The Birmingham age-herald., 1922-03-13

the banks, and to place In the banks to the extent that the former service men are able to obtain loans from them, mass Of unliquId, un-nego- liable paper upon which the banks would be unable to realize until 1925. The result would be frozen bank loans and imitation of currency and credit. To the extent that the banks are obligated to make loans on ad- justed service certificates, their abil- ity to take care of the demands of business and industry will be cor respondingly reduced. and even though tho paper accrued by the cer- tificates may not be eligible for re- discount at the federal reserve banks, the indirect result Is certain to be increased borrowings by members from the federal reserve banks
 FIoated on United States Credit
 From the point of view of the treasury, the most serious aspect of these loans on adjusted service cer- tificates is the fact that the loans would be floated at the banks on the credit of the United States. The plan in substance, therefore, in wolves a dangerous abuse of the governments credit, for 1t c4ntem- plates the issue of vast amount of government obligations which are negotiable and have no present rea1izable value unless pledged with banks, in which event the obligations become, in effect. two or three year notes. which tho government would be obliged to pay off In 1925 upon default by the veterans.
 This practically means that cash payments on adjusted service certi- ficates would be financed for the next three years through a forced loan from the banks. From the point of view of the--banking system and the general financial situation it would bc far better If a bonus Is to be financed by borrowing. for the government to resort to a direct bor- rowing and to provide for direct pol icy loans on adjusted service certif- icates from the outset.
 Direct Policy Losns
 "If Congress concludes to adopt soldiers bonus with . paid-up en- dowment insurance as its chief fea ture. tho direct or regular way would be to authorize insurance cer- tificates with provisions for direct policy loans and the authorization or other reserves that would be re- qulred as q matter of sound business policy. A certificate plan on this basis If chosen by all former serv- ice men eligible to elect it, would, according to the best available esti- mates, mean an aggregate liability of about S4.5e0, ,00o,000 and on the basis of 2o-year maturity would involve tho following current charges each year year for the next 20 years: CD. the payment necessary each year on account of the maturity of certifi- cates by death. averaging about $40,- 00o 900 a year; t2). amortization paymentx computAd at uer cent compounded annually, calculated to provide within 20 years for the whole liability, averaging about $123.oo0, 900 year: and (5), provision for direct policy loans from the govern ment on about the same basis as is customarily allowed by life insurance companies, In an amount that would probably average not less than s2o0- 000,000 a year for the first two or three years of the operation of the plan.
 "on this basis an insurance plan, standing by Itself. would cost at the minimum of about $40o, ooo, ,00o a year for tho next few years.
 "It is clear from those estimates that whatever form the soldiers bonus may take 1t will cost from $3oo,oo0,ooo to $4oo.eoo,o0o for the next three or four years and may in- volve continuing liabilities there thereafter of over s2oo,o00,ooo a year until 1s43.'