Monday, Nov. 04, 1929

Business & Finance: Bankers v. PanicIn Grand Central, Manhattan, Sydney Zollicoffer Mitchell dismounted from the Twentieth Century with a bad cold, went quickly to his office in the 2 Rector St. building. He telephoned a large Stock Exchange house, said he thought there would be trouble but "just call on me for anything you want." A few hours later stock of his gigantic Electric Bond & Share which had recently reached a high of 189 sold for 91. A few days later, it sold at 50.

John Davison Rockefeller Jr. was in Detroit attending Edison celebrations. It was said that he had been quietly liquidating for some weeks.

E. H. H. Simmons, President of the New York Stock Exchange, was honeymooning in Honolulu.

Arthur Cutten was reported in Atlantic City whither he is wont to go when he desires to be nearer to the corner of Wall and Broad Streets than his own Chicago. Whether or not he, "biggest bull," had been engaged in a month-long duel with Jesse Livermore, famed bear, was not a matter of public knowledge. No one could quite believe that Mr. Livermore was, in storybook fashion, tsar of a band of bears which had fanatically obeyed his orders for two months. But certain it seemed that a colossal effort to reduce the price of stocks had had masterful direction, beginning with the selling of U. S. securities by the French Government and other European investors weeks ago.

Promptly at 10 a. m. on Thursday Oct. 24, sounded the gong of the New York

Stock Exchange and 6,000 shares of Montgomery Ward changed hands at 83—its 1929 high having been 156.

For so many months so many people had saved money and borrowed money and borrowed on their borrowings to possess themselves of the little pieces of paper by virtue of which they became partners in U. S. Industry. Now they were trying to get rid of them even more frantically than they had tried to get them. Stocks bought without reference to their earnings were being sold without reference to their dividends. At around noon there came the no-bid menace. Even in a panic-market, someone must buy the "dumped" shares, but stocks were dropping from 2 to 10 points between sales—losing from 2 to 10 points before a buyer could be found for them. Sound stocks at shrunk prices—and nobody to buy them. It looked as if U. S. Industries' little partners were in a fair way to bankrupt the firm.

Then at 1:30 p. m., a popular broker and huntsman named Richard F. Whitney strode through the mob of desperate traders, made swiftly for Post No. 2 where, under the supervision of specialists like that doughty warrior, General Oliver C. Bridgeman, the stock of the United States Steel Corp., most pivotal of all U. S. stocks, is traded in. Steel too, had been sinking fast. Having broken down through 200, it was now at 190. If it should sink further, Panic with its most awful leer, might surely take command. Loudly, confidently at Post No. 2, Broker Whitney made known that he offered $205 per share for 25,000 shares of Steel—an order for $5,000,000 worth

of stock at 15 points above the market. Soon tickers were flashing the news: "Steel, 205 bid.'' More and more steel was bought, until 200,000 shares had been purchased against constantly rising quotations. Other buyers bought other pivotal stocks. In an hour General Electric was up 21 points, Montgomery Ward up 23, Radio up 16, A. T. & T. up 22. How far the market would have gone downward on its unchecked momentum is difficult to say. But brokers and traders alike agreed that the man who bid 205 for 25,000 shares of Steel had made himself a hero of a financially historic moment.

That hero, Richard Whitney, head of Richard Whitney & Co., was brother of George Whitney, Morgan Partner. Back of his action lay a noontime meeting held at No. 23 Wall St., Home of the House of Morgan. Although an excited Hearst reporter would have it that the Head of the House was present, actually, John Pierpont Morgan was in Europe. It was Partner Thomas W. Lament with whom conferred Charles E. Mitchell, National City Bank; William C. Potter, Guaranty Trust; Albert H. Wiggin, Chase National Bank; Seward Prosser, Bankers Trust. These men controlled resources of more than $6,000,000,000. They .met briefly; they issued no formal statement. But to newsmen, Mr. Lamont remarked that brokerage houses were in excellent condition, that the liquidation appeared technical rather than fundamental. He also conveyed, without specifically committing himself, the impression that the banks were ready to support the market. And the meeting was hardly over before Hero Whitney had become Heroic.

