Evening star., 1939-07-23
Wall Street Fears
Private Banking
Doomed by New Deal
Policies in Force or
Planned Are Cited
By Some Economists
BY HENRY PAYNTER.
Press Financial Writer

NEW YORK, July %. Some
nationally known economists con-
nected with leading Wall Street
banks said today they believed poll
cies already launched, or about to
be launched, by the Federal ad-
ministration would tend to do away
with the Nations private banking
system.
Certain steps already taken in
this direction, they said. possibly
could not be undone even by con-
trary-minded succeeding admins
tration.
Although these policies, they said,
were in their opinion, aimed pri-
marily at obstruction" of the Ma
tion's financial community and it's
eventual elimination from American
economic life. effectuation of the
policies would tend to substitute
Government control of business for
existing private control.
See Savings "Penalized."
The effect of these policies, they
said, would also be to work toward
redistribution of wealth by penaliz-
ing what bankers call "prudent"
savings.
administration officials have
publicly expressed no conclusions
coinciding with these, and the de-
ductions here stated are presented
merely as the opinions of Wall
Street economists. drawing their in
come from private financial institu-
tons after studies of current and
proposed Federal policies)
The economists, whose views were
sought on the pending Federal lend
ing program, declined to permit
their names to be published on the
ground that it might embarrass the
institutions with which they were
connected. In addition to being
widely known. some of them were
formerly associated with, or were
consulted by, the present Federal
administration.
Officials Are Cited.
They said responsible Govern
ment officials. including cabinet
members, the chairman of the Fed
eral Reserve Board and economists
associated with the administration
in various capacities, have publicly
expressed the view:
/. That accumulating savings in
the privately owned banks represent
a national economic menace.
2. That the present privately
owned and controlled financial
system of the country has failed"
to put these savings to work, and,
consequently
3. That by deficit" spending and
by self -liquidating" lending on a
scale of many billions on the part of
the Government would correct the
economic consequences of the
failure" of private banks and bring
recovery. administration leaders
in Congress have changed the
phrase lf-liquidating" to "re-
coverable assets"
This view, they said, is being
offered in support of the lending
program being debated in Congress.
Fear Interest Reduction.
Actually, the bank economists said,
the Government program would tend
further to reduce rates of interest,
since banks now put large part of
idle funds into loW-interest-rate
Government obligations. Moreover,
the Governments policy, they said,
tends to put all lending on an equal
basis regardless of the risk involved,
and eventually to make interest
bearing obligations and currency,
which does not bear interest, inter-
changeable.
Thus, they said, over long period
of time, inducement for prudent
investment would be removed, since
the Government would charge the
same rate for prudent" and high
risk" loans. Bankers call prudent"
loans those which have a higher
likelihood of being repaid, as con-
trasted to "high-risk" loans, which
are more speculative, but in private
banking, more lucrative)
Since privately owned banks could
not indefinitely compete with the
Government on that basis, private
banking, they said, would gradually
disappear. The Government would
become the direct repository of the
savings of its citizens, and the
interest paid would become consecu-
lively lower and lower.