Evening times-Republican. [volume] (Marshalltown, Iowa) 1890-1923, 1907-10-30
THE CAUSE OF 1T ALL.

ne GNUSE Uf ~ ALL.
This is the strangest money panic
the financial world has ever seen
There has been no crop failure. not g
factory shut down, the governments
stock of money is strong, no political
campaign is on, to threaten dangerous
changes, but rather is every man fully
employed at high wages crops reason
ably bountiful, railroads taxed to ac-
commodate traffic and a sound finan-
cial system in use and yet, for a day
or two, banks have been afraid that
people would all want to draw out
money at once. What caused 1t?
Lets go down to New York City
where the trouble began and where II
ought to have ended When business
is active and people quiet all over the
country. the small banks send quite
large balances of money to the banks
of their market centers so as to have
an account to draw upon when SELL
ing bank draft. Drafts are merely
the banks own checks on a deposit 1t
has in some big city bank BY having
this deposit in the city the small bank
can pay bills in the city for its coun-
try patrons by using its own checks
which are called drafts.
When hundreds of country banks
thus make deposits in the city banks
an immense pile of money or credits
accumulates and the city banks make
heavier deposits In the New York
banks and then the New York banks
loan more money to the men of big
finance. This process goes on every
year and in turn regularly the New
York banks are always unprepared to
send the money back to the country
Where 1t is actually owned when a new
crop has been raised and must be paid
for, but they have not been reduced to
distress until this year. Why then this
year?
For nearly three years now the men
of high finance have been under inves-
tigation Thieves and robbers, per-
jurers and law breakers have been
discovered right and left among them
until the public has grown distrustful
Of all financiers, especially New York
financiers. During all this time as
prosperity grew, the volume of bust
ness grew. The more business done
the more bills to be paid and the more
work for the banks to do. More men
wanted to borrow money to handle
their increased business until the big
factories and wholesalers in the east
had to send their notes out west where
money could be borrowed, which they
have been doing all summer because
money was tight in the east; that Is,
the banks there had loaned out all
they could.
Thus we have public confidence In
the New York type of financier under
mined and so much business seeking
money with which to pay it's bills as
to create a pressure above. Then came
the usual fall demand from country
depositors for their money and the mo-
ment the New York banks began to
feel pinched the people of New York
City and the east, already grown dis
trustful by the shameful disclosures In
high finance, made run for their
money.
Now, the soundest bank in North
America would be unable to pay all OF
its depositors at once. Banks every
where do business on the law of av-
erages, knowing from experience that
only certain portion of their deposit
tors will need their money on the same
day and that most of the money
drawn out in the morning by one set
of depositors will be paid to other men
and be brought back to the bank
again before night So banks, the
soundest and most conservative, keep
less than % per cent of their deposits
on hand, loaning the rest out at in
terest The law based upon the bank
ing experience Of a hundred years con-
siders bank sound when fifteen per
cent of it's deposits is kept on hand in
cash and for this reason places fifteen
per cent as the requirement.
When fear seized the people Of New
York City it was not strange that the
banks there, even the soundest of
them, found themselves in distress for
cash. From the government and other
sources they raised hundred millions
but when paid out, almost seventy
millions disappeared from sight That
much failed to come back to the banks
from other depositors SO it was ap-
parent that a panicky people We're
hording and secreting it. This COM
PEELED the New York banks to tell Chi
cago and St. Louis, I'VE will not ship
currency-we need it ourselves until
the scare blows over" Chicago and
ST. Louis figured that if they could not
call on New York for currency they
had better keep what they had and so
notified Des Moines. Indianapolis and
the cities of the third financial class.
Compelled to do business on their own
cash reserve these cities left the small