In the stock market, the buyer of securities on margin gets full title to his property in an unconditional sale. But he rids himself of the most grievous burden of ownership - that of putting up the purchase price - by leaving his securities with his broker as collateral for the loan that paid for them. The buyer gets the full benefit of any increase in value - the price of the securities goes up - but the loan that bought them does not.
The machinery by which Wall Street separates the opportunity to speculate from the unwanted returns and burdens of ownership is ingenious, precise and almost beautiful. Banks supply funds to the brokers, brokers to customers, and the collateral goes back to the banks in a smooth and all but automatic flow. Margins - the cash which the speculator must supply in addition to the securities to protect the loan and which he must augment if the value of the collateral securities should fall and so lower the protection they provide - are effortlessly calculated and watched.
Wall Street, however, has never been able to express its pride in these arrangements. They are admirable and wonderful only in relation to the purpose they serve. That purpose is to accommodate the speculator and facilitate speculation. But the purposes cannot be admitted. If Wall Street confessed this purpose, many thousands of moral men and women would have no choice but to condemn it for nurturing an evil thing and call for reform. Margin trading must be defended not on the grounds that it efficiently and ingeniously assists the speculator but that it encourages the extra trading which changes a thin anemic market into a thick and healthy one. At best this is a dull by-product and a dubious one. Wall Street, in these matters, is like a lovely and accomplished woman who must wear black cotton stockings, heavy woollen underwear and parade her knowledge as a cook because, unhappily, her supreme accomplishment is as a harlot.
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