"SAVE THE SOUND"

Evening Post, Volume CXV, Issue 105, 6 May 1933, Page 12

"SAVE THE SOUND"

BUT WHO IS "SOUND"?

ROOSEVELT BANKING

AND HOOVER CREDIT

Professor Gregory, of the University of London, an authority well known to Now Zcalanders through his visit here, writes in "The Listener" of ilarch 22 concerning the United States bankclosing in that month, and the Roosevelt policy of reopening sound banks only. ' Professor Gregory accepts the principle that the U.S. Central Reserve banking authority should "lend as freely us it can on all sound security.'' It will bo remembered that the President of the Chase National Bank (Mr. W. W. Aldrieh) had told the Senate committee 'in February that cheap money in tho Hoover period had not only not cured, b.ut in some ways had increased, the economic crisis in America • .■ ( The, whole point at-issue in this extension of credit question is: "What is 'sound security'?" Emergency credit docs, harm or good according/to_ the soundness of the value on which it is. advanced. '■••.' ■ ■ ■ But .what can be said about the soundness of values now that President Booseyclt has inflated them by depreciating the currency —a development of policy that has .occurred - since Professor Gregory's articlo was written? Substantially. Professor Gregory seems to be -in line with Mr. Aldrieh concerning the failure of the . Hoover credit measures. '.He says that the first phase .of the ' United States money crisis began in the latter part of 1931 and lasted till the middle of 1932. Tho credit operations of Mr. Hoover's Reconstruction- Finance Corporation then checked, but did not cure, the crisis, which reasserted itself this year with greater violence. Mr. Aldrieh goes further, and says that credit measures in 1931-32 actually caused a false boom in 1932,. and made things worse for 1933. Professor Gregory prefers to say that Hoover's extended credit and release of gold stocks in 1932 "checked the growing nervousness for the time being," but "tlie general situation did not improve." Then the Detroit bank troubles, causing the State of Michigan bank holiday this year, set panic going, and created "extreme panic," which "the recent economic position" (Feb-ruary-March, 1933) did not justify. "By only allowing banks of unmistakable soundness to reopen," writes Professor Gregory, "President Roosevelt has virtually protected them against panic runs." But the litter of unsound banks has still to be clearcd'away, and the losses they involve have still to be ascertained. Federal banking lavs in the United States have long been undermined by the easier Conditions of the State banking laws, which encourage the multiplication of small, weak banks. Tho comparative centralisation of banking in New Zealand contrasts sharply with the excessive decentralisation of banking in the United States. In America competition of the little, loose banks was so strong, in time of prosperity, that, the Federal Government had to loosen some of the restrictions on tho . banks controlled by Federal law. But the storm of depression now justifies the strong, strictly run bank. The United States banking. crisis spread friyn bottom to top, from the many, small banks upward, through stages, to the few strong banks. OtherWise the closing of tho New York banits would not havo been necessary. Professor Gregory states that failures and fusions reduced the number of banks in the United States from 29,000 in 1925 to 19,000 last September. In September these 19,000 United States banks held three to four times the voluino of deposits held in the entire commercial banking system sf. the United Kingdom. So President, Roosevelt has a 'first duty to support the sound; a second duty to somehow get rid'aof-tho unsound. But currency depreciation may mnsk the situation and may even cause another "false boom."