent among the wage-earners—he simply locked his money up in a box ; " kept it in a stocking " as the saying is. It is entirely to the good that the " small man " should become an investor on the Stock Exchange. Nothing could possibly have a more stabilizing influence. When the stock- broker's recommendations are delivered at the door by the postman revolution flies out at the window. No man wants to destroy his own property. It is most sincerely to be hoped that in this country we shall reach the stage, which has long since been reached in the United States, where almost every hand-worker is not only the proprietor of shares in the firm for which he works but the proprietor of shares in other companies.
The progress of Great Britain has been so rapid in this direction that nothing is likely to check it but an absolute loss of confidence. The one way to kill confidence is to allow the small investor to feel that he is not adequately protected. It is on this matter that the Government, the Stock Exchange, the employers, and all politicians who believe in the motto " Every man a Capitalist " should concentrate their attention.
At the end of last week Mr. Tillett gave some remarkably good advice to a trade union audience when he said that it was silly to wait for the downfall of something vaguely called Capitalism. The organizing genius of the Capitalist, in his opinion, was becoming more instead of less important, and if the workers would only cultivate their own organizing genius in the development of industry they would be doing something really helpful to themselves and everybody else. But, he went on to say, it would be no light task ; for this purpose they would have to make as careful a study as the capitalist makes of the problems of production and marketing. The wage-earner who is an investor on the Stock Exchange has, then, a deep concern— no one more so—in the maintenance of complete con- fidence in the Stock Exchange markets. His property in that field should be as far as is humanly possible protected from excursions and alarms which in a single day's quotations may sweep away the results of years of honest saving.
It is not to be supposed, of course, that gambling can be prevented on the Stock Exchange. The popular newspapers spread their daily tips before the eyes of the investor, and that sort of speculation which is indistinguishable from gambling is common in the shares of highly reputable companies as well as in those of shady enterprises. Nor do we see how, the Stock Exchange Committee, who have justly earned a high reputation for honmirable management, can draw any exact line between safe business and unsafe. It has happened sometimes that a small investor in a brilliant idea has multiplied his money a hundredfold or a thousand- fold, but he might just as easily have lost everything. Gambling humanity is always on the look out for plums of this sort. In Stock Exchange gambling, as in gambling on the Turf, the main preventive or cure must be the self-restraint of men and women themselves.
The tendency of the small man has been to buy shares in the hope not of a steady dividend but of highly increased capital value. Most competent observers say that the chief sufferers from the present crash will not be, as in several previous instances, poor investors but rather the Banks and the Stock Brokers. Probably this is true, but the small man must nevertheless be a very considerable sufferer.
What can be done ? The Stock Exchange Committee with courage and promptitude has done all that it could to soften the blow, yet it seems to us that as Stock Exchange investment has reached a degree of compli- cation previously unknown, Company Law is now inadequate to control modern methods. The Stock Exchange Committee needs all the help that it can get from wise reforms. We trust that the lesson of the Hatry crisis will be learned even though the evil effects of it may not be so serious as was at first feared and even though there will certainly be no credit crisis, as our City Editor points out in his interesting article this week. The Banks can easily cope with the situation. Their position has not been endangered, though it will necessarily be asked if they unconsciously served the purpose of manipulators of Hatry shares. Then the whole question of the secrecy of their customers' accounts may be raised. At all events, inquiry into every detail of the Hatry concerns is an essential part of the process of restoring confidence.
Whatever facts may spring to light, it is true that all Stock Exchange business which was sound before the Hatry crash remains as sound as ever. Again, the business of not one of the companies in the Hatry group affects British prestige abroad for all these companies are concerned with purely British affairs.
Still, as we said, the lesson must be learned. There have been many attempts at rewriting Company Law and only last year one clause of a Bill which was meant to be a Consolidating Act was passed alone as a new Act. There is a wide field for inquiry and the sooner the inquiry is undertaken the better. The City Editor of the Daily Express has for a long time been demanding that the law that every company shall hold a general meeting once in fifteen months should be strictly obeyed. Apparently there are excuses for disobedience which are, or have to be, accepted as valid. Then, one would like to know much more about the alleged dangerous operations of Holding Companies. The last thing we suggest is an embargo which would have a reactionary effect upon modern methods of investment, but we should like to be informed whether it is really inevitable that a company should be put into Queer Street by a superior company in the operations of which the suffering company has no say at all.
Finally, though there are fewer directors than there were who are mere figure heads—men who are paid fees for the use of their names—is there as firm an insistence as there might be on the necessity of having directors who really understand their work ? This is a- familiar subject, but it comprehends what might be a valuable safeguard for . the innocent investor.
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