The Democratic press. [volume] (Ravenna, O. [Ohio]) 1868-1901, 1883-07-19
WHOLE No. TIT.
Business and Banking.

There are nearly one hundred banks
in New York, everyone of which holds
some proportion of what is known in
discount circles as ''swamp paper
The recent failures in the leather and
| other trades have consequently excited
| no little discussion among bank officials,
and the question is eagerly canvassed,
What is the soft place IN the present
system which enables firm to carry on
its transactions upon borrowed capital
until nearly all its assets have disap-
peared?
Under the system which prevailed be-
fore the war, the bills in the market rep
resented bona-fide mercantile transac-
tions. If merchant bought so many
hides. he gave bill for the amount.
When he sold, he drew on his customer,
and in each case the document bore on
the face of it the consideration for which
1t was drawn. In those days credit was
much longer than it is now. Three and
six months were common usances, and
even ten months was not unknown. Al
though there was no absolute hypotheca-
ton of the goods to meet the bill, yet
the buyer had, or supposed he had, the
security OF q legitimate trade transac-
ton at the back of it, and that the goods,
when sold, would discharge the liability.
The war, and the disorganizatipn of
currency caused by it, abolished all this
Credits were shortened. Currency was
plentiful and deprecated in value
Every existing debtor made haste to
discharge his liabilities In q medium so
reduced from its face value that the
creditors received only o percentage of
his debt in discharge for tho whole
This changed the entire system of mer-
camille transactions. National took the
place of individual credit. The system
Of long usances disappeared. and trade
transactions were reduced practically
TO cash basis. The great majority of
the business of this city is now trans
acted at from thirty to sixty days credit,
and bills are rarely drawn except when
the customer requires further indul-
gence. The amount of mercantile pa
per afloat representing specific mercan-
tile transactions is probably not tenth
part of the turnover. A new system has
consequently taken the place of the old.
The merchant, instead of selling his
customers paper, furnishes q broker
with his own notes, and these are sold
O the banker generally upon the repute
and credit of the firm alone, or with the
.upport of an indorser. Under this sys-
seIn. the paper out bears no necessary
proportion to the business done. In
Iced, it seems as if some of the firms
who have recently failed have added
paper factory to their leather business
The notes issued, which in a sound con-
Germ should go to purchase fresh stock,
nave simply represented an increasing
deficiency, and the traders have gone
on until the bulk of the assets have van
shed.
Several remedies arc proposed 1t
has been suggested that by some sort of
freemasonry between the banks it might
be possible to tell how much paper each
firm has afloat. But this suggestion is
scarcely feasible. Much of the paper is
old to private buyers in country towns,
who could not be approached The
remedy really rests with the banks them-
selves. Instead OF following each other
like flock of sheep and buying paper
because the house IS in good credit,
they should insist on the merchant
furnishing his broker with certified
balance sheet to be shown to persons
buying the paper, Such system would
enable bankers to CLEAN some idea of
the risk they run, and firms who con-
slider the suggestion derogatory to their
dignity might better keep out of the
market. There is another objection to
the existing system in that 1t offers great
opportunities for fraud, such paper be-
ing easily fabricated by dishonest
partner fer his own purposes Neao
Vorl, Tj.Jb7J77e