The evening telegraph. [volume] (Philadelphia [Pa.]) 1864-1918, 1866-05-25
EVENING TELEGRAPH.-PHnADELPHIA FRIDAY MAY 25 1866

should be regarded as the great exemplar which
the spectators OF London had In view at the
outset; us laciiitles Tor promoting gigantic
UNDERTAKINGS, its potency as compe.
tior With the most wealthy capitalists, and
the opportunities IL offered for bouniless
speculation, were considerations which no
doubt weighed heavily in the minds of those
who afterwards became the organizers of inan-
al comp 1nies on the opposite side of the Chan.
mel. Be this as IL may, the dlscountbouse of
Quincy q Co., with unlimited liability attaching
to its partners, was converted into huge hnan-
cial company, on the principl OF unlimited liza
bility, with prominent railway men among its
directing partners, and with an actually paid-in
cash capital only partially representing its
nominal basis OF operations. Companies of this
nature then multiplied rapidly. Freed from the
ola liability OF partners, and tempted by the
prospect OF prodigious profit spectators with
money and spectators without money rushed
into them with a recklessness which should
hereafter moderate the reproaches OF our Eng
llsn cousins. f
Nothing was more easy than the creation
of financial companies, with nominal capitals of
millions, Of which but fraction had really been
contributed by the stockholders. They were so
many financial pyramids inverted-a great pile
OF credit resting upon minute amount of cash.
The companies, nevertheless, went to work lend.
ing money to help all sorts of enterprises and
paying dividends which looked like usuIious
pront, The money they advanced, however,
was for the most part not their own. They
were mere d1scountlng agencies, assuming
hazardous risks with the chance of enormous
profit, and hypothecating the securities they
received TO obtain the money Tor their custom.
ers. The remainder of the story may be soon
told. The securities ON which the companies
had obtained and III turn made advances
shared the extraordinary depreciation which has
been observable IN the English market since the
commencement OF the present year; and the
banks that had supplied the funds shrank from
an extension oil their investments. In some
cases-as IN the continental railroads, in which
many great contractors are deeply engaged
the further negotiation of loans became impos-
sible. The financial companies, themselves
unable to borrow, were no longer able to lend:
and their available cash capital being utterly
unequal to their business stoppage ensued.
The largest of the companies were the first to
suspend, and then sprang up the panic, which,
according. to our present adyices, although 1t
may be but temporary, has had no parallel
since 1926.
Although, then, the sudden and almost unpre.
cedeDted rise III the Bank OF England rate OF dts
count and its final refusal to assist the financial
companies on any terms, must be regarded as
the immediate cause of the excitement, the real
source OF the embarrassment must be sought IN
other directions. So, again, with reference to
the drain ol gold from England TO the continent
attendant upon the prevalence of war panic
That IS but a subsidiary cause, involving issues
connected with the policy and charter OF the
bank, but ailording an inadequate explanation
OF results which are mainly attributable to pro-
tpDUpl Initiation