SHOWING HOW STOCKS ARE BOUGHT AND SOLD—HOW BROKERS GET OUT OF A BAD SPECULATION—HOW MONEY IS SOMETIMES MADE BY DOING A LOSING BUSINESS—HOW DISCOUNTS ARE MADE AND OBTAINED, &C. &C.

Before proceeding to relate the conversation of my friend this day, I must first state a few facts, for the information of those who are not already acquainted with them.

The Board of Brokers have many rules for their government; one of which is—that, when a broker is employed by another person to buy or sell stock on time, he has the right to give the name of his principal within twenty-four hours, and then, if the other party is not satisfied with the security, he is required to deposite ten per cent., or the contract is cancelled. If the broker so employed, does not give the name of his principal, he assumes the responsibility himself. All contracts for the purchase or sale of stocks, on time, are, in themselves, illegal; the contract cannot be enforced by any law, and the only security that operators have for their fulfilment, is, that rule of the board which expels a member, if he fails in his contracts. Just as all gamblers may be supposed to expel a man from their society, who takes up his winnings, but never pays his losses: or, upon the same principle on which there is held to be honor among thieves—whoever takes more than his share, is expelled from the gang.

Stocks sold on time, are seldom delivered; but, when the contract is mature, the difference between the sale and the average market value then, is paid over by the loser.

There are a few men of property, not brokers, who occasionally buy fancy stocks in Wall-street, when money is scarce, and sell again when it is more plenty, and reap a profit by it; but their number is so small, that they have never attained the respectability of any distinguishing name.

There is a larger class, who sometimes control a good deal of money, and who make speculation their business. These generally unite in squads, for the purpose of cornering—which means, that they first get the control of some particular stock, and then, by making a great many contracts on time, compel the parties to pay whatever difference they choose—or rather, I should say, whatever difference they can get—for they sometimes overrate the weight of the purse of those they contract with. These persons are denominated Bull-backers, or Bear-traps, according to the nature of their operations. The first signifies that they have bought stock largely, and hold it; and the second, that they have sold stock which they have not got, and trust to circumstances to be able to supply it. The brokers, themselves, in these cases, are called Bulls and Bears.

There is another, and a much larger class, who, deceived by appearances, come into the market without any knowledge of it, and generally lose what they invest. These are called Flunkies.

With this elucidation of terms, I am ready to proceed with my friend’s narrative, whom, true to his habit, I found at the spot, and anxious for a listener; and, from the nature of his remarks, I am induced to believe that he suspected me of some desire or design to enter on the business of stock jobbing.

“If,” said he, “you have any intention of entering into business in Wall-street, you ought first to know, that, although there are many respectable men and firms here, who have accumulated property and credit, by a long course of industry and application, as in any other branch of business, there is, nevertheless, a very large class, who look upon every new comer as a fit subject for their stratagems. And very few such escape one of two extremes: either the loss of their property, or a sacrifice of conscience, honor, honesty, and every noble principle, to the mean and sordid one of getting money. The first sacrifice you would be called upon to make, would be, confidence and respect towards your neighbors—you must disbelieve every thing you hear and see, and look upon every one as having a design on your purse: no very comfortable position for an honest man.”

A very large portion of the stocks termed ‘fancies,’ and in which they mostly deal, are entirely worthless in themselves; unlike articles of merchandise, which may be seen and examined by the dealer, and which always have an intrinsic value in every fluctuation of the market, these stocks are wholly wrapped in mystery; no one knows any thing about them, except the officers and directors of the companies, who, from their position, are not the most likely men to tell you the truth. They serve no other purpose, therefore, than as the representative of value in stock gambling, which might just as well be wholly imaginary, and of any other kind, as these; and you would soon learn, that the reason why there is so much dealing in depreciated stocks, and so little in those which are solvent and at par, is this: Nearly all the fluctuations in their prices, are artificial—a small fluctuation is more easily produced than a large one, and as the calculations are made on the par value, a fluctuation of one per cent. on a stock worth only twenty dollars a share, is just five times as much on the amount of money invested, as it would be on a par stock. Consequently, if a ‘Flunkie’ can be drawn in, he may be fleeced five times as quick in these, as in good stocks.

