Der Deutsche correspondent. [volume] (Baltimore, Md.) 1841-1918, 1916-10-06
GERMAN WAR FINANCE.
BY Professor Moritz Julius Bonn,
President of the Commercial Uni
versity of the Citysof Munich.
(Continuation.)

Continuation
5.
The best known instance of Ger
man organization, which is always
harped upon, are the so-called loan
banks. War loan banks are banking
institutions, organized by the gov
ernment with the object OF lending
money on good collateral securities
Their organization in Germany is due
to experience gained in former wars
II seemed desirable to protect the
Imperial Bank and the other banks
against the onrush of people who
wanted to borrow money on perfectly
good securities which they could not
sell, as the Stock Exchange was
closed. and which, in any case, they
could have sold only at loss. And
II was necessary to provide people
with opportunities for mobilizing
their assets These war loan banks
issue certificates (Darlehnskassen
scheine) which are legal tender, like
the British currency notes; in fact
they are currency notes The issue
is limited to 100000 marks
Cabout $3.50, 0,000,000) there is no
such limit to the British currency
notes. The war loan banks certif-
Gates are an obligation Of the govern
ment. They are secured by the
special assets, against which they are
issued, and by the personal liability
of the borrowing owner of the
pledged security, whose liability is
unlimited. Behind these doubly Sec
ured obligations stands the guaranty
Of the Imperial Government. The
law states very carefully which
classes of property can be admitted
as security. Perishable goods are ex-
cluded. Very large margins are in
sisted upon; the lowest margin is 25
per cent. 1t is very sound and safe
manner of mobilizing credits, far
safer than the method OF the British
Government at the beginning of the
war in guaranteeing discounts by the
Bank of England, and providing
money for acceptors, who were un-
able to pay bills when matured. To
lend money up to 60 per cent OF the
original value of cargo of dyestuffs
is certainly good banking If it was
worth $4,000 when the loan was
made it would be worth at least
$4,000 now; the margin has risen
from 40 per cent. to $40 per cent, or
And to lend $400 on a Chicago-Mil-
waukee bond is certainly not bad
business, from the point OF view Of
the bank, which gets first-class sec
urity. The debtor must pay the or
dinary discount rates plus an adj
ditional percentage. To him 1t is
good business only II he can make
more profit by using the money than
by paying the interest. On account
of this heavy charge the business OF
the loan banks is very intermittent.
At different times of the year (the
great pay days of German business
life are the last days of each quarter)
the number of loans increase. At no
time has the total amount been
higher than 2.3 billion marks (about
$3.50. 0.000,000). On three or four
days only the $500, 100000 mark has
been passed At one day they fell
as low as s160, 0,000,000
LIQUIDATION ASSISTED.
The loan banks enable people to
l'opidate their assets instead Of part
ing with them at a loss. They free
tie regular banks of the necessity of
locking up their money. In England
the joint stock banks extended their
loans to their clients for a year after
the close of the war They could do
so, because the government lent them
currency notes up tc 20 per cent. Of
their liabilities on deposits and cur
rent accounts. The loan banks have
enabled Germany to use existing
credits-for example, the good credit
of American railroads--for German
purposes without selling the under
lying securities.
They can do this only in a limited
way. If the owner Of block of first
class securities gets $2,500 on his
stock as loan he has to pay y per
cent. interest on them If he invested
them in German war loans he could
only make per cent He evidently
would be a loser. In order to facil-
itate the taking up of war loans by
people, who have no ready cash at
| the time of the subscription, but who
know that they will get money later
on, as they own good securities, u
special abatement Of one-quarter per
cent. interest for would-be investors
in war loans has been granted a
| limited time only. The would-be in
vestor need not sell his securities; he
( can pledge them at comparatively
easy rates for limited period. After
that period the ordinary rate is
charged, which is higher than the in
come he can draw from his bonds.
If he paid interest on the money bor-
/ rowed from the loan banks per-
manently. he would lose about one
half per cent. year
The war loan banks were of con-
siderable use during the first loan,
when people had not yet got accus-
! toned to business life under war con-
ditions---17.4 per cent OF the sub
scriptions to the first loan were paid
with money secured on collateral
| from the war loan banks. The part
played by these banks declined quick
| ly; it had fallen to 81 per cent at
the second loan, it was GA per cent.
J at the third and about per cent. at
| the fourth loan
The German war loan banks have
played a sound and honorable part in
the floating Of the great German war
/ lounc friara M m UctayU a honf