ty genially describes as a "frost," the underwriters
may find themselves saddled with the greater part of it, and will have
the pleasure of nursing it until such time as the investing public will
take it off their hands. Underwriting is thus a profitable business when
times are good, and the public is feeding freely, but it can only be
indulged in by folk with plenty of capital or credit, and so able to
carry large blocks of stock if they find themselves left with them.

To take a practical example, let us suppose that the King of Ruritania
is informed by his Minister of Marine that a battleship must at once be
added to its fleet because his next door neighbour is thought to be
thinking of making himself stronger on the water, while his Minister of
Finance protests that it is impossible, without the risk of serious
trouble, to add anything further to the burdens of the taxpayers. A loan
is the easy and obvious way out. London and Paris between them will find
two or three millions with pleasure. That will be enough for a
battleship and something over in the way of new artillery for the army
which can be ordered in France so as to secure the consent of the French
Government, which was wont to insist that a certain proportion of any
loan raised in Paris must be spent in the country. (It need hardly be
said that all these events are supposed to be happening in the years
before the war.) Negotiations are entered into with a group of French
banks and an English issuing house. The French banks take over their
share, and sell it to their customers who are, or were, in the habit of
following the lead of their bankers in investment with a blind
confidence, that gave the French banks enormous power in the
international money market. The English issuing house sends round a
stockbroker to underwrite the loan. If the issuing house is one that is
usually successful in its issues, the privilege of underwriting anything
that it brings out is eagerly sought for. Banks, financial firms,
insurance companies, trust companies and stockbrokers with big
investment connections will take as much underwriting as they are
offered, in many cases without making very searching inquiry into the
terms of the security offered. The name of the issuing house and the
amount of the underwriting commission --which we will suppose in this
case to be 2 per cent.--is enough for them. They know that if they
refuse any chance of underwriting that is offered, they