Not long ago a member of a leading banking house was undertaking to justify a commission taken by his firm for floating a now favorite preferred stock of a manufacturing concern. The bankers took for their services $250,000 in cash, besides one-third of the common stock, amounting to about $2,000,000. “Of course,” he said, “that would have been too much if we could have kept it all for ourselves; but we couldn’t. We had to divide up a large part. There were fifty-seven participants. Why, we had even to give $10,000 of stock to----(naming the president of a leading bank in the city where the business was located). He might some day have been asked what he thought of the stock. If he had shrugged his shoulders and said he didn’t know, we might have lost many a customer for the stock. We had to give him $10,000 of the stock to teach him not to shrug his shoulders.” Think of the effectiveness with practical Americans of a statement like this: =A. B. & Co.= =Investment Bankers= =We have today secured substantial control of the successful machinery business heretofore conducted by ---- at ----, Illinois, which has been incorporated under the name of the Excelsior Manufacturing Company with a capital of $10,000,000, of which $5,000,000 is Preferred and $5,000,000 Common.= =As we have a large clientele of confiding customers, we were able to secure from the owners an agreement for marketing the Preferred stock--we to fix a price which shall net the owners in cash $95 a share.= =We offer this excellent stock to you at $100.75 per share. Our own commission or profit will be only a little over $5.00 per share, or say, $250,000 cash, besides $1,500,000 of the Common stock, which we received as a bonus. This cash and stock commission we are to divide in various proportions with the following participants in the underwriting syndicate:= =C. D. & Co., New York= =E. F. & Co., Boston= =L. M. & Co., Philadelphia= =I. K. & Co., New York= =O. P. & Co., Chicago= Were such notices common, the investment bankers would “be worthy of their hire,” for only reasonable compensation would ordinarily be taken. For marketing the preferred stock, as in the case of Excelsior Manufacturing Co. referred to above, investment bankers were doubtless essential, and as middlemen they performed a useful service. But they used their strong position to make an excessive charge. There are, however, many cases where the banker’s services can be altogether dispensed with; and where that is possible he should be eliminated, not only for economy’s sake, but to break up financial concentration. CHAPTER VI WHERE THE BANKER IS SUPERFLUOUS