Lecture for a Senator

Before Senator J. William Fulbright's stock-market investigation committee last week appeared Bernard Mannes Baruch, a speculator who has made millions. Before he was 30, Bernie Baruch owned a seat on the Exchange, had made (and lost) more than $1,000,000. Forty years ago, when he was netting upwards of $2,000,000 yearly on Wall Street, Baruch used to say: "I am a speculator and make no apologies for it."

His imposing (6 ft. 3 1/2 in.) frame still erect at 84, Speculator Baruch sat down to testify as the last committee witness. It was plain, as he delivered a clear and witty explanation of how the market functions, that he should have been the first witness. "At the outset." said he, "let me emphasize that no one knows whether stocks are too high today." because the market's rise or fall depends on such unpredictables as economic conditions, politics, international affairs, emotions--even the weather. "Largely because of the crash of 1929, the impression has built up that the stock market is the cause of booms and busts. Actually, it is the thermometer--not the fever." The Sound-Money Man. Gently, Baruch exposed the shallow depth of the Fulbright investigation by detailing aspects of the market that deserved (but did not get) serious study, e.g., the growth of investment trusts, the entry of life insurance companies into the market, the capital-gains tax that Baruch said discourages investors from selling. The market's rise, said he. merely reflects an economy buoyed by the dramatic postwar growth of industry and the cumulative effects of 15 years of inflation. Looking ahead, he added, "the only real protection the small saver--or any group--can have is through the preservation of the credit and security of this country." A balanced budget is more important than cutting taxes, said he, and a powerful, well-armed nation is more important than both.

As he finished his lecture the Senators opened up with a barrage of questions. Should Congress pass new laws in an attempt to give investors more protection? Replied Baruch: "You cannot control a man's opinion. Every day in the press. Senator, you see some talk about who is going to win the pennant, or win the fight, and what horse is going to win a race ..." What about Walter Winchell, who frequently hands out tips on his radio-TV broadcasts? "I think he has got as much right as anybody else . . .

The only thing is, if he were a friend of mine I would say: 'Just don't do it, because it is a pretty hard thing to predict what is going to happen to the stock market.' "

Terms for All. Asked what he thought about raising margin requirements above the present 60%, Baruch retorted: "How can you really, in good conscience, say to a man he cannot buy stocks except on 100% when they can buy anything they like with nothing down? It just does not make sense." Fulbright tried to trap Baruch into endorsing the earlier testimony of Harvard Economist John K. Galbraith, who thought he saw some parallels between the current market boom and the period just before the 1929 crash. Baruch smoothly said he knew nothing of Galbraith "to his detriment," then added: "I think economists as a rule--and it is not personal to him--take for granted they know a lot of things, and if they knew so much, they would have all the money and we would have none." When Fulbright began to question Baruch about profits from short selling, he showed how little homework he had done for his own investigation. Baruch said that present restrictions on short selling to drive the market down are a good thing. He also pointed out that selling short often means low net returns for the risk involved because the speculator pays full income tax on any gain from short sales, whether he holds the stock a day or a year. Commented Chairman Fulbright: "Well, that certainly is news to me . . . That is quite a discouragement to short selling, isn't it?" Clean Record. Was anything really wrong with the market? Securities and Exchange Commission Chairman Ralph Demmler gave Wall Street a clean bill of health for its conduct during the big bull market, made it clear that SEC is fully capable of regulating the nation's stock exchanges. From another witness, U.S. Steel Corp.'s Chairman Benjamin Fairless, came more cheerful news. Said Fairless. "I personally think we are on the threshold of one of the greatest periods of prosperity this great nation of ours has ever seen."

At week's end Fulbright seemed relieved that the first phase of his "friendly study" had ended. He conceded that he had turned up "no major abuses,'' puzzled some businessmen by adding: "I didn't expect to find any." Although Fulbright can resume hearings in the next fortnight or issue some kind of face-saving report, old Washington hands thought he would be happy to adjourn his investigation indefinitely. Democrats know the study is, at best, doing them no good. At worst. if the market skidded or business turned down, Democrats would be blamed for it.

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