The arts and tricks resorted to, in this kind of gambling, are the same as in all others. When the brokers and speculators engaged in it, have no customers on whom to practice, and each one is shy of the other, they lovingly play among themselves. To keep up appearances, large transactions take place, which, by mutual understanding, are not to be fulfilled, and like children at chequers, when the game is out, the kernels are thrown into common stock again, and a new one begun. And, strange as it may seem, these transactions are published in all the commercial newspapers, and go forth to the world as the evidences of value, and the condition of the money market, to deceive the unwary. Every editor, who properly regards the welfare of the community, over which his position gives him great influence, ought at once to refuse the publication of any sale of stock, but such as are of standard and intrinsic value; for it is by these means, that so many are drawn from their regular pursuits, into ruinous speculations; when, if nothing but truth were told them, they would stay at home, and save their money—to say nothing of the mischief of idleness and dissipation, which the habit of gambling engenders.

I must not be understood as applying what I have said, or shall say, to every man in Wall-street: far otherwise. Nor would I be understood as applying it to brokers exclusively, or to any one in particular. I only say, that if the coat I shall cut out suits any man’s shape and dimensions, let him put it on. On the whole, the brokers are less to blame than those who support them; and, if left to themselves, their trade in fancy stocks would soon cease. If people will gamble, there must be some place to do it, and some persons as directors, agents, and co-partners in the business; and, until the people are reformed, it is doubtful if Crockford, in London, and the brokers in Wall-street, are not more honest and respectable than their supporters.

Stock gamblers of very small capital, often have contracts pending, of many hundreds of thousands of dollars—they sometimes operate for a rise, sometimes for a fall, of prices. In the first case they buy deliverable at a future time, at a certain price. In the second, can they sell in the same way. And, in either case, their profit or loss depends on the rise or fall of the stock bought or sold; as, indeed, all their profits do; for there is no such thing as a dealer’s profit for the labor and risk of distribution, as in merchandise. The whole process is a mere betting upon the future value. In this way, it will be seen that the number of chances for gain or loss is just doubled, as compared with dealers in merchandise, who always get what they buy, and sell only what they have got. They frequently make a condition to their time-contracts of “buyer’s option,” of “seller’s option,” which means, that the person to whom the option is given, may, at any time within the period of the term of sale, by giving one day’s notice, call for the stocks, and this enables them to take advantage of any temporary fluctuation which may happen, or which the parties interested may be able to create. These circumstances easily explain the reason why fortunes are often so suddenly made or lost in stocks. No system could be devised better calculated than this is, to excite a gambling propensity, and afford an opportunity for the exercise of ingenuity and cunning.

“But,” said my friend, “lest I should weary your patience, by too much generalizing, and seriousness, I will inform you how Mr. Tell-it got out of a bad speculation.”

Mr. T. is a regular descendant of Mr. Jacob Broker, of the seventh generation, and one that does honor to his ancestral renown. No greater contradiction of terms can possibly be used, than exists between his name and character, for he was never known to tell a thing that he knew, however trifling. His conversation and answers are wholly by interrogatory. When asked at what price he will sell, his answer is, “what will you give?” and he never commits himself in a promise, without first receiving a promise of another, or, what suits his taste much better, something tangible in its stead. This peculiarity of mind has led to one great virtue, to which I bear willing and honorable testimony—he was never known to tell a lie. If people take false impressions, it is because they assume false premises—if they indulge in wrong opinions, it is because they have not been diligent enough in search of truth—and, as he is a competitor for the great prize of life, he cannot spend his time to correct other people’s deficiencies.

