AMERICAN BANKS DISCREDITED

Timaru Herald, Volume CXXXVII, Issue 19625, 20 October 1933, Page 5

AMERICAN BANKS DISCREDITED

BLAMED FOR CRISIS MANY REVELATIONS (Written for “The Herald” by T.CX.) It can be stated as a fact that no institution in the United States to-day is more discredited or more unpopular than the banks and financial institutions. The causes are not hard toeseek. The banks are blamed, first of all, for precipitating the economic collapse from which the country has been so grievously suffering for over three years because of their financing speculation at the expense of genuine business and because in their greed of gain they entered themselves through affiliated companies into the sale of Shares and bonds. They are accused—and the evidence shews justly accused —of ignoring sound 'banking practice and failing to safeguard their depositors' money. Also in risking their depositors' money in industrial enterprises in which they had themselves become large shareholders. In short, in a time of crisis, which they are blamed for largely creating, they proved broken reeds and weak and cowardly leaders. The public themselves, however, must accept the principal blame for the state of affairs they declaim against, for had Congress seriously tackled the problem at the time of the establishment of the Federal Reserves Bank, and brought about unified control under strict government regulation, as is the case in Britain and her Dominions, the banking system in the United States would to-day be equally strong and satisfactory and been able to weather the economic storm equally successfully. By the public's neglect of or indifference to insist on these alterations and precautions the banks, instead of proving a help and a bulwark against bad times, have proved a menace. Bitter Resentment. But it has been the disclosures arising from the Senate's investigations of the banking affairs of the bigger concerns that have caused the greatest resentment. The evidence stirred public opinion to its depths. The operations of the National City Bank first came under review. They showed the way in which the capital gains-and-losses provisions of the income tax law enabled men like its President, Charles E. Mitchell, to avoid the payment of income tax. For many weeks Mitchell's affairs were ruthlessly exposed in an attempt to prove that his sales or securities to his wife and a friend had been, as the prosecutor charged, "a terrible hoax.” Whilst the prosecution failed to win its case, the public did not recover from its disillusionment as to the conduct of the banking leaders. The evidence was of particular interest to the salaried man or small business man, who had no securities to transfer or sell in order * to establish losses, or who lacked the expert legal refinements of selling securities to one s relatives or showing losses by the manipulation of family trust funds. The public elucidator of the affairs of the Harriman National Bank and Trust Company of New York City, and the indictment of the President. Harrison, showing how deposit funds could be manipulated only added to the national resentment. The disquietude was not removed when the former Controller of the Currency told the Senate sub-committee that defalcations of bank presidents were so common that they were routine matters in the office of the Controller. Further Shocks. Then the affairs of the greatest and most conservative financial house, that of J. P. Morgan, were exposed to public view. Of all the financial houses in Wall Street that of J. P. Morgan and Co. was held in the highest reute and respect. The original Morgan had been a just and fair-dealing man, not a usurer, with the soul of push-cart-peddlers, like many of his competitors. He prided himself upon the fact that the house never took advantage of the weakness of a situation to charge a client more than six per cent. The public believed that whatever shady practices might be indulged in by certain other banks, the hands of the Morgans were clean. The investigations in Washington at the end of May revealed for the first time their organisation and methods. The first disclosures astounded the nation. In 1931 and 1932 neither Mr. Morgan nor any of his 20 partners paid income tax. They had been able, in a wholly legal manner, to escape because of the provision in the law permitting the writing off of capital losses. In the storm of criticism which followed the publication of this evidence nothing too bad could be said for a law that made a levy on a man of moderate income while, due to a loophole In the same law, allowing the escape of some of the richest men from paying any--1 thing. The resentment was not so much against the law as against the fact that the Morgan partners, all very rich men in receipt of large profits, but nullified by "capital losses," should have benefited by it. But this was not all. The worst came later when it was shown that important individuals, many in public life, had been on a “preferred list” to subscribe to certain stock at prices much below the market quotations. That the House of Morgan should stoop to such sinister practices in order to influence the nation's economic and political leaders was regarded as something not only unworthy, but highly corruptive arid justifying the closest Government regulation of all banking Institutions. The public reaction was pronounced also over the list of 167 directorships held by the Morgan partners, the impressive array of great industrial concerns which kept large deposits with the Morgan firm, the banks with which Morgan's had connections through directorships or through deposits. and the construction of the Morgan railways and public enterprises. Absei t Moral Force. The public is unitedly behind the Roosevelt Administration in demanding the strictest supervision ot the banking Institutions, and the President himself says he has by no means done with them, the recently enacted laws being only of an emergency nature, and it is likely that in the near future the whole of the banking system will be overhauled and efforts r ade to put it on a sounder basis. But as yet the public lias evinced no desire for a concentration of banking [lower along the lines of the British system It is frankly apprehensive of Wall Street, and prefers to clip Its present powers rather than provide an opportunity for extending t cm. The great moral force that should be behind the possession and utilisation of capital and credit has yet to be created in the United States along with other [lowers the lack of which has told so heavily against the country w'hen adversity overwhelmed It and laid it prostrate.