The herald., 1897-05-05
OFFICE OF THE HERALD.
LOS ANGELES. May 4, 1897.

Los ANGELES, May 4, 1871.
The subject of investment assurance
has engaged the attention Of those ac-
tive promoters who are always on the
lookout for opportunities to benefit the
investing public. The formation OF
company to insure the bonds of cities
has attracted good deal Of attention
from the press. says the New York
Evening Post It being probably the
first venture in this particular field; but
It Is really closely related to number
OF other similar enterprises which have
sprung UP within the last twenty-five
years. all of which have for their object
the addition of a guarantee or assurance
OF some kind to some perfectly we'll
known and established class OF invest
ment.
According to the prospectus before us,
says the Evening Post, the annual crop
Of city, town, county village and schoo.
bonds In the United States is about $780,
900, 900, and there were on June 1. 1890,
about 1907, 900 900 outstanding The COM
peny proposes to guarantee absolutely
the payment Of principal and interest.
Hc 'DuSlHCs6 vi tiS SOHCSlH lSy tHSi C
fore. as defined by itself, that of "insur-
Ing bonds of political subdivisions less
than a state"
"Communities offering sound. stable
and therefore insurable, credit will have.
under normal financial conditions, little
difficulty In making such credit availa-
BILE. while those Offering unworthy or
low credits, hence uninsurable, will be
met by serious, and perhaps insurmount-
able. obstacles. The line of distinction
between the good and the bad will be
more sharply drawn and more clearly
recognized than heretofore. Counties,
towns, etc. etc, will avail of our insur-
ance, and, In addition to the revenue to
the company therefrom, further income
will be derived from investors, for the
reason that insured bonds will command
q premium over uninsured bonds, on the
ground that two good names upon a
promissory note are better than one.
Prudent trustees of savings banks and
Insurance companies, whose holdings of
this class of securities are very large,
will doubtless avail themselves of the
additional security offered by the guar
antee of this company"
The names appended to the circular
are those of rich men, but the amount OF
capital which they propose to embark
is only $1,500000, and the first question
which occurs to anyone looking over
the circular Is how, with capital OF
only a million and half, can anything
substantial be done In SO enormous a
field. Curiously enough, however, this
question Is raised by the prospectus of
every company which undertakes to re-
inforce an investment by a guarantee.
OF course we have no idea whether this
scheme itself will prove q success or
failure; whether it has enough capital
or too little; whether its management
will commend 1t to investors or not. We
merely cite 1t as an Illustration of a class
OF schemes which all, so far as we have
examined them, have this feature In COM
mon--that they insure very great busi-
nessT with a small capital The whole
enormous business of real estate title
insurance comes under this head; so, too,
do the innumerable companies formed
to invest money in western states, and
issue their own bonds. based on the orig
inal investment. These, though not
nominally insurance companies, perform
an analogous function.
In all such cases. the mystery. II 1t can
be called such, does not lie very far be-
low the surface 1t consists in the fact
that the class of investment which the
company assumes or becomes RESPONSE
BILE for is on the whole a safe risk, pro-
vided enough time and thought are CIV
en- to it. The principal and interest of
municipal bonds are, as a rule. paid. just
as the principal and interest of mort
cages are; the titles of real estate are
in ninety-nine cases out of hundred
entirely good. There is, however, in all
investments risk as to the real value
of the security and also of litigation.
Towns and cities which borrow money
can always be held in law by their cred
itor, provided the original authority to
borrow was unquestioned, and the law
followed in the negotiation of the loan:
and provided also that they are well
enough off to pay. A mortgage in South
Dakota is perfectly collectible. provided
the title is good and the property can be
sold for more than the amount Of the
loan. Every investment in lands and
houses In New York is perfectly secure,
provided there Is no flaw in the title.
The ordinary investor in far too many
cases for his own subsequent comfort
and happiness assumes these risks him
self So, too, may banks, insurance and
trust companies. Indeed, 1t is only in
the case of bond and mortgage invest
ments which have now for hundreds of
years stood for the highest class Of Sc
curity in the world. that mankind has
learned that risk may be eliminated al
together.
Nobody In his senses ever takes bond
and mortgage without careful report
by q conveyancer on the whole subject
Of the risk. The property must be worth
70 much more than the loan, and the
title must be flawless To this he gen.
orally adds now an insurance of the
title. At the opposite extreme from this
may be cited the case Of railroad invest
ments A railroad bond Is in kind pre-
cisely like real estate mortgage. In
fact, 1t is an interest in a mortgage on
real estate used in peculiar way. Its
value depends wholly on the business of
the road and what the property is worth