New-York tribune., 1922-03-13
Bonus
Bill Useless,
Says Mellon
CONTINUED from psuo oneD

troller of the Currency Crssingcr, who
warned the country he will advise the
banks against accepting the adjusted
service certificates as collateral for
loans.
The provision in the bill for bank
loans upon tho certificates, char
acterized by Mr.. Mellon rs "a most
serious feature" would, he says trans-
fer the cost of policy loans from the
government to the banks and place in
them "to the extent that the exscrvice
men arc able to obtain loans from
them, mass Of unliquid non-ncgo-
table paper upon which the banks will
be unable to realize until 1925" The
result. he declared will be frozen bank
loans and imitation of currency and
credit.
"To the extent that the banks arc
obliged to make loans on adjusted scrv-
ice certificates, their ability to take
care Of the demands Of business and
industry will be correspondingly re
duced and even though the paper ac-
crued by the certificates may not be
eligible for rediscount at the Federal
Reserve banks, the indirect result is
certain to be increased borrowings by
member banks from the Federal Re-
serve banks in order to provide the
funds for carrying the paper until it
is either repaid by the borrower or re-
deemed by the government in 1925.
Needless to say, paper which IS Sc
cured by non-nogotiablc collateral and
which may not be repaid for three
years, is not desirable paper for com
mercal banks to hold"
"From the point of view Of the
Treasury, the most serious aspect Of
these loans on adjusted service ccrtif-
icatcs is the fact that the loans would
be hoatcd at the banks on the credit Of
the United States" he continued. "Thc
plan in substance, therefore, involves
dangerous abuse of the governments
credit, for it contemplatcs the issue of
vast amount of government obliga
tions which are on-negotiablc and
have no present rcalizable value unless
pledged with banks, in which event the
obligations become, in effect, two or
three years notes, which the govern
mcnt would be obliged to pay off in
1925 upon default by the veterans
Prefers Direct Loans
This practically means that cash
payments on adjusted service ccrtif-
icates would be financed for the next
three years through q forced loan from
tho banks. This is borrowing on the
credit of the United States fully as
much as if the loans were made direct
by the United States and financed By
direct borrowings on government
bonds, notes or certificates of in
dcbtedness.
"In fact from the point Of view Of
the banking system and the general
situation, it would be far bet
to ho !,
rowing, for the government to resort
to direct borrowing and to provide for
direct policy loans OH adjusted service
certificates from the outset than to
attempt to avoid direct cost to the
government for the time being, at the
expense of both the banking system
and the governments credit
An entirely new method Of financing
the bonus bill is suggested by Secrc-
tary Mellon if Congress IS determined
to adopt a measure with paid up en-
dowment insurance as its chief fca-
ture.
"Tho direct or regular way" he de
clares, would be to authorize insur-
ance certificates with provisions for
direct policy loans and the amortiza-
tlon or other reserves that would be
required as a matter of sound bust
ness policy.
TO Relieve Strain on Books
"A certificate plan on this basis, +
chosen by all ex-servicc men eligible
to elect it, would, according to the best
available estimates, mean an aggregate
liability of about $4,000 00O, ,O0O.'
Direct borrowing by the government
to handle such a plan, he said has
the advantage over the present one of
eliminating the strains upon the bank
ing system and the governments
credit.
Another table in the letter shows
the cost of the various options COM
puted OIL the basis that all those en-
titled to the benefits of the bill should
chose one plan. The cost of the Ger
titicato plan would be $4,5O6, 800 800;
the vocational training, $l,267 900 600;
the farm and home aid, S2,O93 900 900. |
and land settlement, $lS5, 5,625 900 900. |
"Thcse tables show one thing clear
y,' explains the Secrctary's letter,
namely, chat no one can even approx