Evening star., 1920-02-28
LIQUIDATION OF COMMERCIAL
CREDITS AWAITED IN MARKET
Bank Statements Have Been Slow In Re-
cording Movements Situation Aided
by Some Underproduction.

| On the face of things the credit po
sition is as unfavorable as ever. Wall
| street loans have been reduced some
| $500. 100000 since the first of the
year. They have probably been cut
| in two. as compared with last Oc-
tober. Yet call loan rates have been
put up again to 10 per cent and time
money remains exceedingly scarce at
prohibitive figures. The explanation
for this is that loans outside of Wall
street despite the measures taken to
reduce them. have not come down.
There has been no fresh attempt to
deliberately force liquidation of the
remaining credits secured by stock
exchange collateral. for bankers are
agreed that Wall street has been bled
enough. But the frozen up condition
Of commercial loans has so far cur
tailed the supply available for the
stock exchange that leaders are able
to secure a fancy premium for the
use Of their money. Obviously condi-
tions Will not change until there has
been a very large liquidation of these
commercial credits and the first ques
ton that has therefore to be asked
in any examination of the financial
outlook is when this liquidation may
be expected and what will be it's eff
fects upon general business.
Cost OF Credit Is Passed On.
The expedient of marking up fed
eral discount rates. which theoreti-
cal!y should cause an automatic re-
duction of loans. has failed The
reason it has failed is quite simple.
Those engaged in commercial opera
tions and especially in operations OF
the speculative kind have been max
ing large profits. 1t has been an era
of extravaganza and the public has
been educated up to paying high
prices. Consequently the only effect
of an increase in discount rates has
been to increase the charge which
the users of bank money have made
to their customers. In other words the
higher cost of credit has been passed
on. like every other item of increased
cost to the consumer, in the shape of
higher prices.
The federal reserve authorities have
apparently recognized the futility OF
discount advance as corrective
measure. They have seen that If a
raising of the rate from Il to per
cent on commercial loans did not avail
to check borrowing. further raise TO
6p2 or per cent would likewise do no
good. Consequently more drastic
means have been taken in the shape OF
a downright refusal to renew loans to
many commercial borrowers as these
mature.
The first action of this sort was
directed toward the financing of for
eign exchange transactions. Loans
secured by drafts on Europe were
called and their renewal made in
many instances impossible. The ex-
port trade was hard hit. because for
eign customers, under the enormous
depreciation in foreign currency
were unable to meet their obligations
in cash Immediately. Export houses
no longer able to finance their busi-
ness and called upon to pay off loans
at the bank, have quite frequently
turned over their merchandise COL
lateral to the banks and put upon
the latter the onus of converting the
collateral into cash.
1t is because this liquidation cannot
be accomplished at once. but must be
conducted gradually in order to en-
able the money lenders to get out
whole that the bank statements of
the last few weeks have been so dis
appointing. Reasonable assurance