The Rock Island Argus. (Rock Island, Ill.) 1877-1885, 1883-05-04
BUSINESS AND BANKING.

| There are nearly one hundred banks in
| New York, every one 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 dis
cussion among bank officials, and the
question is eagerly canvassed, What is
| the soft place in the present system which
| enables q firm to carry on its transac-
| tions upon borrowed capital until nearly
all its assets have disappeared
|. Under the system which prevailed be
| fore the war, the bills in the market rep
resented bona f1de mercantile transactions.
If merchant bought SO many hides he
gave "a bill for the amouat. " hen he
sold, he drew on his customer, and 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 were common asances, and
even ten months was not usi-
known. A tn ough there was no abso-
Lutte hypothecation of the goods to meet
the bill, yet the buyer had, or supposed he
had, the security of legitimate trade
transaction at the back of it, and that the
goods, when sold would discharge the
ability The war, and the dIsorg aniza
ton of currency caused by it abolished ali
this Credits We're shortened. Currency
was plentiful and deprecated in value.
Every existing debtor made haste to dis
charge his liabilities in a medium SD re
duced from its face value that the creditor
received only percentage of his debt in
discharge for the whole. This changed
the entire system of mercantile transac-
tons. National took the place of ind
vidual credit The system of long .usan
ces disappeared and trade transactions
were reduced practically to a cash basis.
The great majority of the business
of this city is now transacted
at from thirty to sixty days credit,
and bills are rarely drawn except when
the customer requires further in
diligence. The amount of mercantile
paper af1oat representing specific mer-
camille transactions is probably not a
tenth part of the turnover. new sys-
tenn has consequently taken the place OF
the old The merchant, instead of selling
his customers papers, furnishes broker
with his own notes, and these are sold to
the banker generally upon the repute and
credit of the firm alone, or with the sup
port of an indorser. Under this system,
the paper out bears no necessary pro
portion TO the business done. Indeed 1t
would seem as If some of the firms who
have recently failed have added a proper
factory to their leather business. The
notes issued, which in Il sound concern
should go to purchase fresh stock, have
simply represented an increasing deficien
cy, and the traders have gone on until
the bulk of the assets have vanished.
Several remedies are proposed. 1t has
been suggested that by some sort of free
masonry between the banks it might be
possible to tell how much paper each firm
has af1oat. But this suggestion is scarce
ly 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 themselves.
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 bro
ker with certified balance sheet to be
shown to persons buying the paper. Such
system would enable bankers to CLEAN
some idea of tho risk they run, and firms
who consider the suggestion derogatory
to their 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
being easily fabricated by dishonest
partner for his own purposes.