The Waterbury Democrat., 1938-03-29

banks.
 This whole problem of loans to industry, particularly small busi- ness, is now being threshed out by special committee headed by Secretary Morgenthau, including REC Chairman Jesse Jones and SEC Chairman Bill Douglas.
 The regional bank plan is one of several ideas before them. The object is to create a system of special government banks for industry just as the Joint Stock Land Banks were created for agriculture.
 These regional banks would at- tempt to do for smaller industry what Jesse Jones and his Recon struction Finance Corporation have so miserably failed to do. Among other things they would take much more speculative risks than the REC on the average bank.
 Tight Money Market
 Behind this loans-to- business study is one of the most serious financial questions facing the countryside fact that money cannot be raised for ordinary busi- ness ventures.
 Most striking recent example was the Pure Oil company whose underwriters, headed py Smith, Barney and company, undertook to sell $44,000,000 worth of stock offering 1t first to stockholders. But the stockholders bought only $500, 900 worth, leaving the under writers stuck with the balance of over S43,000,000.
 Careful Investors
 A careful study of the credit situation of the country, made by New Deal economists, indicates that this Is one of the factors retarding recession recovery.
 This study shows that there has developed channelization of loans, or concentration of money in government bonds and gilt edged securities, so that funds are not sufficiently available for ordinary business risks.
 This channelization of loans first started in 1917 with the Liberty Loan campaign, when big investors began putting their money in government bonds and tax-eXempt securities. This was the first time that the purchase Of government bonds took place on any large scale in the entire his- tory of the country. The tendency has continued ever since.
 Three Types
 Today there are three big types of investors. Here they are, to- gether with the channels in which they invest:
 l. Wealthy individuals have told their investment advisers to conserve what they have. They want to take no chances, even if they draw interest at only 2 per cent, or no interest at all. Afraid of the future, they say they are willing to live on their capital.
 This class puts it's money in tax-eXempt securities and triple-A bonds. They even keep large amounts of cash on hand. Only when they fear in- flation do they buy stocks.
 2. The banks have now con- centrated most of their money in government securities rather than commercial loans. This is partly because of the require ments of the Federal Reserve Board and Federal Deposit h. surance corporation. partly be- cause of uneasiness regarding the future.
 Result is that private industry can't get large amounts of money from the banks. Only way money can be raised, there fore is through a stock or bond issue, which can on:y be done by large firms.
 3. The insurance companies put their money chiefly in U. s. securities, gilt-edged bonds, and mortgages. They are re- stricted by the insurance laws which forbid speculative risks. and the result is that some of the larger companies have as much as $20,0O0,000 lying idle, drawing no interest.
 With insurance one of the chief means of saving today, this ties up tremendous amount of money.
 Someone Must Lend
 Result of this concentration of wealth In government bonds and non-active securities is to leave little money for private enter prise. Business initiative, lack ing funds, begins to dry up, and this is one of the restraints af-