Traders, talking over the Morgan meeting, failed to remember any previous occasion on which a stock market conference had been called while a trading session was still in progress. They did recall, however, that in 1907, with call money at 125%. Secretary of the Treasury Cortelyou conferred with J. P. Morgan, put $25,000,000 of Government funds into Manhattan banks, halted the Panic. They remembered too the Northern Pacific crash of 1901. when, after Northern Pacific stock had gone overnight from $150 to $1,000 a share, the House of Morgan, representing the late great James J. Hill and the House of Kuhn, Loeb, representing the late great Edward H. Harriman, compromised at $150 a share, saved from ruin many a short. Then there was the U. S.-England war scare of 1895 when, with money at 80%, J. P. Morgan offered money at 6%, averted a threatened crash. Thus bankers have for a long time recognized their responsibilities as panic-preventers, and when the glass house of speculation has cracked and splintered, it has most often been the strong House of Morgan that has assumed the responsibility of fame and brought order out of confusion.

Despite the rapid Thursday afternoon recovery, the low point of the swinging pendulum cut off many a speculative head. Roaring was the business done by down, town speakeasies. Wild were the rumors of ruin and suicide. In Manhattan, one Abraham Germansky, realtor, was last seen tearing ticker tape. In Seattle, one Arthur Bathstein, finance company secretary, shot himself. Estimates of the number of margineers closed out varies from 20% to 70%. During the first three hours of Thursday stock valuations shrank about $11,250,000,000, recovered all but $3,000,000,000 before trading closed. Brokers met at Hornblower & Weeks, counseled against witless selling, thought the decline had spent itself in a day's volume of trading far exceeding anything ever known. On the Stock Exchange 12,894,650 shares changed hands, besides almost as many more on the curb, "over the counter" and other exchanges in the U. S.

Soundly anti-climactic was the remainder of the trading week. The recovery of Thursday afternoon had brought most of the list back to within a few points of its Thursday opening. In the two final days an unofficial but obviously potent banking pool stood ready to prevent a retreat from becoming a rout, a recession from developing into a panic. In addition to the banks already mentioned, the banking pool was described as including George F. Baker's First National, thus renewing the old Morgan-Baker alliance which once caused J. P. Morgan to remark that the friendship of George F. Baker was the most valuable asset that he or his father had ever known. Mr. Baker, fast approaching his goth birthday, had known Panic before Morgan Partner Lament was born. Compared to Morgan-Baker efforts of the past, however, the 1929 crisis was notable through the presence of a non-Morgan bank—National City, by far the largest in the U. S.—in a position of vital importance.

Undaunted by pooling bankers, the big and now successful Bears made Monday, Oct. 28, a day of fresh disaster. Over the weekend many an investor had fully realized the necessity for an immediate exit from the market. Thus the session, opening with an accumulation of selling orders, both amateur and professional, was hopeless from the start. By noon more than 3,500,000 shares had been sold in what was obviously a panic-situation. Again bankers met, but issued no statement, hardly retarded the decline. Again Broker Whitney haunted Post No. 2, but at this time U. S. Steel broke through 200, reeled down to a closing figure of 186. All the blue chips of the late bull market were hammered and sliced—the better the stock, the bigger the break. On this day A. T. & T. fell 24 points; Columbia Carbon, 61; Consolidated Gas, 20; Electric Power & Light, 13; General Electric, 47; Eastman Kodak, 41; Otis Elevator, 60; New York Central, 22; Montgomery Ward, 15; U. S. Industrial Alcohol, 39; Standard Gas & Electric, 40, etc. etc. etc. ... In Rio de Janeiro the coffee market already frightened (TIME, Oct. 21), closed altogether. But in Chicago a bushel of wheat was worth 3 cents more.

By Tuesday morning the suspicion that there might be a panic had turned to the apprehension that there was a panic. With the market failing to show even the usual closing rally, it appeared that Messrs. Lamont, Mitchell and their associates had been content to witness a liquidation that might technically be termed orderly but was certainly extremely depressing.*

Tuesday brought also a quota of cheerful utterances. Said T. B. Macauley, president of the Sun Life Assurance Company of Canada (one of the largest of institutional stock-buyers) : "The present crisis in the stock market squeezes out inflation caused by speculation, and we have taken opportunity largely to increase our holdings, and we are still buying." Said Chase National's Albert Wiggin: "None of the corporations or institutions I am connected with is selling stocks at this time. We are buying." President Hoover said that U. S. Industry was on a sound basis. The banking group also met again Monday evening and on Tuesday was again quoted as standing firmly (bulls thought at a safe distance) behind the market.

