Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-01-24


mercial credit to be alarming While
there was great prosperity last year in
many lines, the speaker noted that
bankruptcies were more numerous than
ever before. For part of the existing
conditions DR.. Willis blames the Federal
Reserve Board, and places a great re-
sponsibility upon the Nations bankers
in correcting the present situation. He
said. In part
During the past year the United
States has been passing through series
of singular financial experiences. 1t
has witnessed remarkable growth in
the prices of securities, and an unpre-
cedented turnover therein. At the same
time that this remarkable development
was in progress. business was under
going like, although smaller, eXpan-
sion. While these encouraging indica-
tons Of business success were plain to
see. bankruptcies became more numer-
Gus than ever before.
Bank Credit Harder to Get.
1.-The profits of large corporations
showed a striking expansion, but the
Commissioner of Internal Revenue
shows, in his report for 1928, that OF
the AS 5000 concerns which filed Sche-
dulles, about As per cent reported no
taxable income. an increase OF about
10 per cent above the figures repre-
senting the situation in 1922. At the
same time what Is ordinarily called
money" or, more properly, bank credit,
became costly and very difficult to
obtain.
Rates in the interior upon loans
made in ordinary business transactions
also were very high. while there was
10 ri n
bankers to refuse to provide for the
local borrower. and to put their funds
either into bonds or demand loans on
securities. preferably in a distant mar
ket-usually in New York. The small
business man has suffered from lack Of
credit, and every kind of business has
suffered from the high cost of it, the
advance being from 20 to so per cent
over 1927.
What is the reason for this singular
situation, and what is its significance?
There are many factors which have
contributed to bring about the general
result, but an outstanding one among
them Is undoubtedly the management
of our banking system. The question
which is now Immediately urgent is,
How long will these symptoms continue,
and in particular how long will the
tanned? One answer apparently to be
given is, So long as the present man
agement of banking and the applica-
ton of existing banking policies are
allowed to continue, for while banking
management is not alone responsible
for the situation already referred to, 1t
is at all events one of the fundamental
factors In the case. and one which
must be altered before any genuine
correction of the present state of things
can be expected to take place.
Federal Reserve System Scored.
"Unquestionably the situation has
both a broad general significance and
an immediate or technical Importance.
The former is found in its bearing upon
the general status of the Federal Re-
serve system. That system, in the eyes
of the world at large, has been found
conspicuouSly wanting on three princi-
pal occasions. First of all, 1t failed to
restrain the imitation of the war period
and the credit debauch which occurred
in connection with the issue of Liberty
bonds. Second. it was unable to fore
see, or to guard against, or to relieve.
the epidemic of bank failures which be-
tween 1922 and 1928 swept several
| thousand of our institutions into disas-
Ter. dIlu Va CQudA
portance, is the failure to conserve its
| lending power, and the permission 1t
has granted for the development of an
| unparalleled era of overspeculation,
| which has resulted in the extravagant
money rates that have prevailed on the
| New York market during the past few
| weeks and months.
From the immediate standpoint, the
| situation Is important because of the
high cost of credit which is resulting
| from it. and because of the shortage OF
| loans thereby produced in many parts
| of the country, as is shown by the
boards own statistics with respect to
rates of interest published in the Fed
eral Reserve Bulletin. These indicate,
as already noted, an expansion OF the
| cost of commercial credit amounting to
| anywhere from 20 to so per cent of the
| charges prevailing before the present
speculative movement assumed us 1ull
| growth.
1.-The Federal Reserve system has been
bookkeeping a great deal OF credit 10
market operators, and they have used
1t freely, and at times recklessly. The
immediate danger in the case to which
| have already referred-the immediate
problem which must be Solved-is that
! of bringing about readjustment in our
use of credit which shall restore some
| portion of 1t now diverted, to the chan
nels where 1t is needed. while at the
same time making proper provision