JUNE "14", 1912
The Commoner.
An Inside View of the Money Trust
Following Is an Associated-Press dispatch:
New York, June G. The immense power
wielded by tho New York clearing house asocia
tton over the banks of tho country's financial
center and arbitrarily lodged in tho hands of five
men should be placed under judicial regulation,
it whs conceded by William Sherr, manager of
the association, on the witness stand today.
Mr Sherr was tho chief witness at the first
hearing held by tho house committee on bank
ing and currency which is investigating tho
so-called "money- trust." The committee came
to New York today to take such testimony as
its powers will permit, pending tho passage
of the amendment to the banking law now in the
senate under which the committee hopes to
be able to enforce from the banks its demands
for the information which it expects to make
the basis of remedial legislation.
"While today's inquiry was characterized by
Chairman Pujo as "collateral" to the main
scope of the inquiry, Samuel Untermeyer, special
counsel for the committee, developed through
Mr. Sherr's testimony to the effect that tho
destiny of practically every financial institu
tion in New York was pdtentially at the mercy
of the "mere whim, determination or order" of
the five men who composed the "New York
clearing house committee."
Mr. Untermeyor referred to the regulations of
the association conferring this power as "mon
strous," also raised the question as to whether
the association did not violate the "interstate
commerce laws in the banking operations of its
members with out-of-town banks.
The clearing house committee had full power
over the admissions to membership, according
to the testimony of the witness, and the power
of suspension.
"Then it rests with these five men as to
whether they can keep a competitor out of tho
association?" inquired Mr. Untermeyer. "Don't
you think that is a monstrous regulation for
an institution doing an interstate business?"
"The average banker has a moral status to
maintain," replied Mr. - Sherr. "He realizes
that he can make more money by walking
straight than crooked. I have never known re
sponsible men who were able to fulfill the finan
cial requirements for admission to be refused.
If the committee took the narrow view of keep
ing out a competitor it vould react against
them. Merchants and business men who are
the banks' largest customers would never stand
for unjust discrimination."
"I am not speaking of iriotives," pursued the
attorney, "but of the unbridled .and unlicensed
power of these men. .Don't you think this power
should be subject to judicial review and con
trol?" Mr. Sherr then explained that the clearing
house was a voluntary institution, similar-to a
private club, and that no court would hold that
a volutary institution could be compelled to
accept as a member anyone who could not com
ply with its regulations.
'.'But you know that this great power exists;
should it not bo judicially controlled?"
"I agree with you," finally conceded Mr.
Sherr. "Where there is a wrong it should bo
corrected."
"And this mere whim, determination or order,
whatever you are to call it, to stop clearing for
non-member banks, don't you think that that
is too great a power without judicial review?"
Tho 'witness again gave an affirmative answer,
but asserted that in the exercise of the power,
"it is -not so bad as it looks," citing a recent in
stance where the committee's power was exer
cised to prevent an institution whoso officers
were "not of good character" from obtaining
membership by buying out and merging with
a clearing house bank.
"Good character, then, depends upon what
group of banks you belong to, doesn't it?"
queried Mr. Untermeyer.
"Oh, I don't admit that," taid tho witness.
Mr. Untermeyer raised the question of tho
violation of the interstate commerce laws when
he brought out of tho witness that by taxing tho
collection of checks on out-of-town banks tho
New York clearing house institutions "levied on
tho country a tribute" of over $48,000,000 an
nually. This tax, which was first Imposed by
tho clearing house in 1899, amounts to vOno
quartor of 1 per cent or one-tenth of 1 per cent,
according to the territory from .which the check
originates. Mr. Sherr said, and any bank charg
ing a less amount Is subject, according to tho
rules, to expulsion after a second offenso.
"Don't you realize that tho collection of out-of-town
checks in this manner is In restraint of
trade?", asked Mr. Untermeyer, after pointing
out that it was impossible for tho clearing house
banks to compete with each other for a cus
tomer's accounts, for example to collect their
checks for nothing.
Mr. Sherr admitted that tho clearing houso
was '"an important factor in interstate com
merce," but again pointed out that it was a
purely voluntary organization, and that a bank
not caring to pay tho tax imposed, ho said, to
cover the cost of collection, could withdraw.
After Mr, Untermeyor had read into tho
record evidence that the cost of collecting
checks in Boston was only 7 cents on $1,000,
compared with tho charge in Now York of from
$1 to $2.50 per $1,000, he remarked:
"Banks have been obliged to closo up because
their clearing houses have withdrawn, havon't
they?"
"Yes," said Mr. Sherr.
"Just a rumor that it is to be expelled will
cause a run on tho bank, won't it?"
"That is probably true."
"Well, then, tho idea of a bank allowing
Itself to be expelled on account of tho collec
tion rule Is inconceivable," commented tho at
torney. "I think that If I were president of a bank
and felt that I was being unjustly used, I could
announce tho fact and withdraw without any
damage to my interests," said the witness.
He admitted the imposition of tho collection
tax was not properly a function of a clearing
houso association.
Mr. Untermeyor brought out by reading from
a treatise by James G. Cannon, member of tho
clearing house committee, that tho banks of
Buffalo practically paid their dividends by tak
ing the collection of out-of-town , checks.
"Don't you know that some of tho New York
banks are earning from 30 to 40 per cent on
their capital?"
The witness admitted that tho National City
bank was earning 40 per cent on its capital of
$25,000,000.
Tho business done with tho clearing houso
banks by merchants and business men was in
tho neighborhood of 72 per cent, he said, as
against 28 per cent for stock exchange trans
actions. Tho hearings will probably bo continued into
next week. '
REAL HEARING PUT OFF
Because of its lack of power to obtain neces
sary data, the so-called money trust investiga
tion in its main scope will not be taken up until
fall. This announcement was made by Chair
man Pujo, of tho Investigating committee, at
the opening of the hearing in New York today.
