Evening times-Republican. [volume] (Marshalltown, Iowa) 1890-1923, 1911-11-21
couhTRY's IDLE Cast, SHOULD
40 INTO coMMERclAL.PApE
Tells Daniesrs Association That Ma.
tienai Reserve Association Would
Take Monetary System Out Of Con.
troll Of Wall 8trsse-Asssts Ought
Not Be n oeeeIss and Bends.


banking reform and panic insurance
befors the American Bankers conyen-
ton.
Mr.. warburE said that the great
weakness Of American banking. as
compared with European banking. lay
in the dangerously large use Of stock
exchange collateral IS the basis for
bank loans instead of the use. AZ in
Europe, Of commercial paper arising
out OF the normal day-to-day move
ment Of goods from producers to con-
sumefU.
The main assets Of Q bank" he said,
Ought not to be stocks and bonds, nor
loans en- stocks and bonds. but COM
nercial paper. But bank, the de-
posts Of which may be withdrawn on
demand at any time, must have assets
which can be reduced to bank credits
within the quickest time and with the
smallest possible loss. Commercial
paper and bank acceptances form the
main asset Of European banks. These
bills have the widest possible market.
where millions are exchanged daily
with margins Of LIS per cent or Is per
cent In the interest rate, without
scrutinisinx the paper when the bar
gain II struck.
Whsrs Europe Succeeds.
The mobilization Of the promissory
note, the system which enables Europe
to transform bills into bank credits as
quickly as staples or securities. Is the
explanation OF Europe's success where
we fail. lf . banking system, as ours.
IS built UP on promissory notes which
have no free market, the consequences
must needs be that when deposits are
withdrawn heavily. or when there is a
strong commercial demand for money
that stock exchange loans must be
called and holdings Of securities must
be sacrificed, these being the only
available liquid assets
This means great economic waste
and often calamity. for 1t is an abso-
lutefy perverse system that expects a
normal Investment demand, in times,
moreover, when money Is scarce, to be
able 20 supply q sufficient sum to sat
1sfy all. the immense commercial de-
masds Of the entire nation. Moreover.
It follows. that prices OF securities have
TO b. 10 far reduced that at bargain.
or somstimes bankruptcy prices an alb
normal demand for securities at home
or abroad must be stimulated.
Dangerous and Wastsful.
This method is not only wasteful.
but as the past has shown US. 1t is most
dangerous. A modern system must pro-
vide for means for banks to rely upon
their ability of marketing their bills
receivable. which represent the trade
and commerce Of the whole nation. II.
q modern system this can be done
without appalling losses, there being no
question Of sacrifice of capital in
selling securities, but only question Of
difference In rate Of interest in selling
paper. Moreover, It can be done with
out creating a panic; since gradual
liouidation Of commercial paper means
a reduction of the volume Of all COM
merce and trade.
sContemporaneous financial history
furnishes US constantly with ilfustra-
lions showing the superiority of the
European system. During the Morocco
crisis q war scare developed in France
and actual boarding Of gold began; the
yfthdrawals from the deposit banks
were ut q given moment alarming But
there followed no panic The Banque
de France issued notes freely. the
Fracnh banks collected their holdings
OF foreign paper. and the general con-
fdence in the Banque de Frances
!. power to cope with the situation over
came the fright without the horrors
that would have ensued with US.
when France, fer reasons Just ex-
planned and an q means Of political
pressure, withdrew from Germany more
than 200 million marks that temporar-
lily had been invested there, when Eng
lish and Russian government money
were called back. Germany had to face
a very severe strain. What would have
become Of Germany without the
Reichsbank! without the confident re-
lance thAt the Reichsbank would be
able to meet the situation and without
it, ability to act. suspension would
have been inevitable.
Confidence Killed.
'wo had no war scare In 1907, and
the country was full Of gold. but rates
Of 80 per cent and 100 per cent could
not bring money, because our system
our own confidence In our own credit
We have no credit system, but dis
credit system.
Mot infrequently one hears the re-
mark: II 1t be true that the national
reserve association will democratixe
our system and turn the banks call
money into the bill market to large
e1tant, taking It away from Wall
street, Why should the latter favor the
new law1
'sThe answer Is plain: This overflow
az money which In times Of ease floods
New York, and which in times OF need.
+ n withdrawn with such vehemence
that II causes violent commissions. is
no blessing, but source Of danger to
tha& city. While our, present system
mskes New York the undoubted money
csnter and gives to its banks q posi-
y s!ea Of pre- eminence and predomin-
Ance, this power - possessed only at
4 the expense Of = responsibility which,
7 with our present system. in times of
stress brings modification.
wall street, a. present is n ruler
ON keg Of dynamite. And, like many
IN absolute ruler in recent years, it
flnds Y more conducive to saf.ty and