The sun., 1918-08-26

banks into the system on the theo-v
that In union alone would there h.
suffictent strength to Weather tina
financial storms which might deyelon
before the world war ended. At tha
recent Hot Springs meeting Of the ad.
ministrative committee Of the Amer.
lean Bankers Association the sec.
ton secretaries were instructed n
formulate q tentative programme 10
provide a thorough discussion of IN.
benefits to be derived by State bant.
and trust companies that Joined the
Federal Reserve System. The prob.
ability is, therefore, that this discus.
sion will develop the most interesting
questions that have yet arisen in con.
nection with the campaign under.
taken to increase the prestige OF the
Federal Reserve System and to make
1t as nearly 100 per cent. efficient az
possible in these days Of strenuous
financing.
Demand for Tax Exempt Sseuriti..
The broadening demand for tax ex.
empt securities, as evidenced by the
striking advance in the third Liberty
Loan 3h per cents and the Federal
Farm Loan s per cents, has been re.
sponsible for the larger absorption Of
good municipal bonds. Some of these
issues have had a sensational adyanc.
within the past two months. New
loans issued by States and municipal.
ties last month aggregated $1,000 900
the total Of these emissions for the
first seven months of 1918 being only
half tho volume Of such offerings in
the same period Of 1917, when about
$500, 100000 of such securities were
put out. The chance is that a good
deal of new financing by municipal
ties will be undertaken after the Gov.
eminent loan operation is out of the
way and the markets become settled
again. 1t has been urged that the
Government might find 1t advisable 10
tax the income derived from State and
municipal bonds. which some author.
ties contend 1t could do as a war
measure and without new legislation
There is, however, little chance Of
ouch action, since the courts have re.
peatedly held that State and munic.
pal bonds were tax exempt. Any at,
tempt, therefore, to bring these Sc.
curities within range of the Federal
tax laws would cause the greatest I'm.
settlement in the investment markets
and induce perhaps heavy liquida.
ton. Nothing that has been said or
done by Treasury officials justifies the
suggestion that the Government will
seek to tax this income, and it may
be questioned whether such course
has been seriously contemplated.
Buying Foreign Securities.
The advance in foreign securities
that are traded In on this market has
been natural response to the highly
encouraging developments in the war
area The bonds Of foreign munici-
palitiss are still selling at a basis
which shows the holder an extraor-
binary income return, judged by the
standards of normal times and the Sc.
curity back OF the loan. Some of the
foreign Government issues are also
much stronger, the theory being that
the severe losses suffered by the Ger.
man forces during the past fortnight
have so affected the morale Of the
troops as to max cry difficult for
the German Go" lnment longer to
persuade the public that it is for
their interest 20 continue to support
a forlorn hope. The formation OF the
Lamont committee to represent the
large number of American investors
who within the past three years have
made heavy purchases OF foreign Sc
curities will be of material benefit in
stabiliZing the New York market for
these bonds and in keeping in touch
with whatever develops here or abroad
to AFFECT their value. The American
public has larger aggregate holdings
or these securities than ever before
ond in the natural order of things il
is possible that these investments NAV
increase as victory draws nearer AMI
the income yield Of home bonds de-
clines. Except for the Russian bonds
which were never actually dealt in
here, virtually all of the foreign Sc
curities marketed in the United States
within the past three years have given
a good account of themselves
Lending on Aceeptances.
The decision OF j. II. Morgan 4 Co
to make call loans against acyer.
tsnces that are available for dis
counting at the Federal Reserve
Bank, and at rates that are based
upon the discount rates Of that IN
~
upon the money market 1t is an IN
terestlng departure from the tine
honored custom of making call loans
upon Stock Exchange collateral en-
clusively, and will broaden the mar
ket for acceptances in very impor'
tant way. There are about 100000
900 of bankers acceptances HOW out
standing, and within the last Two or
three years fully four thousand cor
porat!ons, firms anu commercial! ar
CARNATIONS have gone on record As
advocating the use of trade accep'
tances In place OF the single name
paper which they have been IN 'He
habit OF issuing. This new move ~
the Morgans, therefore, Is If great
importance to the money market ior
other banking houses will he sure I'd
follow their lead. with the result iJa.
acceptances will become "A foNoF'-
investment with hundreds u' banks
and institutions, which for years pas.
have been accustomed to carry 'he'
secondary reserve" in call loans
based exclusively upon Sioyn IA
change collateral.
THE PHILIP HONE SALE.