New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1917-03-12
A Corrected Warning

In November it issued a warning
against filing up the country's CONNER
cial banks with the l o U paper of for
eign governments, and at the same time
advised private investors TO insist upon
authoritative data concerning foreign
loans, particularly unsecured ones Both
the warning and the advice were neces-
sary. The fiscal agents Of the Allied gov
ernments had proposed to print in this
country and place with commercial banks
an indeterminate amount of British Treas
ury bills, which, though in theoretical
sense self-liquidating, were practically not
so, since they could be paid off at maturity
only with the proceeds of more bills,
whereas merchants notes, called com
mercial paper, automatically cancel them
selves through the contamination OF the
buying and selling transactions from
which they arise.
In addressing the private investor even
obliquely or guardedly on the subject OF
unsecured foreign loans the Federal Re-
serve Board exceeded its theoretical pow
ers. and vet in view Of certain laxities on
the part of the promoters of foreign issues,
q word Of caution from some authorita-
tive source was very much needed. The
Federal Reserve Board perfectly under
stood its own position, which was, under
three heads, as follows:
First, that it was the business OF COM
mercial banks so far as possible to keep
their resources liquid, and that 1t was
dangerous for them to invest their funds
unrestrictedly either in the l o U bills
of the British Treasury or in the short
term notes of foreign governments.
Second, that it was principally the func-
ton of private investors to absorb foreign
securities in order to supply our European
war customers with the credit they were
obliged to have to continue their buying OF
American merchandise.
Third, that the private investor, as the
ultimate holder of foreign securities for
purposes of permanent investment, should
be very fully informed as to the character
of war loans, as had not invariably been
the case.
Nevertheless, its position was misunder-
stood. It's intentions were admitted TO be
good, but i'll expressed in time and spirit.
The fiscal agents of the Allies were partly
TO blame. Having communicated to the
Federal Reserve Board their plan to float
an indeterminate amount of British Treas
ury bills, and before obtaining a final ex-
preston of its opinion, they publicly an
nounced their undertaking. 1t was known
that they had conferred at Washington
with the board, and the implication was, of
course, that the board had approved, which
was not so. The board thereupon issued
its warning. Then the fiscal agents imme-
diately withdrew their announcement,
abandoned also the idea of bringing out
large issue Of unsecured British notes. and
adopted an attitude of palms outward. The
Federal Reserve Board, they said, had
given war finance black eye. If people
did not want to buy foreign securities, very
well; but they could not expect at the same
time to 90 on selling their merchandise to
European customers whose buying power
was limited by the amount Of credit they
could obtain in this country. The bankers
were somewhat disingenuous. They did
place British Treasury bills, without public
announcement Of doing So and they did go
on selling 10 banks and investors the short
term notes Of the belligerent governments.
For other than financial reasons the
business in war munitions was bound 70
diminish as the Anglo-French plants in
creased their own output Of the finished
machine products. That now is taking
place, and there is a disposition 10 say
that it is owing somewhat TO the fact that
last November the Federal Reserve Board
placed obstacles in the way Of financing
the requirements of our European war
customers.
That is both true and untrue. The Al
lies fiscal agents In the United States
were not anxious TO understand the Fed
eral Reserve Board, and the Federal Re-
serve Board was possibly not as clear In
November as it now is on the Importance
of not being misunderstood. In state
ment issued last week it said:
The board has already stated that its
announcement Of November %, 1915,
did not deal with the finances or the
credit Of any particular country, but
only with banking principles which it
seemed desirable 10 emphasize under the
conditions at that time. The objection
then made by the board was 10 the un-
due employment by our banks Of their
funds In the purchase Of foreign loans.
and not 10 the merits Of foreign loans
az investments. This board was then,
and Is now,of the opinion that the liquid
condition OF our banks should not be i'm