Business: Margins

On Nov. 21 the Dow-Jones industrial stock averages closed at 147. Next day Federal Reserve Board Governor Marriner Stoddard Eccles publicly pronounced the market sound, declaring: “I think there is an element of safety and of strength in the fact that security purchases are being financed out of cash. . . . I am doubtful whether a runaway stock-market situation can proceed very far without being reflected in an increased demand for borrowed funds.”

Last week after a ten-point decline and subsequent rise the industrial averages were again at 147. And again Governor Eccles spoke, this time not in person but through the Federal Reserve Board, not by word but by action. Without warning, the Reserve Board boosted margin requirements from a maximum of 45% to 55%. Applying only to new purchases, not to securities already in an account, the new rule is effective Feb. 1.

Just what had occurred in the intervening 60 days to make Mr. Eccles change his tune was not explained. But plausible reasons included a sizeable expansion in brokers’ loans; a strong resurgence of inflation fever; and, since the present Reserve Board retires in a body this week, an unwillingness to leave a serious fire hazard to a new Board, the majority of whose members may need time to master their fire-fighting equipment.