When Tuesday came, nobody could make any sense of performances on the stock exchange, where the almost incredible number of 16,338,000 shares of U. S. Industry & Commerce were dumped as if they were so much junk. The day's transactions, including odd lots and other exchanges, undoubtedly exceeded 30,000.-ooo shares. Necessity, perhaps, but not Reason ruled.

That nearly every stock was at bargain prices by any modern economic standard was best shown by the fact that very soundest stocks were selling at ten times current earnings and many a stock such as that of the General Motors Corp. reached a point where it was only five or six times current earnings. And General Motors, according to the once unchallenged statement of John J. Raskob, should sell at 15 times earnings. Quite aside from their relation to earnings many stocks sold at a point where their actual yield in dividends was higher than the yield of bonds. The following were typical of stocks which were purchased at a price to yield in dividends between 8% and 10%: Anaconda Copper, Bethlehem Steel, Chrysler, General Foods, General Motors, Kennecott Copper, Sinclair Oil.

Such stocks as American Telephone, Baltimore & Ohio, Canadian Pacific, New York Central, Standard Oil of New Jersey, U. S. Steel, Westinghouse, all sold at some time to yield between 4% and 6%.

Any person who once paid $50,000 for a hundred shares of Auburn Motors would have been lucky to get $15,000 for his stock on October 29th. Goldman-Sachs' famed Blue Ridge investment trust which was to share in the entire sweep of U. S. prosperity was sold at $3 per share. Dozens of stocks of huge companies sold for less than half of what somebody had once said they were worth. So nonsensical did all this seem that some brokers refused to sell out their customers even when technically they might have. But the awful expected began to happen when one brokerage house, John J. Bell & Co., was suspended. What failures loomed, none could say. Would the nightmare, to many tragically cruel, never end? As shades of Tuesday evening fell, it seemed again that the worst was past. A belated ticker recorded gains in significant stocks. New York Central was three points above Monday's close. Hysteria, it was hoped, had met its master in the Banking Power of the U. S., which appeared to have bought a good proportion of U. S. Industry.

-* It was the second time that Mr. Mitchell had arrived in Manhattan on the wings of panic. He took his first Manhattan job (with Trust Co. of America) just in time to

cope with the Panic of 1907. He arrived home from Europe last week, just in time to utter bullish reassurances on the eve of the crash.

Monday, Jan. 05, 1931

Business & Finance: Broken BanksOn January 11, 1930, the Ensley Bank of Birmingham, Ala., failed. Since then the wave of banking suspension has increased. Last week the Federal Reserve reported that for the first eleven months 981 banks with deposits of $515,486,000 were suspended, which compares to 372 banks with deposits of $129,000,000 in the relatively quiet year of 1928, 132 banks with deposits of $233,000,000 in the panic year of 1907. Preliminary estimates place the 1930 total at 1,121 banks with $700,000,000 in deposits. Of these failures, the greatest part has occurred in recent months as the follow-ing table shows:

Banks Suspended

July 65

August 66

September 66

October 66

November 236

December* 140

Deposits $ 33,000,000 21,000,000 24,000,000 26,000,000 204,000,000

November's total was swelled by the repercussion in the South which followed the failure of Caldwell & Co. and the A. B. Banks group of banks in Arkansas (TIME, Dec. 1). Last week the South's tally was raised by the failure of ten Mississippi banks, all within a radius of 30 miles. To bankers, aware that a great evolution is changing U. S. banking methods (TIME, Oct. 13), the southern situation provides interesting case histories of what happens to a group of banks when the strongest member goes under. Other case histories are being written throughout the U. S. by closed banks. In Los Angeles last fortnight, the widely-advertised Guaranty Building & Loan Association of Hollywood failed, due to the confessed $8,000,000 defalcation of Gilbert L. Besseymer, secretary manager.

Last week the California Building and Loan Commissioner resigned. One reason: public belief that a careful investigation of the Guaranty's figures would have revealed its condition. In Manhattan the case of Bank of United States may prove a classic example of mismanagement (TIME, Dec. 22). Last week in Manhattan another bank, Chelsea Bank & Trust Co., closed. Not important in the Manhattan banking structure, Chelsea's predicament has interesting points, chief of which is accusation by the State Banking Department that Red rumormongers deliberately

started the run on the bank. In Philadelphia last fortnight, Bankers Trust Co. was suspended (TIME, Dec.

