The Washington herald., 1918-05-24
RESERVEBANKS
SAVE THE DAY
Holland Says Federal Sys,
tenn Prevents Panic Fol-
lowing Heavy Strain.

Although the men of finance who
are at the head Of large financial
Institutions speak of the recent
achievement of the American banks
as though It were something to be
expected and in line with the ef-
fciency which is@now SO remark
ably characteristic of American in
dustry. nevertheless some Of the
veterans who had experience In
earlier days are speaking of the
latest triumps of the banks and the
Federal Reserve system with ad-
miration and even amazement.
First of all. they say that the
banks behind which stands the Fed
eral Reserve Board are now financ-
ing a subscription for the Third Lib
erty Loan which in the aggregate Is
NSI,17O. 10000.
To Finance Tax Payments.
In addition to that the banks. backed
by the Federal reserve system. are
preparing to meet demands aggre-
eating probably s3.50OOOOOo0 which
represent the taxes that must be paid
in within the next three weeks to
the government. Yet these stupendous
things have been and are being ac-
complished without any perceptible
effect on the money market.
IL was natural that these veterans
should call to mind experiences in
earlier days in which they shared.
For instance one OF those who twen-
ty-five or thirty years ago was Of
much prominence in the world OF
finance and in the securities market
recalled that in the panic of 1888 he
was obliged to go out upon the street
and buy currency wherever he could
pick 1t up. paying large prices for
il. for II was necessary for him to
obtain currency in order to meet his
pay rolls which were large. 1t was
impossible at that time to get any
currency from the banks. Yet after
the panic was ended the discovery
was made that the banks had on hand
in 1898 more currency than was in
their vaults in 1892.
Had the Federal reserve banking
system been in existence in 1898 an
experience of that kind would have
been impossible.
So also occasional references have
been made to the panic of 1907. Those
who have personal knowledge of
many things which occurred at that
time, which were not reported, say
that upon one fateful morning the
president Of the New York Stock Ex-
change called upon the senior ]. P.
Morgan for the purpose of informing
Mr.. Morgan that it seemed to him and
the governors OF the exchange that
II was inevitable that the exchange
close its doors. saying 1t was impos-
sible to obtain loans or currency since
e
practically -prohibitive.
What Morgan Did.
ThereupOn Mr. Morgan simply said.
You 20 back TO the exchange and
announce. that within a short time
S-Ut+C.yC will be made availab BILE
iur those Syho need funds" Hav-
ruE said that. Mr.. Morgan took up
b. telepbohe. Within ten minutes
ne had called up various bankers and
I'm, c,ed them 10 join in forming a
ool. the aggregate OF which was to
sD S20.CUJNJ cash. the total to be
distributed to those who needed
II ~ the eNchan-r
ON bank president who was OF
Prominence and influence to whom
.ir. Morgan said that he must send
s'.'0nCO replied that he could not
DO thHt because If he did he would
cut iHto his reserve. Through the
telephone the voice Of Mr.. Morgan
went hack to that president speaking
these words. This emergency is just
what reserve Is for"
The $2u.nnI.COO were in this way
aud by the directing power OF
the greatest individual force of his
time in the world of American finance
secured and sent to the exchange and
the effect was instantaneous. Sub
SIantialIy normal mOney-market con-
drtIOns were in that way restored
Had the Federal reserve system been
in existence in 1907 no emergency of
this kind would have been possible
although there might have been busi-
ness decentralization.
Made Easy by Reserve system.
Now. within SIX weeks the Ameri-
can banks. led by group of thirty
banks in New York City, all strongly
supported by the Federal reserve
system. have been able to finance or
will be able by June Is to finance the
enormous sum of nearly $, OOO. 900, 900
and to do this without attracting any
more attention to the money market
than was the case when Mr.. Morgan
with A little syndicate which he or
ganized tranferred $25.OOO.OCO in
gold to London for the purpose
OF enabling the government 10
pay Panama Canal obligations to
France which. but for this action,
would have entaiIed the shipment of
that amount of gold.
What was accomplished under the
leadership OF Mr. Morgan and a few
others, notably his longtime friend
and associate, George F. Baker, sole
ly by the force of moral persuasion
and leadership. is now being accom-
piished by the banks of the United
States because behind them stands
the Fedora! reserve system.
From thirty years ago I'D to 1913
bankers in the United States were
endeavoring to perfect a new national
banking system whereby the crudities
and archaic methods which were