His knowledge of men and things is regulated by their properties, and his estimate of the proper pursuits of life has received a bias from his literal construction of the Apocalypse, in which the streets of the new Jerusalem are described as being of pure gold; and he appears to regard the possession of it here, as the surest passport on his way there. In exactness and punctuality, he is a model for imitation. He generally operates “for a fall,” and, like his great progenitor, his interest compels him to take pleasure rather in demolishing than in building up. His assiduity and skill are such, that, united with his great physical force, mechanically denominated “a purchase power,” he can tear down more in one week, than the whole fraternity can build up in a year; and he has been known to topple a Bank, an Insurance company, a Railroad, or a whole bevy of brokers, by a single application of his lever.

But such is the variety and opposition of interests created by the multitude of heads, and the multiform opinions entertained by them, the circumstances of which are varied by every transaction that takes place, of which none but those concerned in them can have any control, that the wittiest sometimes get outwitted, and the strongest outdone.

Not long since, a squad of Bull-backers, had for some months been, secretly, and unknown to Mr. T., getting control of a certain stock, intending to “corner” some one with it; and, aware of Mr. T.’s tearing down propensity, after due consultation, they laid a scheme whereby to entrap him. Deputing an agent of well known paucity of dollars, they sent him to Mr. T. to get a loan of money on a large amount of the aforesaid stock. The loan was completed for the term of 90 days, Mr. T. advancing two thirds the nominal value. Whether he had any ulterior object, or not, in lending the money is not known; but, as he seldom made such loans when such object did not sooner or later disclose itself, it is suspected, that in this case, he looked beyond the present bargain, and, believing that his debtors would be obliged to sell the stock he held, for what it would bring, to pay his loan when due, he commenced his operations for a fall in the stock, by selling it all out. It so happened, however, that the Bull-backers aforesaid, were the buyers of it, and this was just the snare into which they desired to lead Mr. T., knowing that when their agent should pay up his loan, and call for the stock, T. would be obliged to buy it of them, at such increased prices, as they should dictate. And Mr. T. was soon made sensible of his condition, by his debtor calling long before the time, and offering to pay up the loan, and withdraw the Stock. He was certainly surprised, but his quiet and collected manner betrayed no emotion. And here I must render another tribute to his character. He certainly bears his profits and losses well; as great men are said to bear their honors and misfortunes, with unassuming and unrepining philosophy.

The discovery of his situation however, called for the exercise of his sagacity, and he modestly declined receiving the money, only saying, that he preferred it should rest for the time agreed on.

As soon as his debtor had gone out, he thrust his hands in his pockets, his eyes resting on the floor in front, and sticking out his lips, in a way which no other man does, he muttered to himself “I’m in a bear-trap—this won’t do. The dogs will ‘come over’ me. I shall be mulct in a loss. But I’ve got time—I’ll turn the scale, I’ll help the bulls, operate for a rise, and draw in the flunkies.”

These men, I should have said before, have no other rule of judgment for their operations than to follow in the wake of some great and successful speculator. Mr. T. very properly regards them as sheep for the slaughter; and although the milk of human kindness certainly is a component of his heart, he makes no scruple of sacrificing a score of them at a time. Why should he? for killed and eaten they certainly will be by somebody: but they are a genitive race, and re-produce as fast as destroyed.

Mr. T. had need of no further exertion, to accomplish his purpose, than to make his course manifest to them, they all followed his apparent lead, as sheep will follow one another over a wall, if they all fall into a ditch on the other side. Even the wise man of Israel, by his own confession, did not know every thing. “The way of the serpent on the rock was too wonderful even for him,” and so in this case; the way of their leader was to them, “past finding out.” But the secret of the management necessary, in this case, is, to do just the opposite of what one appears to do. Mr. T. therefore continued to operate visibly for a fall, by selling out small sums for future delivery, which he took care to have trumpeted by another, while he was very reserved himself. He thus drew all the “flunkies” after him, as they supposed, while he was in reality the purchaser, through his agents, of all that they contracted to sell, and by this means, before the expiration of the loan, he was in possession of the stock to deliver, with a difference of ten thousand dollars in his favor, against the flunkies.

