The Washington times., 1929-01-24

Of sound business credit and bust.
ness prosperity. according to DR..
Parker willis, editor of the journal
OF Commerce, in an address before a
meeting of the District OF Columbia
Bankers Association at the Willard
Hotel last night
DR.. Willis, one of the country 9
leading authorities on money mar
ters, sees an approaching crisis in
the economic structure of the coiln.
try unless the present strain upon
banking and credit resources is re.
duced, which can be done, he SAID.
by cooperation between the Federal
Reserve system and member banks.
Blanes Reserve System
He placed the responsibility for
the present credit situation, which,
he said, has weighed heavily on the
small business man, increasing the
price of bank accommodation to
him by 20 to so per cent, sQuarely
on the Reserve system.
THAT system" he continued, TN
the eyes of the world at large has
been found consipcuously wanting
on three principal occasions. First
OF all, 1t failed to restrain the in.
flation of the war period and the
credit debauch which occurred in
connection with the issue OF Lib
erty bonds. Second. 1t was unable
to foresee. sor to guard against, or
to relieve. the epidemic of bank
failures. which between 1929 and
1928 swept several thousand OF our
institutions INTO disaster. Third,
and perhaps OF equal Importance,
Is the failure to conserve its lend.
ing power and the permission 1t has
granted for the development OF an
unparalleled era OF overspeculati ton,
which has resulted in the extraVa.
CANT money rates that have pre-.
vailed on the New York market
during the past few weeks and
months
DIR. Willis further pointed out
that the great credit initiation of the
past year largely was based on the
open market operations of the Re-
serve Banks, to some small extent
in Government securities. but far
more in acceptances. In pointing
out the need for corrective meas
ures in the immediate future. He
said:
1T would seem clear that the
general market and speculative
situation is quite out of the hands
OF the reserve system, just as the
agricultural credit and land gpecu.
lation of 1919 and the early part
OF 1920 had escaped from control.
Furthermore, there are few persons
who would think 1t wise to follow
the tactics Of 1920. If these tactics
had TO be paid at as costly a rate
as were their predecessors. And
yet. it may be possible to work out
of the present situation If the re-
serve system and the principal
banking interests of the country
can be fndaced to operate in har-
mony with one another.
Remedies Proposed.
What are the chief things that
should be agreed upon? First Of
all there should be some temporary
( partial suspension or moratorium
with regard. to overissues of new
securities. II you tell me that this
is out of the question, I simply re-
fer you to the experience of the
war and to the more recent expert.
ence of about three years ago
when a serious glut Of bonds was
noticed in New York. and was re-
lieved by the obvious process OF
suspending the overissues for
time. With this moderation In new
issues time viii be given to work
off old ones, a large part Of which
remain still unsold, and are being
carried by their sponsors whose
loans for that purpose are in.
cluded under the head OF brokers"
loans.
'sIn the next place, the principal
bankers must undertake quite defi-
nitely to reduce their commitments
on purely speculative or trading ac.
count to some figure taken as basic
or normal. This expedfent was tried
during the war with good results
and has been sporadically employed
on q limited basis at times since
then. There has been partial at
tempt at II in New York during the
past few months. which has been
defeated by the threat OF large de-
positors to move their accounts if
they were deprived of speculative
facilities.
Qualitative Credit Control
.'In the third place, the Federal
Reserve system must absolutely 90
bargain-counter credit, or OF boot
logging its accommodations to the
stock market. A reserve bank
knows perfectly we'll what a mem
Der bank Is going to do with funds
when the latter borrows. 1t has
the right to land does) ask for a
statement Of condition, and this
shows practically what is going on.
The reserve bank should insist that
a borrowing member refuse un-
limited credit to those who want to
use 1t for the furtherance of merely
speculative market operations.
This does not mean that curtail,
n1ent should take place In such large
measure as to compel the calling of
loans in this quantity and the throw.
ing of securities on the market In
amounts that would involve danger.
1t merely means that halt should
be called until the country has had
an opportunity to catch its breath,
decide what 1t wants to do. and let
its savings keep pace with its specu-
lative commitments.
Partly under the influence OF bad
banking management, partly as the
result OF great natural expansion in
business and partly as the outcome
OF an ill-Judged and untimely effort
to supply foreign countries with gold
under conditions of doubtful wisdom,
the United States has largely scat
tered its surplus lending and credit
power. The time has thus come
when q revision and reconsideration
of its various policies. looking to a
marked reduction In the strain upon
its banking and credit resources,
must take place. As to this there