The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1935-05-04
REALTY LOANS
ON LONG TERM
BASIS Played
Banking Bill Provision viii
Bring New Depression,
Flynn Says.
BY JOHN T. FLYNN
Times Special Writer

The most unpopular fellow is the
ore on the track with the red
lantern. No one seems to bother
very much about the drunken engi-
neer at the throttle. Nevertheless,
I am going to venture to wave a
red lantern before the onrushing
banking bill now exciting Congress.
In the fury of the battle between
Senator Carter Glass and Governor
Mariner EccfeS of the Reserve
Board, between the bankers and
the Administration. TO settle who
will control our banking system
the politicians or the promoters-a
very important feature of the bill
has been completely lost sight of.
If there is one thing which re-
SpCuslble banking authorities are
agreed on it is that the deposits Of
a commercial bank ought not to
be tied up in long-term loans. When
you put your precious thousand
dollars into a commercial bank you
do it with the understanding that
you may want it in a hurry and
that you can get it when YOU want
it. This being so, there Is nothing
so indefensible as for a banker TO
lend that thousand to some fellow
on three-year mortgage.
1900 Closed in 10 Years
In the ten years preceding 1893.
some 1900 banks closed their doors.
The number which got their death
blows from frozen mortgage loans
was countless. Toward the end of
the orgy of the twentieS, new de-
vices for putting bank money into
real estate loans were invented. Real
estate bonds and real estate con-
tact bonds as we'll as mortga ges
choked the vaults of thousands of
banks. When the great crash Of
March, 1888. struck us. men familiar
with banking history said: This
should be the end of the real estate
mortgage as commercial bank
asset"
1t may be that in the present
banking system this reform is diff
ficult to achieve. But you would not
expect a sane government deliber-
ately to invent a method to make
it worse. That is what this banking
bill does. One section permits ma
tiOnal banks to make loans up to IS
per cent of the appraised value Of
real estate and for twenty years,
provided the loans are to be amor
tized over the 20 year period.
1t is argued that a IS per cent 20
year loan amortized is better than a
so per cent three-year loan I'M
amOrtized. This is not true. It
takes five years before such an
amOrtized loan is reduced to the Sc
curity level of a so per cent I'M
amortized loan.
Invitation to Promoters
But both are bad. To tie I'D the
deposits of commercial bank in
three-year loans on real estate is
prepoSterous. To freeze them in 20
year loans on such high proportions
Of appraisal challenges our credu-
lily. Yet under this bill a ma
tional bank will be permitted to
sink go per cent of its deposits in
such loans. In addition it may
make as many additional loans of
the same type as it chooses if they
are insured under the housing act.
Here is an invitation to the real
estate promoter, the developer, the
speculative builder to step into the
banks and help themselves. If that
provision becomes law, I predict
that another depression will see the
banks loaded with worthless real
estate paper, the Reserve System
forced to take it all over and the
government thus set up as under
writing any kind of building or land
boom the bankers and promoters
choose to produce for us.
Copyright. 1885. NEA Service. Incl