The Rock Island Argus. (Rock Island, Ill.) 1877-1885, 1883-06-19
Business and BANKING.


There are nearly one hundred bsnks
~ new York, everyone of which holds
some proportion of what is known inI
discount circles as swamp paper.
he recent failures in the leather and
ot'lef trades have consequently excited
no little discussion among bank officials,
and the question is eagerly canyassed,
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 hona-fide mercantile transac.
IONS. Ii merchant bought so many
hides, he gave a bill for the amount.
When he sold, he drew on his customer.
ana In each case the document bore on
the face OF it the consideration for which
IT was drawn. In those DAYS credit was
much longer than it is now. Three and
SIX months We're common usances, and
even ten months was not unknown. Al
though there was no absolute hypotheca-
ton OF the goods to meet the bill, vet
the buyer had, or supposed he had, the
security OF legitimate trade transac-
Ton at the back of it, and that the goods,
when sold, would discharge the liability.
The war, and the disorganization 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 medium so
reduced from its face value that the
creditors received only percentage of
his debt in discharge for the 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-
gcnce. The amount of mercantile pa
per atloat representing specific mercan-
i 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 broker
| with his own notes, and these are sold
to the banker generally upon the rcpute
and credit of the firm alone or with the
support of an indorser UnierthiS sys-
| TEN, the paper ont bears no necessary
! proportion to the business done. In
| deed, it seems rs if some Of the firms
| VINO have recently failed have aided a
| paper factory Ia their leather business.
| The notes issued, which IN Il sound CON
! Germ should 90 to purchase fresh stock,
have simply represented an increasing
deficiency, and the traders have gone
on until the bulk of the assets have van
ishcd-
Several remedies are proposed. 1t
| has been suggested that by some sort OF
| frcemaSOnry between the banks it mioht
be possible to tell how much paper each
firm has aflOat But this suggestion is
scarcely feasible Much of the paper is
sold 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 a system would
enable bankers to CLEAN some idea OF
the risk they run, and firms who CON
slider the suggestion derogatory to THEN
dignity might better keep out of the
market. There is another objection to
the existing system in that it offers great
opportunities for fraud, such paper be-
ing easily fabricated by a dishonest
partner for his own purposes. Neat
| York Tribune