29). Rumors about Franklin Trust Co. started. A bad situation was avoided by the prompt action of other banks and statements from financial leaders that all was well. In other cities similar events have taken place, and the banking history of 1930 will contain a long chapter, not without bright passages, on the duty of banks and bankers in time of crisis.

* Estimate from Dec. 1 to 29 by American Banker.

December deposits not available.

Monday, Aug. 24, 1931

Business & Finance: More Bank TroubleTwo months ago Security-Home Trust Co. (deposits $27,000,000) collapsed in Toledo, Ohio, frightened bankers. Officials of three other big institutions put restrictions on withdrawals for 60 days. The time was up on Monday, Aug. 17. Last week, 48 hours before the time was up, the same officials said the three big banks, though still solvent, would not open Monday. Solvent in normal times, they feared there would be ruinous runs at the reopening, as business conditions have not improved in the last two months.

The closings brought to Toledo as grave a financial crisis as could possibly overtake a large U. S. industrial community. For last week only one of the city's great banking institutions could pay depositors; 70% of the city's banking deposits were frozen; eleven building-&-loan associations halted payments on their $50,000,000 deposits. The banks closed: Ohio Savings Bank & Trust Co. (deposits $45,526,000"); Commerce Guardian Savings Bank & Trust Co. (deposits $21,328,000); Commercial Savings Bank & Trust Co. (deposits $13,069,000). They dragged along with them American Bank (deposits $1,509,000).

With his city's financial apparatus toppling about him, one veteran banker stood out. He was President Henry Lawrence Thompson of Toledo Trust Co., with $44,401,000 in deposits and "The Strongest Bank In Northwestern Ohio" for a slogan. He announced that his institution had $25,513,000 in absolutely liquid assets, would remain open and keep paying until everyone was satisfied. To show that he meant business, trucks from the Cleveland Federal Reserve Bank drew up to his doors laden with $11,000,000 in crisp new currency. At the end of the day four other Toledo banks were still keeping their heads above water. Two were industrial banks; two were smaller concerns.

Elsewhere in the city there was unrest and panic. Retail business was at a standstill. A few smaller firms did not open. Police were recalled from vacations and the 148th Infantry held ready. The Inverness Golf Club, scene or the recent National Open tournament, was closed by its board of directors, all help was dismissed except two greenskeepers. Ira Fulton, superintendent of Ohio Banks, called together more than 100 frightened country bankers who were hit by the trouble, tried to calm them. From neighboring States, 100 bank examiners set out to help straighten Toledo's muddle. Brokers widely discussed the possible effect on control of Toledo's Willys-Overland Co., many of whose shares were held as collateral by the closed banks. As usual, assurances were made that there would be speedy reorganizations.

¶Many nearby country banks snapped the 60-day restriction upon withdrawals. In Akron and nearby Cuyahoga Falls twelve building & loan associations suspended payments.

¶ In Omaha small Union State Bank failed, started runs on the city's three largest banks. The Federal Reserve Bank at Kansas City rushed $3,000,000 by airplane and stopped the panic. But six small country banks found the excitement too much, failed to open.

¶ In Nebraska, six small banks closed their doors.

¶ In Hopewell (Va.) Bank & Trust Co. failed.

Monday, Dec. 28, 1931

Business & Finance: Bank TestWall Street wisecrackers had a merry time last week, chortling over some wag's remark that "next we will hear of the failure of the Gloucester fishing bank." But in seaside Gloucester, where an ill wind is one which comes from the big Le Pages glue factory, nobody saw anything comical in that remark last week. For Gloucester's oldest bank, the Gloucester National, failed to open its doors, freezing fast more than $1,000,000 of good Gloucester cash. Even in old New England Gloucester National was a hoary insitution in its own right. When it was formed John Adams was being boomed for the second U. S. President; the Fourth of July was the 20th anniversary of independence. President of the bank was Thomas James Carroll, 64, also president and general manager of Gorton-Pew Fisheries, wholesalers of salted and canned fish. He left grammar school when his fisherman father was lost at sea.

