The representative. [volume] (St. Paul, Minn.) 1893-1901, 1897-10-20
SERIOUS CONDITIONS IN NEW YORK
Are We to Have Another Panic?

Are We to Have Another Panics
Continued from Last Week)
The New York banks make the basis
! of this credit by extending loans to
! the stock spectators to enable them
to take up the securities sold by for
| eigners, the brokers use the credit -
| granted to pay the agents of the Euro
pean bankers, selling stocks and buy
| ing grain and cotton, for the stocks
| sold, who in turn deposit the proceeds
! in the New York banks. Thus the
| credits granted to the stock brokers are
| passed to the account of the agents of
| the European bankers selling stocks
and buying grain. But the credits are
not extinguished as they would soon
| be if spent in New York. The credits
| thus gathered belong 10 growers of
| grain and cotton and on such credits
| the agents of the foreign traders and
purchasers of our produce have depend
ed for making their payments. They
have drawn on such credits in payment
for the grain and cotton bought So
it is that the New York banks that
have extended credits to stock specula-
tors to enable them to purchase the Sc
curities thrown on our markets by for
eigners have been called upon to ul-
timately redeem those credits by the
shipping of currency to the country.
And this has madesa serious drain on
their resources, drain which was not
felt in full force at once, for the moneys
due the farmers were needed to clean
up back debts, but which has been
most rapid during the past few weeks.
AS result, the reserves of the New
York banks have been so depleted that
the banks have felt ts,llel upon to cur
tail their loans. And the inevitable
, result of this has been to force those
who engineered the late boom in stocks.
with the help of the banks, to withdraw
their support from the market. And
stock continuing to be offered by for
eigners, prices have sagged.
Now, in New York banks are for.
bidden to make new loans or discounts
when their cash reserves do not equal
rs per cent of their deposits. And this
limit is being approached. Therefore.
cne of three things must happen. The
banks must curtail their loans and so
endeavor to build up their reserves.
they must build up their resources bv
importing gold, whatever such imDOr-
tation may cost, or they must break
the law At different times the New
York banks have done all of these
things. Now to call in their loans and
refuse to extend further accommoda-
lions to stock brokers would force such
brokers to throw their holdings on the
market and at the same time render
them pOwerless to take off the market
the securities offered by foreigners and
pressing for sale. The inevitable result
would be shrinkage in prices, the
extent Of which shrinkage can only be
measured by the cuTtailment of loans
on the part Of the banks If that cur
tailment should be severe the fall IL
prices would be severe, If carried on
far enough would result in panic, and
general collapse of values
Moreover, as merchants and manu-
facturers would feel a contraction of
loans made by the banks, perhaps to
an even greater degree than the stock
brokers, there would come a general
sacrifice of commodities and decline in
prices. And such contraction must act.
as it ever has, as a double edged sword
upon the banks. Contraction of credits
by the banks ever breeds a withdrawn
of deposits and for two reasons. First.
borrowers of money unable to get ac-
commodation at the banks must look
to individuals with deposits in the
banks to give the accommodation the
banks refuse. If such accommodation
Is sought in vain a sacrifice sale Of
stock must be made, and the puchas-
ers must in great part be those with
money in bank for they alone are likely
to be able to command the means OF
payment. So deposits in the banks
must be drawn upon when the banks
curtail accommodation, not only to the
amount required to pay the loans called
by the banks, but by the amount of
assistance required by those refused by
the banks but fortunate enough to find
assistance outside. And second, fall
ing prices ever breed distrust and fear
and lead to the withdrawal of money
from the banks for the purposes OF
boarding.
So for the banks to seek to build m
their reserves by eurtailing their loans
is very likely to meet with poor sue
cess At best, such a course must lead
to serious losses both to customers and
banks; 1t ever has done so and not
unfrequently brought the banks to the
verge OF suspension, indeed, forced
them to virtual suspension which they
have striven to hide by breaking OF