The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1913-12-13

LEANING ON
A BROKEN REED

Copyright. 1918. by @. N. Keys. New York;
In November. an old long-standing pri-
vate banking house in New York failed.
Its attorneys issued a statement in which
they said that the cause OF the failure
was that several large accounts had re-
Gently been withdrawn from the firm,
leaving It weak in working capital, and
that large proportion Of its funds were
invested in securities which could not be
readily sold.
Taking that statement as II STANDS, it
Is very striking commentary not only
upon the business of that particular
house, and a hundred other houses like
II. but upon thousands OF business con-
Germs Of all sorts, from. the little grocery
store on the corner to the railroad that
runs through the town, which are carry
ing on their business almost entirely upon
borrowed money which can be withdrawn
at any time. OF all the pitfalls of bust
ness and OF investment there is none
more dangerous than this one.
Credit, rightly used, is the foundation
stone OF business success Credit.
abused. is a menace to everybody con-
cerned, both the man who uses II, and
the man who furnishes it. For instance,
II was probably never intended by the
clients OF the banking house In question
that their deposits or accounts should
be used for the purchase Of securities for
the account Of the banking house itself.
which could not be readily disposed Of at
any time. In the stock Exchange busi-
ness, II credit is borrowed at all, It Is
theoretically borrowed for the purpose OF
CARRYING on transactions in liquid forms
Of capital, and banking credit Of this
sort Is supposed to be the most mobile
form of credit there is. To tie It up in
fixed forms of capital, whether II be
Mexican industries, local fractions, or
any other form Of securities. no matter
how desirable, is to challenge disaster.
One of the most fragrant Illustrations of
this kind Of venture that has come to the
attention of the writer was the case of
a young man. carried away with en-
thusiasm over an orchard land PROPOSE
ton in the West. He had no free capital
at the time the opportunity was offered
to him to buy. at about Is per cent less
than the normal selling price, a little
apple tract under cultivation In the State
of Washington. He was determined to
buy It. He went to a friend of his In a
bank and started to put the proposition
before him, but the friend interrupted
him to say that the bank would not, and
could not, lend money on security of that
kind and could not lend for more than
six months. The young man thereupon
asked for a personal loan on his own
note, running for six months He vas a
depositor in the bank and well known,
and through his friend he got the loan.
The bottom has dropped out Of that
particular apple orchard; but the bottom
dropped out of the loan long before the
ultimate Ices OF the orchard itself The
young man failed entirely in his efforts
to finance the proposition in a more
permanent way and at the end of the
six months period, for which the note
ran. was obliged to ask for an extension.
1t was granted. through personal hfu-
ence, for a month. In that timel the
young man managed to get q strong In
dorsement on his paper which carried
aim along for a year In the bank and en-
abled him to meet the note. The gist
OF the whole matter 10 that he worked
very hard. and worried more than no