Immediate cause of the Gloucester trouble was that Gloucester National was one of eight Massachusetts institutions affiliated with Boston's Federal National Bank. When Federal was forced to the wall last week the affiliated banks in Gloucester, Lynn, Salem, Brockton. Lowell, Worcester, Cambridge and Lawrence followed. Total deposits involved were around $60,000,000.

Thus, New England's banking structure met its greatest test of this Depression. Boston-Continental National Bank, with $7,000,000 in deposits, closed. To another bank went special aid. A run began on world-famed Five Cents Savings Bank, an institution with $102,000,000 in deposits and a reputation for great, solid conservatism. In Bridgeport, Conn., four banks became two banks. In New Haven support was thrown to Broadway National Bank. Whereas in the first nine months of 1931 only two banks failed in all New England, last week's damage brought the total to 22, Massachusetts accounting for most.

Sad Totals. New England, centre of banking excitement last week, was not the only section of the country where rich and poor stood mutely to gaze at closed banking portals. The year, a disastrous one to the banking structure, has been marked by two types of troubles. There have been the major financial disturbances which have suddenly overcome great financial centres. There has been the steady stream of isolated failures. Last week this stream continued, much less torrential than during late summer, but still muddy. The week's tally of bank closings (suspensions and failures and voluntary liquidations) as kept by the American Banker showed that the country's banks were being diminished at a rate of more than ten a day. Citizens Bank of Hickory Ridge, Ark., with $29,000 deposits, shared the same fate as Standard Trust Bank of Cleveland, first and greatest of the Brotherhood Banks, placed under independent management in 1930. Of Standard's $22,000,000 in assets at least $2,000,000 represented the engineering Brotherhood's "war chest," accumulated to finance possible strikes. Significant was the fact that last week's bank-closings brought the 1931 total to 2,044.

Reporting only actual bank insolvencies, R. G. Dun & Co. shows that during the first three quarters of the year. 823 banks with liabilities of $703,000,000 were involved, against 360 banks and $270,168,000 during the same time last year. Regionally, the failures up to Oct. 1 were:

No. Liabilities New England 2 $ 2,745,000 Middle Atlantic 68 151,210,246 South Atlantic 86 66,970,492 South Central 97 43,549,499 Central East (Ohio, 213 Ind, Ill., Mich., Wis.) 213 296,453,467 Central West (Minn., Iowa, Mo., N. Dak., S. Dak., Neb. and Kans.) 505 92,653,686 Western 25 13,636,409 Pacific 27 31,107,483

By no means do all of these liabilities represent money lost forever. Slowly throughout the land liquidation of frozen assets is going on, payments are being made to depositors. In Manhattan, depositors of Bank of United States received last week a 15% distribution. This payment, the second, brings total disbursements to date to 45%. In Philadelphia, where 39 banks failed during a mighty financial storm, seven have paid liquidating dividends. A few, including big Bankers Trust Co., have paid 20%, the others from 10% to 15%. Bank of Pittsburgh last week made a 50% disbursement. In Toledo, where four out of five big banks failed (TIME, Aug. 24), depositors were receiving their first liquidation checks last week: 30% from one bank, 15%, and two of 10% from the others. "I am through with banking and from now on I will confine my efforts to manufacturing," said Clement O. Miniger, robust but lately pale president of Electric Auto-Lite Co. A hard-working businessman, Mr. Miniger was caught in the swirl of real estate and banking developments by the boom, found himself a round $5,000,000 poorer when Toledo was forced to take stock of itself. Now, to recoup losses, he is working harder than ever. Automobile accessory business curtailed. Auto-Lite is making $1 electric clocks, selling them in large lots to chainstores. All the money "lost" in all failed banks in the U. S. in 1931 will be less than the resources of any one of the biggest U. S. banks.

Branch Banking. Yet even though a bank should pay 100% after it closes, the closing cannot help but cause stress to both depositors and borrowers. Hence the year has been one that has made all serious bankers ponder remedies carefully. John William Pole, Comptroller of the Currency, has tirelessly reiterated his arguments in favor of larger banks, many branches. Last week he gloomily contemplated the ravages of Depression upon the banking system, and again pleaded with slow-to-change bankers and suspicious Congressmen for the development of branch-banking. Said he: "In brief, the purpose of the legislation recommended is to supplement our system of unit banking by permitting the stronger and better managed city banks to carry on banking operations in the surrounding rural communities by means of branch offices. . . . Our present banking problem is one that concerns primarily and fundamentally the rural communities and which cannot be automatically solved by the return of general prosperity."

