The Washington times. [volume] (Washington [D.C.]) 1902-1939, 1934-09-12

lie to borrow. 1t is another sign
of the Government in business
and using it's new power over the
banks to force the credit initiation
which has been sought so eagerly
by the Administration.
The signs of this tendency are
numerous.
1. Provisions for "interme-
date" credits have been estab-
lished with Government back
ing, to make medium lOng-term
loans to small businesses.
2. A housing prOgra is
being pushed, the basis of
which is to push loans for re-
pairs and improvements to
buildings, and to stimulate new
residential construction, also
with Government backing.
3. In these connections, a
"stand by" policy on existing loans
IS being developed. 1t is seriously
proposed that old creditors be al.
lowed to take only small part
Of any new loans made to their
debtors. This would encourage
borrowing and enable debtors to
get deeper into debt. Ut is another
aspect of the moratorium idea0
4. It is proposed to allow New
York savings banks to make loans
on less security than hitherto, so
that they can participate in the
movement.
S. Bank examiners have been
called to Washington and are
being publicly castigated for en-
forcing sound and conservative
banking rules in the way of deal
ing with "slow" loans.
6. There have been some indi-
cations of tinkering with the book
values allowed on Government Sc
curities held by financial institu-
lions, the idea being to carry them
at cost or market Cor maybe at
par) whichever is higher!
7. In general, the policy of
alternately attacking and cajol-
ing the banks with reference to
their liquidity and declining
loans, goes on. Jesse Jones of
the r. F. C. has recently
changed his tune and given the
banks his blessing, but this
comes at a time when his past
attacks seem about to bear
fruit, and the banks seem more
likely to fall for his easy credit
proposals.
Personally, I doubt that this
new phase of the credit expansion
game will attain much success. I
am sure that if it gets anywhere
it will do more harm than good.
The best risks do not want to
get any deeper into debt. The
others ought not to be allowed to
do so.
It is as true today as it was a
year ago that the real trouble as
to bank loans is the Governments
policy toward business and money.
Loans can't be made on sound
basis as long as Cd our currency
is not stabilized, 90 business prof
its are jeopardized by the Govern
ment'S labor policies, and the
business-for7service notion, 80
Government economic expedients
are so conflicting and uncertain.
The only sound basis for bank
loans is a business basis. That
means that the loans must be reas-
onably self liqUidating," which in
turn means that they must be for
income-producing purposes.
But most of the loans for resi-
Dental improvement add no in
come to the borrower and often do
not increase appreciaoly the sell
ing value OF his property. And
additional loans to man already
in debt, increase his debt.
It is high time that sound bank
erS spoke up. The recent talk of
the head of the bankers aSSocia-
ton is to be deplored as suggesting
a willingness to cooperate in de-
teriorating bank credit. Bankers
have made many mistakes and
have been subject to just criticism.
But this is no reason to swing
back to unSound credit policies
again. Two wrongs won't make a
right.