Omaha daily bee., 1908-09-26

in over forty years of the national bank
system, which is only one twenty sixth OF
i per cent per annum, the advocates OF a
guaranty fund make the further exhibit of
ignorance as to banking operations by say
ing, II this loss Is so small, why not go
further and gives us absolute security?
Absolute security, indeed. As II anything
in human affairs is capable of absolute GER
tafnty. Men are not yet perfect. and a bank
does business with fallible human beings.
A borrower of a bank, when In the midst
Of important operations, may die; a house
borrowing of a bank may have an en-
beZZling official; a financial depression may
oblige banks to continue loans rather than
force failure, and yet, in view Of all these
things. the banks are asked to give abso-
lutte security. Why not ask a clergyman
on becoming pastor OF a church to give
absolute security that no one in his flock
will ever tell a lie, commit an error in con-
duct, or go to hell fire? Why not make
the doctors give a guaranty that no patient
shall ever die?
Banks, or any other business enterprise
can no more promise absolute security than
a father can promise the moon to a spoiled
baby. There will always be risks so long
as men are fallible. That management IS
best which makes the least mistakes. If
commercial banks to become safety de-
posit vaults. There is no alternative. The
man who demands absolute security writes
himself down as a foolish visionary, lgno-
rant of practical business methods.
scheme Is Unfair.
The scheme to insure deposits requires
all banks, good and bad, to contribute to a
fund to pay off depositors in Institutions
that have failed. The more successful the
bank the more II must pay into the fund;
into the fund. The successful are to pay
for the mismanagement of the un-
successful. If a burglars robs another
mans house, go to the most honest man in
the place and rob him to pay for the loss
OF the other man; 1t will increase the eager
ness of all men to be honest and discourage
~ roll - q Thn anhnDNa fa apFA 1 gTnNNl1
work perfectly-in an insane asylum. MI.
Bryan has well said, and we must all agree
with him, lone of the things ! want to
see adopted in the form OF regulation of
banks in the near future, is the law that
will put the penalty on the right man and
not on the community II the English Ian
guage conveys meaning clearly, those words
mean that Mr.. Bryan tavors penalizing the
man who cheated his depositors by bad
loans and not the man who protected his
depOsitors by safe loans. If that Is the
case, It is logical to suppose that Mr.. Bryan
Is radically opposed to the guaranty OF
deposits. The only way to control the In
itial act OF each bank when making a
loan is by increasing the rewards to sound
and conservative banking. 1t cannot be
done by saying that If bad loans are made,
the penalty for them shall fall, not on the
unwise banker who made them, but on the
innocent and wise bankers who had nothing
whatever 10 do with the bad loans. That is
dangerous political, as well as banking,
Morals. TO suggest that sound banks
should pay the customers of unsound banks
IN cases OF failure puts the responsibility
and the penalty on the wrong persons and
violates every principle of justice and fair
ness between men.
The persistent failure to understand the
patent facts of banking IL disclosed, also,
in the contention that a guaranty system
would discourage reckless banking. Mr..
BRYAN SAYS, under this plan of securing
the depositors the ~stockholder loses all that
he has before any other bank loses any
thing. Not only does he lose all his stock,
but he also loses the penalty that the law
fixes, and the loss of the stock and the
penalty are enough TO make him exercise
care" It really amazes one To find any
one so ignorant of our national system as
This. and vet, this statement comes from
one who does not hesitate to instruct and
to threaten the bankers. Is II possible that
he does not know that under existing law
every bank must first list all its capital,
surplus. undivided profit and stockholders
before the depesitor looses? Then, from MT
Bryan's own point of view just as things
are today, We rave an the conditions to IN
sure vigilance just as well as II we mad the
much Wanted guaranty Of deposits.
The worst monetary fallacy in the argu-
ments of the guaranty theorists Is IN the
claim that. II established, the system would
draw so much money into the banks as TO
remove all necessity OF creating an emer-
gsnoy circulation. The error mere IN
confusing property with the medium Of eN-
change by which the goods are exchanged.
Finally, We may say that the guaranty
OF deposits appears now chiefly because
II Is an appeal TO 100000 depositors al
though on an impossible and impracticable
basis, and that Il is an appeal to banks
and stockholders on the ground OF self
interest, when in realty, II Is an emphasis
on a wrong incentive and will result In
reckless banking.
HerrIck Opposes Guaranty.
Ex-Coyernor Myron T. Herrick OF Ohio,