Omaha daily bee., 1908-10-29
GUARANTY PRINCIPLE WRONG
Forces Prudent Man in Partnership
with Plunger.
THEODORE BURTON GIVES REASON
borrower and DepOsltor I'm Institu-
tIOn viii Foot the BiII-Uncer-
tninty of Risk Fatal TO
Good Business.

CHICAGO Oct. 2s.-(special) )-Theodore
Burton, member Of the monetary commits
sion of the United States and chairman of
the commission on rivers and harbors of
the national house speaking of the "Fal-
lacies of Guarantee Banking" declares the
first and perhaps the foremost objection
to be urged against Mr.. Bryan's PROPOSE
tion to guarantee the deposits in the ma
tional banks is that it is wrong in prln-
ciple.
1t says to the man who is prudent, skill
full and honest in his banking business and
methods: we will force you, in the most
important feature Of banking, to become a
partner with many others whom you do
not know and who are widely scattered"
1t imposes a regulation on bankers which
would be absolutely fatal to success in
any and every other line of business 1t
would ignore and obliterate the difference
between those who are worthy to be sue
cessful, those who are to be trusted and
those who are not entirely to be trusted
and not fully worthy to succeed.
In addition to this 1t would violate that
cardinal principle of all business opera
! tions, that authority must accompany re-
sponsibility. This is a big consideration
and can hardly be too strongly empha-
/ sized In this particular connection. The
substantial honest and conservative
banker would, under Mr.. Bryans scheme,
| have no supervision whatever over the
other bankers as to their methods of con-
| Quoting their business, but would at the
same time be compelled to stand as guar
antor for them, for the dishonest, the
reckless and the blundering ones as well
as for all others,
Banker Must Guarantee BllndIy.
And not only Is the solid banker made re-
sponsible under this scheme for any mis-
takes or the results of recklessness or dis
honesty on the part of any other bankers,
and not only is he utterly without authority
over them, but he is also powerless to
fortify himself with any definite informa-
tion as to how other bankers are conducting
their business; he cannot demand to see
their books or to be informed of the safety
with which their loans are being made.
Right in this connection it should be said
that there is nothing so fatal to successful
business as an indefinite and an uncertain
risk In the life insurance business the
companies can. by means of dependable
mortuary tables, Judge correctly on the
average length of life of those whom they
insure
In the fire insurance business there is
not quite the same degree of certainty OF
of uniformity in the amount of damage by
conflagration-in other words, the unde-
fined risk in the field of fire insurance is
greater. And this uncertainty compels
them to charge considerably higher rate
than they would otherwise have to charge
Insurance Against Theft Unsuccessful
To put it still differently, this uncertainty
lax
provided for else the business institutions
assuming such a risk must come to disaster
Insurance against loss by theft has alsc
been tried, but the companies which have
undertaken this class of risks have beer
almost uniformly unsuccessful In word
it has been asoertained In practical expert
ence that insurance against theft is outsid,
the line of practical and rational assurance
Now, insurance against loss by banks /,
far more impracticabe and objectionabl,
than insurance against theft, because it in
wolves many more elements of uncertainty
No man can even remotely approximat,
what will be lost by the blundering of wei
intending bankers or by the dishonesty o
INSCRIPTIONS ones.
The variety of mistakes which can b.
made by the blunderlng. careless and in
|
honest is perhaps only exceeded by the va
riety Of ways in which the unscrupulou
banker can manipulate the funds intruste,
to his care to the disaster of his depositors
or under the operation of the plan pro
posed by Mr., Bryan. to the disaster of tn
conservative and honest bankers who ar
made liable to those depositors.
borrower and DepOsItOr Foot Bill,
| he 4aax toIIa -
or bankers responsible for the losses o
others over whom they have no contro
would be an increase in the rate of inter
est which the banker must charge on loan
and diminished rate of interest to the de
positor. The conservative banker woul
, have to say to the borrower;
. "A new risk has been injected into m,
business. l must secure myself against II
And the only way by which / can do thi
! is by charging a higher rate of interest t
those whom l accommodate with loans"
Z And to the man who comes to his BAN
with money for deposit he would have 1
say: THE new risk injected into my busi
4 ness by this underlined responsibility com
] pels me to lower the rate of interest I
those who deposit with me-
Z This consideration is especially importan
to the banker with regard to deposits be
e cause in proportion his deposits increas
e his risk increases in any system invoIvin
{ Insurance Of deposits. Naturally and nor
e mally the aim and desire of the banker
to increase his deposits-that is the basi
I advantage which will lead to successful
= under such scheme as Mr.. Bryan prc
d poses he would not only be moved to hes
n tate about getting too large a volume c
= deposits in his own bank, but the deposit
= in the banks OF his competitors would b
4 the legitimate cause Of the keenest concer
/: on his part because Of the liability involved
4 Speculation Would Increase,
/, Then there is another Ill result ingraine
In this scheme which has not been muc
exploited and which is. to my mind reall
n the worst of all: Insurance of deposit
without regard to the degree of care exei
n cised by those who receive them woul
stimulate the injudicious opening OF entei
prises.
The banker is necessarily a conservatiy
n element in our business life-at least he
'r so II he transacts the banking bushes
Is according 70 normal regulations At n
a.