Last month the cause of branch-banking was advanced by the first out-and-out endorsement from the U. S. Treasury. In his annual report, Andrew William Mellon said: "The essential question involved is the inability of a large number of small banks to survive in the face of changing economic conditions. ... I can see no justification in the argument that banking should be confined to political or other existing artificial boundaries rather than to its natural economic lines."

Greatest argument in favor of branch-banking is the success of England's banking system. A Depression far more acute than that in the U. S. has not caused a single failure. Stock example of branch-banking under conditions more comparable to those in the U. S. is in Canada. Advocates of branch-banking delight in quoting the fact that there have been but twelve bank failures in Canada since 1893, that between 1914 and the present there was only the shocking collapse of the Home Bank in 1923. Their opponents however, take the Home Bank failure as proof that even big branch-banking systems can fail. They also point to the recent branch and group banking troubles in the U. S. Yet the recent failures among banks with many branches or groups of banks have almost all been due to flush promotion methods or gross mismanagement. Such fiascos as BancoKentucky, the Bain Banks in Chicago and the A. B. Banks group in Arkansas cannot be held as an indictment of the principle of group-banking and likewise cannot be called a result of branch-banking since a group of banks is an entirely different thing from one bank with branches. Bank of United States had many branches but they were all in one city and the conduct of the bank's business was such as to make it useless j as an example of any banking theories. Arguing by experience, advocates will ! point to California, one of the few genuine branch-banking States. In 1931 none of j the California branch-banking banks has | failed, and the only failures in the State were a dozen tiny affairs.

National Credit Corp. While the great branch-banking argument last week was growing louder and louder, a more immediate solution of the difficulties was getting underway. The National Credit Corp. was not intended as a permanent banking cure-all but as a support during the present crisis (TIME, Oct. 19 et seq.). Continued bank failures might indicate that this body has not accomplished its purpose, but the saving of a nation's financial structure cannot be done in a night or a week.

Up until last week National Credit had not called for payments on the $500,000,000 worth of debentures to which banks have subscribed. Chief reason was thought to be that these debentures must pay 6%. that until definite need of the money is felt National Credit can obtain funds more cheaply from a few large banks with ample cash. Last week it was thought that National Credit had lent about $10,000,000. It was said that pending applications for loans come to between $10,000,000 and $15,000,000. Loans thought to have been made by last week included: $1,500,000 to Virginia banks; $3,000,000 to closed American Savings Bank & Trust Co. Davenport, Iowa; $650,000 to banks in Des Moines.

Many a banker last week was wondering why National Credit did not step in and help Federal National of Boston. Senator Carter Glass, opposed to the plan from the first, proposed to call National Credit officials before the sub-committee of the Senate Banking and Currency Committee to find out "why it has not averted bank failures at its own back door." Many bankers thought that National Credit had considered helping the Boston situation, had found upon investigation that the banks involved did not merit aid. Upholding this belief was the widespread report in Boston that when the run began on Exchange Trust Co. National Credit quickly put a welcome $1,000,000 in the bank and stopped the run.

Undisputed good effect of National Credit Corp.'s formation was the resultant improvement in the nation's confidence, the return of much hoarded money to banks. Although bonds were still depressed last week from recent selling, the cause was thought to be in year-end "window-

dressing" by banks rather than in forced selling. Of great aid to banks which must dress their statements was Comptroller Pole's decision last week to take a liberal view upon the value of bonds held by banks so long as the bonds are not in default.

Gold. In Europe rumors were revived to the effect that the U. S. will go off the gold standard. Many a Wall Streeter with little to do except swap stories was rumoring that Lloyd's of London has wagered one to three that within six months the U. S. would abandon the gold basis. Few read the London dispatch which said that only one small wager had been placed—at odds of one to 20.

