The daily telegram. [volume] (Clarksburg, W. Va.) 1901-1926, 1911-11-21

Paul WarbuTg Says Enor
nous Stock Exchange
Loans Are Dangerous.

street Is a ruler on a keE Of dyna-@
mite said Paul Warburg, the New
York banker, member OF one OF the
great international financial firms
today, in pleading for banking re-
form and panic insurance before the
American Bankers convention
Mr.. Warburg said that the great
weakness OF American banking, as
compared with European banking,
lay In the dangerously large use Of
stock exchange collateral as the
basis for bank loans instead of the
use, as in Europe, OF commercial pa
per arising out OF the normal day
to-day movement OF goods from
producers to consumers.
The main assets OF bank he
said, ought not to be stocks AMI
bonds, nor loans on stocks and
bonds, but commercial paper. But
bank, the deposits OF which may
be withdrawn on demand at any
lime. 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 ex~
changed daily with margins OF one
sixteenth or one-eighth per cent in
the interest rate, without scruti-
nizing the paper when the bargain
is struck.
.eThe mobilization of the promis-
sorry note, the system which enables
Europe to transform bills into bank
credits as quickly as staples or Sc
curities. is the explanation OF
Europe's success where we fail. II
a banking system, as ours, is built
nm on promissory notes which have
no free market, the consequence
INST. needs be that when deposits
are withdrawn heavily, or when
+I,.re ts 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 assets
..This means great commercial
waste and often calamity, for 1t Is
an absolutely perverse system thai
exnects a normal investment de-
1oand. in times, moreover, when
money is scarce, to be able to sup
Nv a sDficient sum to satisfy all the
Immense commercial demands OF the
entire nation. Moreover. 1t follows
+bat Drices of securities have to be
so far reduced that at bargain OF
sometimes bankruptcy prices an az
normal demand for securities
home or abroad must be stimulateu'
This method is not only waste
81 b,,t as the past has shown u.s. II
l. most dangerous. A modern sys-
+em must provide for means TOT
n,nks to rely upon their ability OF
marketing their bills receivable
,yhich represent the trade and com
n,orce of the whole nation. In
modern system this can De oofe
without appalling losses, there pens
no question of sacrifice Of capital IN
ceiling securities, but only a cues
+fon OF difference in rate OF interest,"
n selling paper Moreover, it can
no done without creating panic
e,nce gradual liquidation OF COM
mercial paper means a reduction o.
the volume OF all commerce anu
trade. L.
.econtemporaneous financial his
tory furnishes us constantly with
,I1netrat'ons showing the superior
Nv Of the european system. During
ne Morocco crisis a war scare de-
ve1oped in France and actual hoard
ing OF gold began: the Withdrawals
from the deposit banks were at a
given moment alarming. But there
followed no panic. The Banque de
france issued notes freely, the
French banks collected their hold
Ings OF foreign paper, and the gen"
era1 confidence in the Banque de
frances power to cope with the sit
nat,on overcame the fright without
the horrors that would have ensued
with US.
! when France, for reasons Just
explained and a means OF pololtical
pressure, withdrew from Germany
more than 200 million marks that
temporarily had been inTested
there, when English Russian gov.
eminent money we're called back,
Germany had to face a very severe
strain. What would have become Of