Evening star., 1939-06-04
More Banking by
Government Seen
By ODen L. Scott.

pOlIlLS db ILLS Gullc W " doudl CAtly
of the Federal Government into the
investment banking business on a vast
scale.
That drift appears irresistible. From
small business comes the demand for
easier money at the banks. Congress is
. getting set to have the Government un-
derwrite loans to satisfy this demand.
From back home" comes a continued
demand for easy money to use in con-
structing public works. Congress Is
thinking seriously of setting up public
Works Finance Corporation to do the
banking business for this operation.
Government already does a large
share of the mortgage banking busi-
ness in agriculture. 1t is heavily en-
gagged in the mortgage banking business
on city property.
A. A. Berle, jr, Assistant Secretary OF
State and an authority on corporate
finance, has told the National Economic
Committee that the private investment
banking machinery of this country has
been in state of collapse since 1880 and
he appeared quite doubtful whether it
ever was likely to revive much without
Government help.
The simple and fundamental fact, as
the economists state It, is this: There
must be investment of the savings of
corporations and individuals in actual
creation of real wealth, such as build
ings and machinery, or those savings do
not return to the stream of income
When one man saves a dollar, as q
general thing, another man must bor-
row dollar or the saved dollar is not
put to work.
Right now 1t is the pressure of idle
dollars that is pushing the Federal Gov
ernment into new fields. So long as
large numbers of men are idle and so
long as vast totals of dollars are idle,
this pressure can be expected to con-
tinue. Government, in other words, will
have an unbalanced budget due to its
own borrowing of savings to try to meet
the demand that something be done.
But at the same time there is a rising
demand from voters that the Federal
Government stop borrowing.
One way to meet this public demand
is to move the Federal Government into
the banking business. Then the Gov
ernment's borrowing is offset by promises
to pay given by businessmen and home
owners and farmers and local govern
ments who borrow from the Govern
ment. The public debt represented by
borrowing by Government agencies then
can be kept outside the budget and can
be regarded as the debt of specific indl-
vlduals and corporations rather than of
taxpayers generally.
Government banking is not something
new
In fact, the Government in recent
years has been carrying on a vast and
a successful banking business. At this
time outstanding loans under Govern
ment banking operations amount to
more than $500 100000. Borrowers in
clude farmers and home owners and
businessmen and bankers and railroads
and local governments and individuals
and foreign governments and Just ordi-
nary individuals There are commodity
loans, installment loans, character loans.
mortgage loans and a variety of other
types of loans.
In fact, scarcely field of banking is
untapped by one or another of the 30
Government lending agencies.
The Treasury offers a balance sheet of
10 of those agencies. That balance
sheet shows that in recent years the
banking operations of the 10 agencies
have resulted in loans of nearly 11.O0O,-
100000. Of those loans So billions have
been repaid, leaving about five billions
outstanding
Interest and income from this bank
ing business has amounted to about IA
billions in the last few years and the
cost of money to the Government has
been about s637 900 900, leaving three
quarters of a billion to meet operating
expenses Those expenses have been
$3l4;O00 900, resulting in what might be
called an operating profit of more than
$40O 900 900.
OF course, the biggest single operation
and the most successful carried on by
the Government is that of Jesse Jones
and the Reconstruction Finance Corp.
he heads. The r. F. c. shows what
might be called an operating profit of
more than $3.50 100000 and its assets
are such that it expects to be able to
return good deal more to the Treas
ury in any Windup than it took from the
Treasury.
Another very successful operation is
that of the Home Owners Loan Corp.
That agency made more than S3,O00,-
100000 in mortgage loans on homes and
shows large excess of income over
outgo from the loans and properties but
operating expenses necessarily are high,
so that there is little real operating
profit.
Least successful of the Government
banking operations from an earnings
outpoint is that involved in making
loans -on farm commodities as price
stabilizing plan. The Government has
more than half billion dollars tied up
in cotton at price above the market
and, if forced to liquidate can take big
loss.
Farmers have habit of getting spe-
cial banking favors from the Govern
ment.
They are getting an annual interest
subsidy on $2,O00,OOOo0O of mortgage
loans made to them through the Federal