The Birmingham age-herald., 1907-12-30

bonded at the old rates of interest the better provided net earnings may read fly increase and no new capital Is re- quired, and always provided the manage ment consists of honest men, should show great profits. For the bondholder's loss becomes the stockholders gain.
 It will be unwise to buy low interest bonds unless the buyer has offerings of equal security to his present holdings on far higher basis than at present pre- vails. During the lulls, when general in terest rates for a short time decline largest profits will be made in selling bonds when they rally owing to lower interest and immediately reinvesting in the stock of companies soundly managed having low-prlced equities and heavily bonded, the bonds dating before 1901.
 Social Discomfort.
 It will not be to the interest of salaried men to remain too long on low salaries. The more prosperous business firms will advance salaries, and by moving about, salaries may be more quickly adjusted. A great burden is placed on the poor by high prices for living. Hereinflies the po- litical uncertainties arising from social discontent. In 1S92-1S96, the farmers were radical because the prices for their farm products were very low on account of the appreciation in gold. Now the farmers are prosperous on account of high prices for their products, but the poor in cities paying high prices for commodities and losing employment on account of com mercial depression will shortly be added to the radical element, and become the hotbeds of social discontent.
 Doubtless the sale of $40.0 600 corporate stock and bonds by the city of New York will mark no less the commence ment of new era of investment values than the necessity for early changes in the laws regulating the Investments of savings banks and trust institutions. That we are on a new investment basis, few may longer doubt. That $40000, 900 AZ per cent bonds, tax exempt, should bring only 102 on the average, basis yield of about A per cent adding the amount of the tax to bring this invest ment into comparison with securities subject to tax, say IF per cent, an equiv alent yield of nearly 6 per cent for New York city bonds will prove for the ma jority of financiers sufficient indication of the trend.
 The price of the New York city bond ls- sue represents the havoc which gold de- preciaton has wrought up to this date. How great is the fall in New York city bonds few even now realize. In 1904 the New York city 3h per cent bonds were distributed to the public as high as 1O4. Since then a decline has occurred of 24 points, 9 per cent in this gilt-edged investment security. From the standpoint of the holders the comparison Is even more discouraging because the purchas- ing power of the dollar in the brief inter- val of three years has declined 10 per cent, as measured by the index number issued by Dun last May, when presum- ably on account of the extraordinarily rapid advance in prices this ancient sta tistical landmark was abandoned. Con sequently the holder of the 3l2s finds that not only has he lost 25 per cent of his capital measured in dollars, but that $50 will only purchase what Sl2 would three years ago. Therefore, measured m the real test of purchasing power the holder has lost 32 per cent of his capital, and received in the meantime an interest return of 3h per cent, little more than one-half the current time rates now rul- ing for a year. That the effect must go farther no sane critic can doubt.
 That there has been secret selling of bonds of well informed interests in amounts reaching great proportions is doubtless within the knowledge of a few The difficulty in unloading bonds on &C., count of the narrow market, which many issues and specialtes possess, makes 1t difficult to show the real quotations which many issues would bring.
 Savings Banks.
 That a situation has developed in the firmness of savings banks as well as m insurance companies requiring changes in the laws regulating the investments of savings banks. the New York city issue forcibly suggests. That the laws should restrict investments of savings banks to bonds and mortgages seemed safe to the law-makers because the thought Of loss by depreciation of the standard of value was lacking Moreover, the laws helped the sales of bonds by large dealers In New York, Massachusetts and Connect1- cut the laws were made drastic enough Savings banks were practically compelled so far as securities are concerned to make only loans to corporations (by be- ing forced to purchase the bonds) and re- stricted or rather barred from investing in The equities which represent the growth of uhis great country, the richest In the world Fixed investments consist of two great classes, common stocks and bonds. In former times such securities repre- sented capital invested, because the rate of interest in all industries was subject to comparatively small differences. In fore closure this value could be lquidated On account of insufficient regulations controlling capitalza ton, worthless pieces of paper fromsuthe standpoint of liquida- ton under foreclosure inasmuch as they represent simply contingent earning pow CT have been sold to trust institutions TOT investments.
 The conditions existing in the insurance companies are familiar from the Arm strong investigations. The same problem exists In the savings banks. The tempta- tions offered to trustees of savings banks In the way of opportunity to profit by underwriting bond issues personally, by which if the syndicate Is profitable the bonds are sold by the syndicate and the profit accrues to the trustee and If un- successful, the savings bank Is made to purchase the share assigned to the trustee, should be vigorously dealt with. Likewise. the payment of commissions and rebates to trustees of savings banks in connection with purchases of bonds should be frowned on, as both these prac- tices are breaches of trust
 Ciearings Increase.
 As result of the speculation resulting from gold depreciation and advancing prices, and the weakness in the character of certain investments of trust institu- tions already pointed out, the tropic conditions natural in hothouses of infla- tion rapidly developed. The volume of cIearings increased not only in quantity, but also In value on accoupt Of higher prices. The demand for currency to transact business, became really practi- cal question for the bankers. Without studying the causes, Congress has pro- ceeded to remedy this real though un- natural demand for more currency. Like the man who by tugging at his boot ,terl,n r,Ia lad