These things would never have been known, but that T. sometimes talks in his sleep, and while chuckling over the ruse de guerre, he recounted the whole story, and was overheard by his chum, who thought the joke too good to be lost.

And now, said my friend, as I am in the way of story telling, I will tell you how money has been made, by doing a losing business. It will have been seen already that the failure of a stock broker, does not involve commercial dishonor. It is a mere acknowledgment, of his inability to pay his bets, for debts they are not. When this has happened, he suffers the penalty of being expelled from the board. It then becomes the interest of those to whom differences are due, (the term used for stock debts,) to get what they can and discharge him. The amount he will be willing to pay, depends on three-fold circumstances—the amount of means he possesses—his own sense of obligation—and the credit and advantages he is to gain, by being reinstated. And a settlement once made with his creditors, it becomes the interest of all, to reinstate him; for society becomes disjointed, by losing its prominent members.

When a broker operates for others, as his principals, he usually requires a deposit of ten per cent., as security against loss. They generally operate in different kinds of stock, some of which turn favorably for their interest, and the differences are in their favor. In others the difference is against them, according as their risks, or their judgment, may have proved favorable, or unfavorable. Commonly their operations are very large in amount, and it sometimes happens, that the fluctuations are greater than the security, and by the occurrence of some unforeseen event, like the recent failure of the United States Bank, a fair adjustment of the differences against them, would ruin all the parties, consequently, one or all of them must be sacrificed.

Expediency, and interest dictate that it shall be but one, and that one the broker. He consents, because it involves less dishonor with him than the others. They can be screened by his defalcation, and, it is equally his interest to take care of his customers, as himself. And if he has not too delicate a conscience, (and all men have not,) the way is now open for the following management. When differences are in his favor, he may avow his principals, and the losers must pay, or themselves suffer expulsion from the board. Where the differences are against him, he may keep the responsibility to himself, and as they are very large, he will be able to compromise them, for the ten per cent. deposited, and perhaps less, if he has not been careful to exact the security. And when the whole is adjusted, if the differences collected exceed the ten per cent. paid, there is a profit to divide, among them all. And, if these operations are not sometimes performed with a less scrupulous regard to figures, suspicion has been guilty of a libel. I do not say, that this is a common practice among the brokers, but the power of doing, and the facility of screening it, are equivalent to an invitation to rogues to embrace it, and all the world knows, how ready they are to seize an opportunity.

Although stock-speculators, generally, affect to be very secret, as well as very cunning, in their dealings, they frequently contrive to find out each other’s business, and the manner in which their liabilities sometimes develope themselves is amusing. It lately happened that two speculators, Mr. A. and Mr. B., had been operating in different kinds of stock, and each of them thought he had a considerable amount of profits to collect, and losses to pay; and the whole having passed through a broker’s hands, neither of them was supposed to know who the principals were. Circumstances led to a comparing of notes, when it was found that their claims on each other were so nearly balanced, that they settled it by offset. It is believed that at least one of them intended to collect his profits, and back out of his losses; but that the other, more cunning than he, had contrived to take the place of a third party, (Mr. C.,) who was the real seller of the winning stock on his side, and when a settlement had been made between A. and B., that B. and C. divided the amount of profits on C.’s stock between them. By these means, the third party, C., was enabled to collect half of a profit, which he would never have got otherwise, and the other, Mr. B., was saved paying half a loss, which he would otherwise have had to pay, or to sacrifice his broker, who, between them both, was saved from a dilemma.

“And now,” said my friend, “unless you can follow all these windings, and are ready to turn as sharp a corner as the rest of them, let me advise you not to stay long in Wall-street; for, depend upon it, while you are here, you are in the midst of temptation, and no man ever trifled long with that, and came off with his honor unscathed, and his heart not indurated.”

I thanked my friend for his advice, and replied, “that I had already determined, that I could never aspire to a professorship, nor even a pupillage, in a school requiring such active energies of body and mind.”