Then up popped the Philadelphia Record, vigorous and temperamental paper owned by Julius David Stern. "The nation will be forced off the gold standard eventually when it will do us little good," said a front-page editorial, "so Congress should take the United States off the present gold standard immediately. . . . Gold is valuable today for the emotion it produces. . . . Abandoning that money standard might wipe out three billion of gold value but restore a major part of three billion dollars in property and security values. The smartest thing Uncle Sam can do now is to let his debtors in the rest of the world get the best of him; sometimes it's smart to be dumb."*

Safe. Thus beset by problems, pounded daily by bad news, the banking world has been dismal. Fortnight ago the very nadir seemed to have been reached; many a loose rumor was bruited about, shares of leading banks sold at less than book value even after many known losses were deducted. Last week when no bad events occurred except in Boston, when it became known that the New York City banks are not as heavily committed in Germany as previously thought (see p. 6), a great rally in bank shares began, more pleasing to bankers and brokers than even the welcome rise in stock prices.

* In Johannesburg, South Africa, famed general Jan Christiaan Smuts, former premier of the gold producing Dominion, thought it would be smart to take South Africa's

pound off the gold standard. "If there is one lesson more than any other to be learned from the present crisis," said he last week, "it is that South Africa is not

economically independent and that our lot economically is with the British market."

Monday, Mar. 20, 1933

THE CONGRESS: THE CONGRESS Bank BillBank Bill

Called into special session on four days notice, the 73rd Congress, young and Democratic, sat momentously in the Capitol last week. President Roosevelt had summoned it to meet the banking crisis—Emergency Item No. 1 of the New Deal. Not since War days had the Congressional temper been so grave, so unanimously bent on speedy action. The State of the Union was so serious that the most opinionated Senators and Representatives submerged their convictions in worried silence and took orders from the White House. Other Congresses had gabbled away opportunities to rescue the country but the 73rd, with a record to make, gave a legislative performance which for dispatch, efficiency and good behavior during the first week's session, placed it high in public esteem.

Though the spirit of Congress was new, its mechanics were as old as the U. S. Proceedings began in the House with the election of Illinois' white-thatched Henry Thomas Rainey to the Speakership as a result of last fortnight's Tennessee-Texas-Tammany deal in the Democratic caucus. He got 302 votes to the 110 cast for his Republican opponent, New York's Snell&3151;an immediate demonstration of the Democrats' margin of House control.

Ignoring precedent, a spectator in the gallery when the House convened was Anna Eleanor Roosevelt Roosevelt, bareheaded, knitting a sweater. When members spotted the First Lady, they rose and clapped. Mrs. Roosevelt responded by standing, nodding, smiling pleasantly, and like Mme Defarge in the French Revolution resuming her knitting. With her in the Presidential box were her son James, Mrs. Henry Morgenthau Jr.. Mrs. Mary Howe Baker, daughter of Roosevelt Secretary-Crony Louis McHenry Howe, and Miss Nancy Cook, Mrs. Roosevelt's partner in the Val Kill furniture factory.

After Speaker Rainey had sworn in the membership with one thunderous oath* and the President's message had been read, the House plunged headlong into H. R. 1491, "an act to provide relief in the existing national emergency in banking." So hastily had the bill been drawn up that no printed copies of it were yet available for members. Their only knowledge of what they were being asked to approve came from a clerk's sing-song reading of the lone text which still bore last-minute corrections scribbled in pencil. Chairman Steagall of the yet unorganized Banking & Currency Committee arose to explain to his bewildered colleagues how H. R. 1491 gave dictatorial banking power to the President, authorized impounding of all gold, and provided for a new currency issue. Members were told that only by voting this measure could the nation's banks open on the morrow. Exalted by his subject, Representative Steagall exclaimed :

"It has taken 50 years to develop the great financial system of the U.S. which is now prostrate and in ruins. We cannot rebuild it in a day or a week. We can only do it step by step.

Heaven is not reached at a single bound;

But we build the ladder by which we rise

From the lowly earth to the vaulted skies

And we mount to its summit round by round.

"The step we take leads upward toward the light. . . . The people have summoned a leader whose face is lifted toward the skies. We shall follow that leadership until we again stand in the glorious sunlight of prosperity and happiness.''

Precisely 38 minutes after it had taken up H. R. 1491 the House passed it with a unanimous roar. Trusting their new President to do right, members voted it blind, without a single word's change. Under the Roosevelt spell the House's deliberative session became a ratification meeting.

