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About The commoner. (Lincoln, Neb.) 1901-1923 | View Entire Issue (Nov. 13, 1908)
The Commoner. 9 (t NOISY OPPOSITION AND CLEVER SOPHISTRY OF CORPORATION POLITICIANS" By a Former Cabinet Officer NOVEMBEH 1, MM In its Issue of October 15 the Chicago Jour nal printed an article dissecting the arguments against guaranteed bank deposits, This article, the Journal assures us, wan written by "a fdrmer cabinet member." Inasmuch as guaranteed bank deposits will bo a live issue until the peo ple secure the reform this article will be of in terest at this time. Here it is: m Washington, October 14. Tho continuous attack on tho democratic proposal to tguaranteo bank deposits has led me to investigate this question somewhat closely, with rather surpris ing results. Prom careful study of general banking con ditions, and from analysis of the statistics set forth in the last report of the comptroller of the currency, I am quite sure these attacks are based on false premises in every instance where figures are quoted to back up the opposition. I am equally sure, artd I make the charge deliberately, that big , depositors, both individr uals aiid corporations, h,ave fbsteredthis opposi tion to deposit insuranqc, because' they are -very largely .protected under present conditions, and: they are unwilling to stand even the slight ex- pense.of making. the small .depositor safe!. . l',t - - The large depositor. is -the large? borrow'ew If "his bank- fails:' he' charges' up his" deposit against 'whatever he-'htis Borrowed, and' fe'duces his Joss to a minimum. The. small dep'ogUdrthq man whosq- savings re .jhe basis Qf alb oun banking, is the man 'who suffers. .'- r, '"). BIG BEPOSPTQR PRQ'JJECJPEI) , ", .. ' Suppose' histfccb'iint never shows nore than' 5500 'balance' at the 'bank.'. His. $500 and' the $500 deposits, of ninety-nine, other 'small de positors are used to make, a $50,000 loan to a big depositor whoso deposit account amounts to $50,000. The bank fails. The receiver asks tho big depositor to repay his loan to the bank. He presents his bank book showing his $50,000 on deposit. His loan is canceled. The big depositor who was a big borrower has saved his entire deposit of $50,000, while the one hundred little depositors at least tem porarily lose their one hundred deposits of $500 each. It is easy to see why rich men, rich corpor ations, and politicians who are supported by rich men and rich corporations make all sorts of dire prophecies and reckless statements as to what will happen if anything changes the pres ent system of banking, under which one big depositor's account is insured at the expense of a dozen, a score, or a hundred depositors of small means. SHOWS HUGHES PROPHECIES SILLY Governor Hughes in his western tour has attracted a good deal of attention by his state ment of what would have resulted under a bank deposit insurance system in New York state. Let us see what would have happened, not last year, and not in New York state alone, but dur ing tho entire forty-three-year period from the beginning of the national bank system up to 1907. These figures are taken from the last re port of William B. Ridgely, comptroller of the currency, and furnish a complete history of our banking system, showing every detail dur ing the forty-three-year period above mentioned. Of 8,489 banks organized in forty-three years, 447 have failed. The aggregate, lqss of depositors was. $4,7,911,583, or $1,114,2;28 a year. ") To remoye aH possibility that anyotypj Can consider my ; reasoning: unfair I will cdnflnfe; .it to the 387 which! haye bad. their affairs (wound upout of-'4,47''banks-that failed.'. The' sixty, lianks whose -affairs are now in the hands of . receivers have millions of undistributed assets which will reduce tho loss below tho amount above mentioned. The depositors of tho 387 national banks that have been wound" up lost a total of $24, 700,029. Compare this with the aggregato de posit of $5,-256,100,000. An annual tax of one ninth of one per cent on deposits would have paid tho entire loss. UNJUST? WHERE? WHY? There has been loud complaint of what an unjust tax this would bo to impose on the de positor. Let us see. In 1907 tho United States government received from" its semi-annual tax on circulation $2,800,070.54. Tho department of tho comptroller of the treasury spent but $413,759.41 all told. The government's not profit was exactly $2,392,31113, Observe that this sum is irtoro than enough to pay the average loss of deposi tors for two years. If this profit were turned over to tho bank deposit guaranty fund, it would furnish the. entire necessary protection, without a dollar of cost to tho depositors, WHERE'f-S THE EXPENSE? 