The New York herald. [volume] (New York [N.Y.]) 1840-1920, 1857-08-04
The Banks and the Railways.

Tie recent failure of two bank Presidents, in
consequence Of their connection with insolvent
railways suggests some momentous inquiries as
to the extent to which the banking is involved 10
the railway system 1t is now generally fore
seen by persons of experience AID judgment
that as productive property the railroads Of
this country are failure, and that the question
of the insolvency Of some and the quiet ex-
tiuction of Others is merely one Of time. But no
such impression prevails generally with regard
to our banking institutions which, as q rule, are
regarded a. safe, and prudently managed. II,
however, 1t shall turn out that the one are in
volved with fhe other and the banks in any
woy epcnped toward tho --ohc al home OF
abros as s,....les for the railways then the pub
lie impression had better be altered as soon as
possible, for the ruin of the railroad interest
would precipitate the ruin Of the banks.
As o general rule. we presume that the
banks Gre not to any considerable extent holders
of railway stock or bonds A few imprudent
bankers may have portion Of their meaus in
these securities but, in this part Of the coun.
try et least there has been for some time no
permanent investment by the banking class
III 20 lANNhAloAo IelNA. AAS ouhy PoAhso
Of contaot-at preeent-between banks aud
rauways-are advances to the latter by
the former on stock or bonds hypothe-
Gated, or on railroad paper. The extent of these
advances is large, the temptation being great
AT time when money can be had with ease upon
first class paper for 10 per cent, railroad pa
per sells VIGOROUSLY of two per cent q month;
.,,J In tho oaao Of c,tnh utforIv hroLon
concerns as the Erie ard the Michigan Southern,
but in that Of roads which are still considered
productive property. 1t Is common saying in
Wall street that individual paper is worth Just
twice Us much as railroad paper; and experience
fully vtrifes the adage. IL is this temptation
which leads some Of our banks. and we fear very
many of onr bankers, to use their spare moneys
in dissoun;ing acceptances which prudent bust
nes- man would not touch. The reward-for the
moments large; bat experience shows that the
ultimate cost In great proportion Of cases must
I be ruin. No concern in this country can do bust
ness pIodtab!y while borrowing capital at two
| per cent month: any one can tell, therefore,
what must be the eventual fate Of the lender.
Leaning money on stock appears a safer opera
4 tiob. N ituttut NhilNh4lrt Will tAhCt lhtAt
margin from the borrower; il is understood for
instance that the parties who loaned the money
for the late corner In Michigan Southern, took
the stock a. collateral at 80 per cent. But this
is only another form Of gambling. Let an acct
dent occur. and who shall say what margin will
BE- safe How much did New Haven stock de-
cline when -chuylcr's fraud was discovered Let
H. e..
supply Of specie, and where would the stock
market be? Any one Of a hundred mishaps that
may lie imagined would knock all the virtue out
Of The most copious margin all the hypothccary
holders would rush into the market, aud, M a
matter Of course, the hindermost would suffer.
We look to sec several OF our prominent capital
lets and bankers caught in this manner. In spite
OF what they consider TO have been most remark
able prudence
| Considering everything-the obvious decline
in public confidence with regard TO railways: the
decline 10 their receipts and the increase in the
cost q working them the constantly recurring
/ frauds among those who are entrusted with their
management. aud on whose honesty the whole
| value of the property depends and finally the
evident symptoms of a desire on the part Of our
foreign friends rather TO return us the securities
they have than to plunge deeper into such invest
ments considering all this we cannot but think
that IT would be sound Judgment for our banking
institutions to stear ~ clear Of the railways a.
| they would Of bogus mining companies A time
| il evidently at hand when Europe will again be
horror struck at the insolvency and fraud devel-
oped in these great railway corporations of ours
il bthooves the bankers to sec that they do not
share The disbust that will be created. AS
general rule we have reason to believe that the