Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-06-13
HIGH MONEY RATE
SLOWS UP TRADE
Bankers Estimate ItWiII Take
$500, 600, 900 New Credit to
Handle Needs of Country.
BY DAVID LAWRENCE.

~ DAFAD Law nE4NSEs
CHICAGO. June Standardization of
the sentiment of bankers and business
men toward recent developments in the
Federal Reserve policy leads to the con-
cluslon that, while business has not as
yet suffered perceptibly from high
money rates, there is a psychological
anticipation of slowing up of trade.
Reports of an intended expansion of
credit to take care of seasonal require
mentS at the end of the month have
not yet been accepted here as forecast
ing a trend, though it is estimated by
some conservative bankers that it will
take $500,000,00 of new credit to han
die the needs of the country, and it is
assumed that purchases of bankers ac-
ceptances will have to increase rapidly
to permit such credit expansion.
The characteristic fact about the Chi
cago situation is that the principal
bankers reveal themselves as more or
less bewldered. Some of them unhesi-
tatingly criticize the Federal Reserve
authorities for forcing the rediscount
rate down too far originally and argue
that the system of direct pressure re-
Gently applied is causing no end of irri-
tation between them and their Gus
toners and loss of business and good
will.
Condemn Collateral Loans.
Almost unanimous condemnation is
heard of speculative excuses, but the
argument given by Washington against
collateral loans is bitterly assailed as
unsonnd and academic, especially as 1t
is pointed out that commercial loans
for three years have been decreasing
while the security loans have developed
an entirely new demand on banks. In
the last few weeks country banks have
been compelled to increase their Dor
rowings while their deposits have gradu-
ally dropped. There is evidence that
even the larger city banks are trying
to use Chicago as transfer point for
some of the loans which the regional
reserve banks are trying to make them
liquidate. This shopping for credit on
the part of many banks, especially in
going outside their reserve bank dis
tricts and asking accommodation from
banks from which they have never
narrowed is creating its own enbarrass-
ment. To refuse accommodation car
ries its penalties And yet the big city
banks are being offered bank indorse-
ments for this paper plus the security
loans and miscellaneous signatures.
One of the big bankers here when
asked what he thought about the Fed
eral Reserve policy asked frst for
when the Federal Reserve advisory
council went to Washington it came
back without a clear idea of the pur-
poses of the Federal Reserve Board and
that it could hardly be expected that
member banks would know any more.
High Money Holds Issues.
Investment bankers have on their
shelves millions of dollars of good bond
issues which they dare not float in
the high money market. Commercial
bankers say that business men are find
ing no difficulty In borrowing money
for commercial purposes, though they
are paying minimum of 534 per cent
for 1t. They apparently do not object
to paying that rate though they are ac-
customed to 434 and even less, but they
are so glad to be accommodated in what
they have been led to believe is a tight
money market that they absorb the in
creased expense ungrudgingly.
The one curious effect of the high
money rates, however, is to make more
difficult the business of, those who have
to sell to the farmer. The country
banks are not carrying as much farm
paper used In purchasing agricultural
implements. They have had their funds
employed directly or indirectly in the
call money market. So. one of the large
implement firms is itself carrying larger
volumes than ever before of farm paper,
but the resistance is interfering with
sales.
Everybody seems agreed that the fiuc-
tuating call money market has been an
unsteadying influence and one banker
suggested that the cure would never be
found for the present situation until the
New York call money market was abol-
tshed altogether. He said that try as
they would to reduce the bill rate or
regulate the rediscount rate the real
basis OF money in America today was
the call money market.
Many Remedies Offered.
;, Opinions differ as to the remedy for
the high money rates Some bankers
still feel that a sharp increase In the re-
discount rate few weeks ago would
have brought the stock market to a
sudden collapse and that the surgical
operation would have been short, pain
ful, though effective, but most bankers
are inclined to think that a rise In re-
discount rate would hardly be of much
value now. They are therefore re-
signed to per cent rate, though they
think continuance of unsettled condi-
tons Is bound in the end to hurt for
eign, as well as domestic business
Altogether, business seems to be
standing up well in the second quarter.
though few business men will hazard a
guess about what the third quarter will
show. Lack of personal contact be-
tween Washington and the banking
world Is evident here as elsewhere.
The bankers have serious problems
which are worrying them constantly and
they feel that the Federal Reserve
authorities have been rather I'M
sympathetic or at least have not striven
sufficiently to understand the subject
from anybody elses point of view. The
Federal Reserve banks may be in
teresting channels of distribution for
Federal Reserve Board mechanism, but
any policies that require persuasion,
1t is suggested, will have to come from
the board itself, notwithstanding its
Discrimination to assume a central
bank attitude in a supposedly de-