But my friend continued, and, taking out his watch, remarked, that, as he had yet time to spare, if I pleased to listen, he would tell me something about the manner in which discounts were sometimes made, and obtained. And, willing to be informed of all particulars, in which I had now become deeply interested, I signified my wish to hear how these important appendages of trade are managed.

“Young men,” said he, “often mistake the basis of their own credit, and are flattered by the freedom and liberality with which money is sometimes lent them. They could not possibly commit a more fatal error, and this arises in a great degree, perhaps, from the false estimate of what is commonly called money.”

The system of Bank credit, which has so widely obtained in this country, and which allows of a circulation of their notes, or bills of credit, as a substitute for money, has been productive of untold benefits. But its long success has led to its abuse; and the manifest advantage, to those who held the privilege, has led designing men to seek an influence in its control. In times of ease and plenty, these gentlemen are ever ready to exchange their credit for the substantial securities of the merchant, receiving therefor the premium of interest, as their profit. These Bank credits, being readily convertible for the payment of debts, entice men of small means into an enlarged business.

The error of young merchants seems to have been, an appreciation of Bank issues, to be the same as money, instead of an equivalent in credit, and a discount obtained, as an exchange of securities for cash, instead of a new debt contracted. They have overlooked the fact, that the same circumstances that will cause distress to them, will also cause it to the Bank, and bring with it a curtailment of their accommodations, just at the time when their wants require their enlargement. Their independence is gone, as soon as they are obliged to solicit a favor, and if in the hands of heartless and designing men, this is just the time when advantage will be taken of their necessities, as long as their securities are good; and they will find, when it is too late, that they have leaned on a broken reed.

The habit of merchants leaning on a Bank credit, and considering it better than their own, with the dependence growing out of it, has enabled the latter, by common consent, to throw around it a sacredness of character that does not attach to credit in any other place or form; and instances are of daily occurrence, where men do injustice to a neighbor, to enable them to pay a note at the Bank; while the latter, to protect themselves, will sacrifice a score or two of their customers, without mercy or compunction. When men become necessitous, they are afraid to let it be known out of doors, because it will injure their credit; and they will make almost any sacrifice in private, to save such a mortification. And to this fact, designing and unprincipled men, who, in times of pressure, convert the capital of a Bank into a means of preying upon their customers, owe their security in doing it; when, if the undisguised particulars could be known, they would immediately lose their charter and their reputation.

The way these things worked a few years since, in the Stork Bank and the Water Works Bank in this city, is worthy of being told by way of illustration.

The cashiers of these banks thought themselves so firmly seated in power, that nothing could move them. By way of brevity, I will call them Jack and Bob; but let no one suppose that the impudent familiarity of using these barbarous corruptions of a Christian name, was ever permitted to any but themselves. The bad times—which in business parlance, in its proper construction, means, that period of time when the mischiefs designed by one party, or arising from the follies and imprudences of the other, are in course of developement—brought crowds of anxious applicants daily to the counter of the bank. They arranged themselves in rows along the walls, or by the side of the counter, with anxious faces, each one waiting for his turn, and as each received a negative, his eye flashed with anger, or his cheek blanched with despair; and while others would march up, to prefer their own claims, in the vain hope of better success, those behind occasionally peered out from the long line in which they stood, and cursed the gravity and self-possession of the cashier, while he held a long parley with his customer; and the last in the line sometimes betrayed, by the uneasiness of his limbs, that the vulgar saying of “the d——l take the hindmost,” was uppermost in his thoughts.

When men of business become dependent on borrowing, to meet their engagements, the daily supply becomes as necessary as daily food. The proverb tells us that a hungry man will break through a wall; and, to use a fashionable phrase, of some who do not understand their mother tongue, the cashiers were “au fait,” in this principle of natural philosophy. Their eager eyes scanned with solicitude the cadaverous countenances of the hungry applicants, to see where their scanty means of supply might be most profitably applied, and when occasionally, some one received permission to call again when the press was over, hope at once beamed in his eye, a smile played gently about his mouth, and had the cashier been a lady, he would have fallen on her neck and kissed her. Punctual to the hour, he returns and receives from the complacent lips of the cashier, the joy-giving intelligence—“Mr. A., we have so great a press upon us just now, that we find it impossible to meet the demand for discounts; but, if it will oblige you, I will take your notes at seven per cent. interest, and give you a check on Mobile at sight, and at par, in payment.”

