Evening star., 1934-05-06
BY JOHN W. HESTER.

he had in mind a people
free from debt, or, at any
rate, not people laboring under
debt load running into some such
staggering sum as $3.50, 900 900 900, in
volving debt service charge of So
000, 100000 and an annual tax load of
an additional $4,000, ,000. 900, or a
combined annual tax and debt service
charge amounting to more than half
OF the gross income of the American
people during the year 1882, the latest
Tor which figures are available
Whatever may be the correct inter-
probation Of the expression of the late
war President, it is certain that the
people have not only accepted the
idea that it is all right to have not
only a guardian, but redeemer as
well, and, if anything, the latter role
on the part of the general Govern
ment is more welcome to the people
than that of guardianship. This re
deemership" is now heading up vigor-
ously in the form of the deposit pay
off or bail-out bill, popularity known
as the Mcleod bill, though in reality
committee bill submitted in its
stead. This bill, under the rules,
comes to a vote in the House on
May IA, and it may be thwarted, if
at all. only by a presidential veto,
and in an election year as is this. it
may even hurdle the veto obstruction.
1t is only guess, however, with one
mans guess as good as another's.
Cor,nIaxa Radar,nf;or
But it is well for the people to
understand what this redemption
proposition involves and what it
means to the redeemer, the taxpayers
of the Nation. Briefly, this bill pro-
vides that all deposits in all the closed
banks of the country, national, State
and private. that have closed since
January /, 1880, shall be paid in full
up to $4,000, irrespective of whether
the bank has been reorganized and
reopened or deposit waivers obtained
1t is to be a full and complete re-
demption of all losses sustained in
banks that have closed since Janu-
ary /, 1880, and the fact that con-
tract waivers exist will be no bar to
full participation, that is, up to the
S2,500 limitation. The Reconstruction
Finance Corporation will be the in
strumentality through which this re-
demption is to be effected. AS Sc
curity for the funds made available
for the great redemption, in fact, the
greatest in contemplation this side of
the great final divide, the r. F. c..
will obtain from the depositor an
assignment of his right to participate
in the liquidation of the remaining
assets of the closed bank proportioned
to his claim in and to such assets to
the amount paid by the r. F. c., or
the ratio that the aggregate deposit
liability thus redeemed bears to the
total assets of the bank, with no
assortment allowed the R. F. c. as
security-just the plain run of the
mine" assets being available as
security.
Upon further analysis, it is seen
that it is immaterial if the bank in
volved closed its doors more than
three years ago and all of the class
"A" assets have been realized upon,
leaving only the B" and more in
ferior assets, mostly the latter, gen.
orally known as the "cats and dogs"
upon which to make recovery; never
theless, the remaining unpaid deposit
liability up to s2.500 must be paid. 1t
is seen, furthermore, that there is no
differentiation as to depositors in
these banks. Some may have been
demand deposits. others time deposits
made for the earnings involved, and
others may have been bearing interest
on an average daily balance. being
both demand and income-yielding de-
poSits; yet all are treated alike. And
that's not all. There is no distinction
as to banks as such. A savings bank
representing an investment enterprise
exclusively is placed on a parity with
the simple deposit and discount bank
doing both a commercial and savings
business. Nevertheless, all banks,
whether national, State or private,
commercial, savings or mixed, are
scrambled together and handed over
to the general Government as the
great redeemer.
"Only Sensible" Part.
OF course, the indiscriminate and
incongruous provisions of the bill
show that it represents no logical or
consistent thought, but merely sim
pie desire to have the general Gov
ernment bail out the losses of a great
number of people. Its only sensible
provision is the one providing for the
payment of deposits in excess of
$2,500, in which the r. F. c. is au-
thorized to make loans at 8 per cent
interest up to IS per cent of the pres
ent value of the remaining assets of
the closed banks. OF course, the mar
gin of safety is rather close, but no
great loss may be anticipated as to
this provision of the bill However.
great caution must be exercised even
here in determining the present value
or the margin, and more may be
eaten up in liquidation costs. especial
ly as it is intended that the liquida-
tion is to be over a period of six
years, If needs be-
But the grounds upon which the
proponents of the bill base their argu-
ment warrant particular attention.
They contend that there is an i'm
piled obligation on the part of the
general Government to pay off these
depositors because the Hoover admin
iStration advised the people to keep
their money in the banks, just banks,
which justifies the inclusion of the
State and private along with the ma
tional banks; that false reports as to
the condition of the banks were made
either with the actual or implied
knowledge of the administrative
agencies; that securities owned by
the banks were not marked down in
keeping with their actual worth and
the stockholders required to make
good the resultant insolvency of many
of the banks; and. finally, that the
Roosevelt administration closed all
the banks, thereby actually running
many otherwise solvent banks.
OF course, the answer to all this
sophistry and fantastic argument Is a
very simple one: That the banks,
being more than mere dep0SitOrieS