Morning journal and courier., 1881-08-15
SournaI aIt0 Coluier.
Monday Morning, August 15, 1881.
MIR. THoMPsoN,s WARNING.

MIR. THOMPSON'S WARNING.
 Of all the papers read before the Bankers Convention last week that by Mir. John Thompson, President of the Chase National Bank of New York, has perhaps attracted the most attention. MT. Thompson sees in the distance, distance he does not attempt to measure, the danger of panic even more disastrous than that of 1873. MT. Thomp- son points out that panics occur about every decade. and in his opinion it is quite natural ttat they should. It takes five years after 8 revulsion to pay up, compromise or wipe out indebtedness. Then follow five years of prosperity, expansion, confidence in credits in fact, ''boom." The last panic was in 1873; the present prosperity commenced in 1878. We have now had three years of ex- traordinary augmentation of riches, much of it real and solid, but most of it emanating from raising prices or putting up quotations. Therefore, MT. Thompson assumes, it is about time to take in sail. He says: 'sThe signs of an approaching 'btizzard' are numerous, but very delicate as yet. When the stock mar ket becomes mixed, and the bulls and bears become desperate, and when the courts grant injunctions iberally, and the financial knave- ry of the opposing parties and schsming is exposed, then capital and credits insid- iously vanish-hoarding is considered the best investment, or loans secured beyond any contingency, even at nominal interest, which is akin to hoarding. This species of fnanciering involves contraction distrust follows, and the credit system is annihilated When we consider that nine-tenths, and, I think, nineteen-twentieths, of our money. so-called, is credit, and nothing else, it is no wonder that financial panics come suddenly The most important sign of @ coming panic and revulsion is to be found in our trade bal ances with foreign nations. As over pros perity has been hugely augmented by the importation of gold, so when the flow of the precious metal is from us, distrust will in- spire contraction, and contraction will lead directly to inability to pay. Money not only becomes scarce, but it is absolutely gone In fact, there is at any time but an inadequate amount of real money to do business on I feel confident that over 95 per cent. of our business and the business of England is done on paper tokens-checks drafts, notes, let ters of credit, &c.-whieh, so long as conf
 
 money, but, like young partridges they dis appear 'on call,' not allowing even three days grace. Discounts are declined, deposits drawn and hoarded. Thus not only the credit system and the money token power is destroyed, but the real money itself disap- pears, not to be again visible until induced out by an enormous depression in prices''
 At present, however, he sees but one indi- cation of trouble, and that is in the number and magnitude of new enterprises involving the issue of millions on millions of obliga- l tions. In 1S71-2 and for half of 1873 this 1 same sign of coming trouble was apparent l In view of the situation, MT. Thompson gives those at the head of deposit banks l some excellent advice. He says: 'tIn re- ceiving deposits from the general and pro- miscuous public, we morally, though perhaps not legally, assume a fiduciary trust, and in using such deposits the utmost caution and conservatism should be strictly adhered to, by always having sure and speedy con- trollability over sufficient amount of our assets to meet any demand obligations, even in the light of raging panic. It is criminal l to assume liabilities or enter into negotia- l tions, though ever so promising, over which l hangs contingency that may possibly en- danger this iduciary trust. Intimately con- l nected with the ideas that are briefly ex- | pressed above, is the spirit of true specula- | tion, bordering on gambling. It is safe to say that, during the past three years, nine out of l every ten ventures have netted profit. 1 This is because almost continually prices have | advanced. When the panic and depression ! shall come-as surely they will-then all l ventures will be losses, and many lambs l will come to grief. I simply touch on this | topic because, in the delinquency of bank | officers it is often shown that the defalcation is the outcrop of 8 venture. Banks that un- dertake heavy negotiations which, if fortune | favors, will yield enormous dividends, but if | fortune frowns, bankruptcy is inevitable, | must always stand in the category of doubt | full institutions"
 Mir Thompson will be called 8 croaker by 1 some, and it is not probable that his waru- l ing, or that of anybody else, will be much ! needed. We are certainly going too fast, however, and a collapse will occur sooner or l later. Whether that collapse will come this 1 year, or next, or the year after that remains l to be seen. Wise men will be as well pre- 1 pared for it as possible when it does come, and the unwise will suffer severely, as usual. l