BANKS DISCREDITED.

Waikato Times, Volume 114, Issue 19051, 15 September 1933, Page 9

BANKS DISCREDITED.

X BLAMED FOR CRISIS. EVASION OF TAXATION. ASTOUNDING REVELATIONS. MORAL FORCES ABSENT. (By T. C. List). The following Is the eleventh of a series of artloles from the pen of Mr T. C. List, of New Plymouth, Dlstrlot Governor of Rotary for New Zealand, who has returned from attending the International Rotary Conference at Boston. In the present article Mr List Investigates the position of the American banks and describes the amazing revelations Which have brought discredit upon the banking system. 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 to seek. 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 fianancing speculation at the expense of genuine -X t business and because in their greed of sain they entered themselves through affiliated companies into the sale of shares and bonds. They are accused—and the evidence shows 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 taokled 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 bul- , wark 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 Lhe 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 of 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 publio did not reoover 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 talent to coach and guide him in the legal refinements of selling securities to one’s relatives or showing losses by the manipulation of family trust funds.

Further Shocks. The public elucidation 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. 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 repute and respect. The original Morgan had been a just and fairdealing man, not a usurer, with the soul of pushcart peddlars, 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' publio believed that whatever shady practices might be Indulged in by certain other banks, the hands of the Morgans were olean.

The Morgan Disclosures. 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 I 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 anything. The resent- 1 ment was not so much' against the law as against the fact that the Mor- I gan partners, all very rich men, in receipt of large profits, but nullified by “capital losses,’ should have benefited by it. Downright Corruption. 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 lo certain slock at prices much below I lie. 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 and Justifying the closest Government re- j

gulatlon of all banking institutions. The publio 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. Absent Moral Force. The public is unitedly behind the Roosevelt Administration in demanding the strictest supervision of the banking institutions, and the President himself says be 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 made to put it on a sounder basis. But as yet the public has evinced no desire for a concentration of banking power 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 them. The great moral force that should be behind the possession and utilisation of capital and credit lias yet to be created in the United States along with other powers Ibe lack of which has told so heavily against the country when adversity overwhelmed it and laid it prostrate. j