'J Is It fair to, object totbe "expense" of Insuring-bank deposits wlion the .present system imposes enough unnecessary tax o insure all depositors twice' over? Or are the objectors animated more by' a desire to protect tho hig depositors against the" small depositor, rather than by apy conviction, of what Is .right or wrong? The government's total accumulation from the national 'banking business' In fory-threo years is $90,250,915.24. Tho total loss of de positors, including the sixty banks now under receivership, and whose losses will be reduced by millions when the assets are all turne.d inttj' cash, is only $47,911,583 for tho same period. These figures effectually dispose of the in-. justice" outcry that has been raised against tlio insurance proposition. Add the profit of tho government from bank notes never presented for cancellation, and the maintenance of a largo part of its circulation at Tao expense and it cer tainly looks to me as though the government could afford even to set aside an Insurance fund without adding a penny to the depositors' ex pense. SMASHES OFFICIAL'S ARGUMENT Various writers and speakers, among them tho deputy comptroller of the currency, argue that it is just as reasonable to insure the stock holder of a bank as he is more likely to lose than is the depositor. Here are the facts: In forty-three years national bank stock holders have paid $17,616,104 under the stock holders' liability act, and they have lost $59, 622,420 by depreciation of st"ck values, which in some cases have been entirely SLlped out. A total of $77,238,824 loss in forlFlhree years. The comptroller's last report shows an aver age dividend of 17.2 per cent for the sixteen months just concluded on the stock of all the national banks in the country. During the same period surplus and undi vided profits increased $69,983,898, adding what is in effect an 8.3 per cent divldent on their entire capital. . With this showing of 25.5 per cent earnings in sixteen months the poverty stricken owners of national bank stocks need protection as against the small depositor, it is preposterous. If national hank stocks weren't the best) investments ln America they wouldn't bo held! entirely by millionaires. J T There Isn't one Jogfcal argument against the insurance of deposits. " Goveriior Hughes is of statistics, which aro very evidently Intended to 'mislead anyono who roads them carelessly. SHOWS CLAIM NONSENSICAL Tho nonsensical claim that such Insurance would mako gamblers and thiovcB by whblosalo out of heretofore honest bank ofilclals Is child ish foolishness. Tho comptroller's roport gives twenty-eight distinct causes for bank failure. Of the 447 banks failing in forty-three years, 428 collapsed through defalcations, frnuds, or other violation of law, frequently cxccbsIvo loans to officers aiid directors, which for somo mysterious reason havo escaped classification as crimes. Twenty-nine, failures wore duo to doprc- elated securities, failure of largo borrowers, runs, or being closed by directors for fear of runs. . i, ' Twonty-ono of theso twonty-nlno banks' have either Resumed business or p'ald' tiielr de positors in full. ', 'Only' eight of , theso batikV failcdJpermanently, and their total loss Lo de positors' was $300,222.25; or less than $8,500 a vFifr ' ' "T JLv cleverly begging .the question. In his neat array .,. . Tq whole safety of tho depositor Uc in honest banking, and the figures I have givpn. prove It beyond tho shadow of doubt. '- wtf . ', SHOWS TRIBUNE IN ERROR " '' t "j The Chicago Trlbuno has recently been quotod, as objecting editorially to tho' "injus tice." .bank" deposit insurance would work, in) Now York, Massachusetts and New Jersoyf where, the failures would bo rare, and the assessments' therefore an excessivo end needless hurden on the poor depositor. If the Trlbuno made supH a' statement it must havo taken leave of its senses. '-'. Now York, New Jersey and Massachusetts according to tho Tribune's interpretation,' must shoulder 45 per cent of tho entire loss to de, posltors In forty-three years in the United States, her territories and dependencies. ,: - Bank losses arc not a question ef territory.' Thoy are a question of common honesty. ' 'In the District of Columbia, right at the center of national life and law, depositors havo lost $771,554,40, . In Wisconsin, which includes Milwaukee with bank clearings of twice Wash ington's transactions, the loss has been but $131,702.72. Honesty Is not geographical, as tho Chicago Tribune appears to think,, And honesty is the wbolo Issue. $ Jo-. More thorough examination by liborally- salaried examiners; elimination of assistance from within the bank in checking securities and accounts; reduction of loans exceeding to prescribed limit with immediate nptification of the comptroller and the directors of the offend ing bank; refusal to permit allied banking in stitutions under one roof (to prevent temporary transfer of securities for the benefit of the ex aminer) ; punishment of directors who lend or sell their names; punishment of directors also for false statements to examiners or tho comp troller; theso are needed reforms. The profits of tho currency department are large enough to warrant an increase In the efficiency of the force. The government and tho fidelity guarantee companies can enforce hon esty among bank officers. The burden of de posit insurance has been misrepresented, and the dangers are imaginary. "The underlying substantial wealth of our industrial and agricultural classes," which Comptroller Ridgely In his letter of last New Year said "saved us from a worse panic," is bearing the burden today. - - And all the noisy opposition and clever sophistry of corporation politicians directed against bank deposit insurance is merely; tie at- tempt to prevent any just part of tbla&Ura'e -til' being, transferred to the big depositorwhote 'f" day profits at tho expense of the little fellow ai ' ifflhUfn. --it- " -- M .MI. irt tani'-M