When half an hour later H. R. 1491 came up in the Senate, Representatives crowded into the chamber to try to learn the details of what they had just done. Florida's Fletcher, benign rosy-cheeked chairman of the Senate's Banking & Currency Committee, nominal sponsor for the measure, conveyed little information. Senator Fletcher nipped his hands up & down helplessly, spoke of the necessity for prompt action and left it to Virginia's Glass, No. 2 man on the committee, to do the explaining.

"I haven't slept an hour since night before last," Senator Glass declared out of the corner of his mouth. But fatigue did not diminish the little Virginian's ardor of exposition. He admitted that there were sections of the bill that "shocked" him. Pointing to its anti-hoarding provision as "arbitrary," he said: "I don't know who there is with wit or wisdom enough to define hoarding."

Criticism of H. R. 1491 was leveled at the fact that its principal benefits were limited to Federal Reserve member banks, thus excluding state banks which never joined the system. Chief critic was Louisiana's loud Long who offered an amendment whereby the President could sweep every bank in the land under the shelter of the Federal Reserve. Senator Glass whose antipathy toward Senator Long is so great that two days later he angrily tried to punch his nose, bitterly flayed the Long proposal. Ensuing wrangle:

Glass— Any layman knows the amendment is utterly invalid.

Lon—The Senator has misstated the facts. He wants to get his record straight.

Glass—My record's quite straight and I do not relish having the Senator say I misrepresented anything. The Senator had better be more civil. . . .

Long—The Senator is honestly in error. . . .

Glass—The Senator has such ignorance of the whole problem, such a lack of appreciation, that he wants the President to cover 14,000 state banks into the Federal Reserve without knowing a thing in the world about them. . . .

Long—What will the little banks do in the little county seats?

Glass—"Little banks!" Little corner grocerymen who get together $10,000 or $15,000 and then invite the deposits of their community and then at the very first gust of disaster topple over and ruin their depositors! What we need in this country are real banks and real bankers.

The Senate finally passed H. R. 1491 by a vote of 73-10-7, with no amendments. In seven hours and 51 minutes after it opened its special session Congress had sent President Roosevelt the first thing he had asked for—the largest grant of power over the U. S. pocketbook ever given in peacetime.

* Subsequently sworn in were Maine's Utterback, whose election was contested, and Minnesota's Shoemaker who had served a term in Leavenworth Penitentiary for

publicly calling a banker a "robber of widows and orphans."

Monday, Apr. 24, 1933

Business & Finance: Bankers' WisdomLast week with 5,443 out of 6,736 Federal Reserve member banks and 7,654 out of 11,435 State banks* recovered from the banking holiday and again doing unrestricted business, the executive council of American Bankers Association assembled in Augusta, Ga., to play golf on Bobby Jones's Augusta National golf course and exchange profundities of hindsight. The A. B. A. Economic Policy Commission took up the task of expressing the refreshed financial wisdom of those members who were still bankers. Col. Leonard Porter Ayres, famed economist-vice president of Cleveland Trust Co. (one of Cleveland's big banks that is open), author of his bank's widely known Bulletin, arrayed his colleague's latest recommendations, suggestions:

Recommendations

1) Liberalization of the Federal Reserve Act to allow admission to the Reserve of State commercial and mutual savings banks, (Based on last week's figures 84% of Federal Reserve member banks but only 67% of State banks had reopened on an unrestricted basis.)

2) Prohibition of bank holiday proclamations by State governors (because of the drain it puts on the banks of neighboring States).

3) Uniform privileges (or restrictions) in regard to branch banking for national and State banks in each State.

4) "Reasonable limitations" to control the sudden shifting of large commercial deposits (which aggravated the spread of the banking crisis).

5) Laws for rigorous regulation of loans by banks to their own officers.

6) Progressive restriction of the postal savings system as the general banking system is strengthened.

7) Deposits of public funds should have no greater security than private deposits, the same status for all.

8) The emergency provisions for member banks borrowing from the Federal Reserve should be made permanent.

Suggestions

1) A Federal commission to> consider limitation of interest rates on all classes of deposits. (Too high interest rates paid by banks in competition with each other has been a recognized cause of bank weakness.)

2) Altering the Federal Reserve Act to make possible increasing the requirements of bank reserves in times of credit inflation.

3) Fixing a statutory percentage of gold coverage not only for reserve notes (as at present) but for reserve notes and bank deposits combined. "This would nullify most of the dangers inherent in the hoarding of currency."

*Figures for 47 states.