“But I do not know what to do with it,” says Mr. A. “How will that relieve me?”

“Well, I don’t know, Mr. A., but I have understood that the Waterworks Bank is buying at a discount of five per cent. That is rather a large sacrifice to make, but it is the best that I can propose.”

“Hang the five per cent.,” thought A. to himself, “it will cost me but a hundred dollars, and I can pay my note;” and, to him, a day’s salvation from bankruptcy, was an age of happiness. The proposal was eagerly embraced, and while the Waterworks was buying the checks of the Stork on Mobile, Savannah, Columbus, &c., the Stork was buying those of the Waterworks; and mischief-makers have reported that they were all exchanged in the afternoon.

Mr. Eavesdropper, whose name implies that he attends more to other people’s business than his own, reports having overheard the following dialogue between the cashiers, at their afternoon meeting.

Jack. Well Bob, this business works well yet, I have pocketed five hundred dollars, to day.

Bob. Yes, Jack, sure, and it works well at present; but, upon me soul, I don’t see the end of it, and if we were exposed, we should make a dangling appearance, if we were even in the ould country.

Jack. Never fear, Bobby—a man never dangles here, as long as he has got money; and besides, the dogs dare not whisper a word; their lives depend on their credit, as the only means of supporting them, and they would be cut up like mutton-chops in the market, the moment they lisped their own secret.—We are safe.

Bob. Troth Jack, you’re always awake, but I’ve gone so deeply already, that I couldn’t pay a draft to day from the Secretary at Washington, an’ if it were not for that brother of mine, with the Scotch christian name, who is busy at Washington, hang me if I think I could stand this.

Jack. Mr. Cashier, excuse my departure from our usual friendly familiarity, but, depend upon it, the authorities of the country will never oppress, in their individual circumstances, those who are legitimately engaged in support of their authority.

Bob. Arragh, Jack! and you’re complimentary—but the marquis cares nothing about your ragamuffin authorities.

Jack. No Bobby, true, but he cares about your dividends, and that is what you are to take care of.

Bob. Sure and I’ll take care of that, by the faith of me, and how much shall we make, Jack, by this management?

Jack. Why at least fifty thousand a piece, if nothing occurs till the excitement is over.

Bob. If nothing happens, aye, and there’s the rub, Jack. I’m afraid you’ll bleed some of the patients to death.

Jack. Never mind, Bob, if we see them fairly gasping, give them another dose, and take double fees before hand. We have good security for the past already. Good evening Bob.

Bob. Good evening to ye Jack. Long life to ye. And when ye die, may ye have an uncommon long funeral. And as Jack departed, he muttered, “and if them ye murther are mourners, by me sowl it will be long enough.”

These things may be all slander, but still, there are some who believe that a bank, which in the course of twelve months, divides ten per cent. profit to its stockholders, and accumulates a nominal surplus of twenty per cent. more, could never have done it by loaning money at seven. And it certainly is a problem in arithmetic, which requires some new devise of figures to solve.

The interest of description, would be lost in sameness of character, should I attempt to describe all the ways in which the dependent borrowers are made the chief sufferers, to gratify an undue propensity of the lenders to accumulate.

And I will only add what is well known here, as a warning for the future to those whose avarice outruns their integrity, that these banks, like the repentant harlot, have long since “wept by the willows,” for their departure from their first love; and the only thing I know against their present government or officers is, that the president of one of them, in paying over about one hundred and fifty millions of dollars, was detected by General Jackson in being a defaulter of eleven cents, but as the general could not tell exactly where the default lay, he escaped all other punishment, but the natural one of being removed from his office, to make room for others; who, if they were in default at all, would make it sufficiently palpable to avoid the necessity of searching out these contemptible digits.