"In view of tho insistence by some of tho
financial institutions that the committee is with
out authority to enforce Its demands for recog
nition, tho committee concluded it inadvisable to
take up the main inquiry until all doubt as to
power had been removed by the passage of tho
bill to amend the banking law," said Mr. Pujo.
"The bill has passed tho house and is now be
fore tho finance committee of tho senate.
"It will require months of painstaking investi
gation and preparation after the proposed legis
lation has been enacted to secure tho data that
is essential to the inquiry. The required data
must be gathered primarily from the books of
tho corporations concerned and must be segre
gated before witnesses can be advantageously
examined..
"The committee is anxious to avoid exposing
legitimate transactions and this can bo accom
plished only after the plan has been arranged.
' "Tho committee considers it inadvisable in
every event to conduct this far-reaching econo
mic inquiry during tho excitement of a political
campaign and has not from the outset con
templated any such course. Tho intervening
time will bo devoted to taking testimony on
certain collateral subjects.
"Tho relations of the clearing house associa
tion and tho stock exchange to the financial
system and to tho increasing concentration of
money will be investigated in- tho few sessions
that are to be held before the summer vacation."
From tho first witness, Prof. J. Laurence
Laughlin, head of tho national citizens league
for tho promotion of sound banking, Samuel
Untermoyor, opoclal counsol for tho committco,
brought out tho otatomont that no contribu
tions had boon mado to tho leaguo's fund by
J. P. Morgan & Co., or by Kuhn, Loeb & Co.
Mr. Untermeyer wanted to know why and Pro
fessor Laughlin said merely that thoy had not
been solicited.
New York, Juno 7. Testimony Intcndod to
show how tho power of tho Now York clearing
hoii32 commit too was used to force a solvent
bank to tbo wall during tho aftormath of tho
panic of 1007, with tho result "that tho fair
reputation" of its presidont was "blasted," was
dramatically presented today boforo tho Pujo
committco of tho house of representatives,
which Is Investigating tho no-called money
trust, Tho testimony was elicited by Samuol
Untermeyer, opoclal counsel of tho committee,
In his effort to demonstrate that tho functions
of the clearing house enables it to control tho
destiny of New York's financial Institutions and
should bo subject to regulation by law. Tho
bank around which this testimony centered was
the Orlontal, organised in 1853 ando of tho
charier members of 'the cloarlng hoii.j nB30cia
tlon, but it was testified that three other bankB,
tho Bank of North America and tho New
Amsterdam National bank, in both of which
Charles W. Morso was interested and tho Mer
chants' and Traders' were similarly compelled
through tho action of tho clearing house to closo,
although all proved to have been sof nt.
Their financial distress was tho rotfiJU, It was
testified, of a demand mado by th? clearing
houso committee three months after tho panic
began, that they redeem their clearing houso
loan certificates, and in tho case of tho Orlontal,
followed a promise that tho association would
stand by It "to tho last ditch."
Mr. Untermeyer had on tho stand William
Sheer, manager of tho clearing houso associa
tion; James G. Cannon, president of the Fourth
National bank, who recently became a member
of tho clearing houso committee; R. W. Jones,
president of tho Orlontal at tho time of tho
panic, and Erskino Hewitt and Charles A. Beck
man, directors of tho bank.
During the first rumblings of tho panic in
October, 1907, Mr. Jones was summoned before
tho clearing houso committee, according to tho
testimony and told that tho Oriental must stop
clearing for three non-member banks, including
two Brooklyn institutions which were under
legal investigation. Mr. Jones said tho with
drawal of the balances of these banks under tho
prevailing strained financial conditions would
cause "serious trouble" to his institution, but
the clearing house committee was obdurate. At
his request the clearing houso agreed to tido
him over with a loan, after a clearing houso
committco examined the bank'.s condition and
had found it "entirely satisfactory."
Tho Oriental then discontinued clearing for
the Brooklyn banks, as tho result ofarf tch both
soon closed, it was testified. Preslden; es was
then taken ill with pneumonia, anf .report
became current that ho was to be n . ed In
connection with tho investigation of the .o;ook
lyn banks and was shamming illness, the day's
testimony ran. It turned out that he was only
wanted as a witness.
Meanwhile the rumors afloat had caused a
run on tho bank and tho clearing houso com
mittee called before it Mr. Hewitt and Mr.
Beckman and demanded, according to Mr.
Jones, that ho resign and the late Hugh Kelly
also a director of the Oriental, be elected to suc
ceed him.
This was consented to after a promise had
been given to Kelly by A. Barton Hepburn,
chairman of the clearing houso committee, ac
cording to Hewitt's testimony, "that tho associa
tion would stand behind tho Oriental till tho
last ditch."
Kelly obtained a specific guarantee, Hewitt
said, that tho entire resources of tho clearing
houso would bo placed behind th Oriental.
As described in a letter, Mr. Jones testified
Mr. Kelly prepared a statement but never sent
it to the stockholders of the Oriental, which was
put in evidence. A number of gentlemen of
high place in financial affairs sat in judgment
on him (Mr. Jones), their fellow-member, and
concluded their deliberations with tho follow
ing sentence: "That tho board of directors of
tho Oriental bank must meet at once, accept Mr. '
Jones' resignation of the presidency and elect "
another president in his place."
"Thus, in a moment," the letter continued,
"without excuse other than the statement with
out foundation in fact that Mr. Jones was al
ready indicted or would be indicted that day,
was a fair reputation blasted and tho work ot
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