Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-05-19
HOLDS HIGH MONEY
IS TRADE MENACE
California Banker Sees Dan
ger to U. S. Business in
Tight Credit.
BY JOHN r. SINCLAIR.
Special DISPATCH to The Star.

Special Dispatch to The star.
NEW YORK. May 1s.-J. Dabney
Day. president of the Citizens National
Trust b Savings Bank of Los Angeles,
Calf, a leading Western banker. is
candid In his position on banking con-
ditions, especially as they now are IN
Wall Street.
"One would suppose, from reaolng
about the continued prosperity OF the
United States. that there is no top TO
1t. that the sky Is the limit, that there
cannot be any recession, ana mat a I,
slowing down process is Tragedy Itself
said Mr.. Day. discussing business ana
banking conditions.
Prevailing High Rates
I'VE have had vast amount OF
prosperity and business expansion IN
recent years. But nov we are race 70
face with a tightening OF credit: IL
cannot have any other than detrl-
mental effect upon productive business.
we are now experiencing relatively high
rates of interest. And the people VINO
are paying these high rates are those
engaged in agricultural and construc-
tive business pursuits.
Are the present high rates Justif1ed,
in YOUR opinion?" asked.
High rates are JUSTIFIED II We oeneVe
that the stock market Is just as I'M
portant in the life OF the people as
other business" was the reply. / think
that altogether too much Importance
has been attached to stock market
operations, and not enough to business
and agriculture. The large amount OF
loans made against securities, STOCK
market securities, is absorbing an
amount of credit dlsproportlonate 10
the needs of other borrowers. BY otner
borrowers I mean those engaged IN
producing goods of recognized economic
value"
= .. Cites Boards Position.
us the Federal Reserve Board re-
soonsinle for this condition. was the
next question.
clearly that if too much credit goes
into the stock market: there Will ne
that much less for other things. In
the opinion of the board. the smooth
operation of our credit system mas en-
colntered interference because OF the
large amount of credit used IN effect
ing loans against securities. Inc
board does not act as an arolter OF
speculation or security values. lts po,
sition is against the use OF Federal
Reserve credit. directly or indirectly.
in the furtherance of speculative creol1
to the detriment of commerce and ousl-
ness"
But after all, are brokers loans too
high?"
"There is no doubt some justification
for the opinion that brokers loans now
standing at around five and one-han
billions are not out of line with the
general increase in business and in an
nual income. This is a difficult matter
upon which to be arbitrary. VINO
knows? But what We do know is that
81, NI1A
banks have been withdrawn and those
deposits have been sent on to New
York to be lent at call. This has re-
duced deposits in many sections o.
the country. And the end is not yet.
LAS result of this situation We md
that more than so per cent OF the
money now on call is lent by people
and corporations not connected in any
way with banks. UP to two years ago
most of this money was lent by banks
of New York and Of the country as
whole. Not so today Not only do
they not have majority OF the money
in the market. but they have no con-
troll over this money. This Is very
dangerous situation.
Just why is it dangerous?
Because these lenders Of call money,
new at the business, may require FUNDS
for their business. or may decide, Shoulo
rates 60 down. to withdraw their bill
lions from the market. They might be-
the money that they withdrew? The
New York banks and other banks
throughout the country are not in a
position to take over call loans III such
large amounts. So in the event OF
trouble call money would not in reality
be callable. The effect would be de-
plorable."
Remedies Suggested.
What would be your suggestions for
the proper adjustment Of credit among
the various essential business and
financial activities" I asked.
% The first thing is proper
mental approach. These new specula-
tors should understand that prices al
ways fall as well as rise. 20 Stock
brokers should discourage speculation OF
people who can i'll afford to lose. t3)
Banks should continue to curtau their
loans on Stock Exchange collateral until
such time as these loans are in proper
proportion to the requirements Of other
business, and raise their rates on loans
to brokers to bring that about. ~
Corporations and others under the
leadership of the banks should reduce
their loans to brokers, and recognize
that it is to their interest to eliminate
lopsided credit expansion. go The
of the Federal Reserve banks in such a
10 adjust the open market operations
OF the Federal reserve banks in such a
manner as to relieve or strengthen the
general credit conditions. 90 Banks
should continue to extend preferential
rate to borrowers who are engaged in
business enterprises that have a direct
bearing on the productivity of the
country.
Lets put our financial house in
order. Then We can proceed to make
prosperity permanent"
1Copyright, 1929. by North American News
paper AllianceD