The Birmingham age-herald., 1914-04-02
J. B. Dukes Plan Promises to Work Out Successful
 ly in the South
GRADING MUST BE
 ABOVE APPROACH
Important to Have Paper Issued on Cotton of Uniform Character for Financial Markets of
 the World
By HOLLAND


 New York. April 1.-(Special)-If the proposition for establishing a cotton ware house system in the South which repre- sents cooperation between James E. Duke and the largest of American banks becomes fact, then it is deemed probable that, for the first time since cotton ware housing financed by large capital and banking institutions was proposed, the plan will be worked out successfully. Something of the kind has been in the minds of the cotton men of the south and of barking interests both in the south and in the norta for years. About 90 years state charter was organized in Massa- chusetts to do exclusively a warehouse commodity business. The chief offices of this institution were in the town of Northampton, but a branch office Was es- tablished in Boston, where it was pre- sumed the largest part of the business done by the institution would be earrled on.
 This banking company was organized for the exclusive purpose of making ioans upon visible commodities, these con.mcd- ities to be warehoused until, by the pay ment of the loan, they could be released
 The argument was familiar one in banking circles-namel that there can be no better security for a bank if it ne- gotiates a loan than commodities Ne gotiations of that kind were, in s.,ct merchants bankers of Europe hundred years and more ago.
 If for instance cotton be taken ds an example, it is safe to report that bank ing houses which make loans now lock upon cotton as prime security. It can be sold sometimes when bonds cannol It is visible. It can be weighed. Us quality and its value can be accurately estimated.
 The Massachusetts institution Was ;.d- mirably organized. Its capital was in- creased from $l00,C0o to so00,000, and it's eX- ecutive officers were men who commanded confidence and respect At first, it seemed as though the business was to be reason ably profitable to the trust company anG also of great accommodation. After while, the discovery was made that the chief peril in the acceptance of a security of this kind was the risk that the com modites would not be appraised at fig- ure which would represent their safe Se- curity value. This did not imply dshon- esty. but it did imply inaccurate ot ressi- bly, incompetent judgment.
 It was something of this kind which Senator I1oke Smith must have had in ence to accurate and proper grading of cotton
 It Was Abandoned
 A test long enough to give satisfactory results justified the offlcers of this Mass achusetts institution in deciding to liqui- date. It did do that honorably and very successfully. Some years later a trust institution of New York was organized for the purpose, in part, of facilitating cotton Wal ehousing throughout the south. The institution did not last very long, although its absorption was not due to ifs pfo- posed financing of cotton warehnGSnS. The officers of this institution did iearn speedily, however, that, outside of possl- ble fraud, there was only one danger in accepting cotton which was Tn a ware house a s security for loan. That was the peril of inaccurate appraisal of value and judgment of the quality of the cot ton.
 Mr. Duke, who has had long experience in the south, and the managers of the National City bank have not been blind to the fact that it is essential that there be highly accomplished expert judgment as to the value and quality of cotton which is offered as security for bank loans. That MT. Duke and the bank un-
  statement of some of the suggestions made by City bank experts. One of these sug- gestions is this: When cotton Is utilized as collateral security it should be done with such safeguard that the integrity of this collateral-that is to say the quail itys of the cotton-would be unquestion- ably accepted everywhere assured.
 Another suggestion was that the com merclal paper drawn against the cotton. wherever made. should be identical in character, for this would make it pos sible to create a large amount of this llird, and, being all of the same descrip- ton, it would be instantly recognized everywhere in the world of finance. Again it was suggested that it would be vital that all of this collateral security-name- ly, cotton--and the paper which was based upon it should pass through some high ly responsible financial institution, for in that way the paper could be well tabished in financial markets of the world.
 There arc. of course some minor de- tails to be worked out, but the foun- dation Of this proposition seems now to be pretty we'll established The warehouse corporation will probably build a good many new storage houses and will, in ad- dition, take over many warehouses now owned or controlled by large spinning in- terests. The corporation will operate the warehouses, will inspect the cotton as to weight and grade and issue warehouse receipt.
 If something of this kind had been pos sible for the Massachusetts trust institu- ton which 30 years ago undertook to loan money upon the collateral security of warehouse commodities, it very likely would not have been compelled to liqui- date. The warehouse receipts which were issued upon stored cotton which has been subjected to competent inspection so that its weight and grade could be determined would then be guaranteed by the great warehouse company itself or by respon- sibe banking institutions Thus guar the warehouse receipts will be- come possibly the best kind of collateral security for loans. The plan as put into operation as it probably will be, should be of the highest advantake both to cotton spinners and to cotton growers It will also be of great advantage to banks under the operation of the new banking system It should pro- vide a large amount of the highest grade commercial raper of kind which can easily be redscountcd and which banks all over the country would gladly buy It was undoubtedly this feature of the plan which has persuaded the largest of American banks. and may hereafter per suade other banking interests to give cor dial co-c2eration to the proposition.
 
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