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Show What Caused It All? The economic depression through which this country has been passing- for over two years has been largely caused by the policies and practices of the big bankers and financiers who bad created for themselves a legend of infallible wisdom and judgment. The crisis was not caused by a lack of demand for industrial in-dustrial or agricultural products nor by a failure of the producing agencies to provide. The disturbance wai precipitated by a loss of confidence in the big bankers and investment leaders who had been encouraging the nation along a speculative path in the handling of funds. Speculation in stocks, encouraged by the controlling bank centers, caused millions of Americans and many banks to buy stocks and securities at fictitious prices and upon pyramided values. Sooner or later the bubble had to burst and when it did the confidence of millions of Americans in the advice and leadership of the nation na-tion 's preeminent banking authorities was entirely shattered. shat-tered. The confidence of depositors was shaken by the knowledge knowl-edge that banks had been encouraged by the large banking bank-ing policies followed to invest in these highly priced stocks and bonds. When the crash came, banks began tc fail and every time a bank failed, the public generally grew more frightened about the condition of those remaining re-maining in business. In the closing days of the Hoover administration this lack of faith, expressed in heavy withdrawals, produced a situation which prevented even the banks which were sound remaining open except ex-cept with new legal safeguards and protection. Speculation was not the whole cause for the collapse of confidence. The frenzied finances of huge industrial magnates, such as Kreuger and Insull, when exposed by the crash c .u-tcd the depositor and investor everywhere to fear. If a man like Kreuger could fool a group of trustees, composed of some of the financiers with great reputations, and persuade them to accept as security for bonds worthless and forged papers, delivered in sealed envelopes and unopened by the trustees, how could any man's money be safe. The investment houses which handled such huge finances fi-nances for many industries were closely allied with the largest banks :n this country and their policies were controlled by the banks. In the investment field millions of people had their accumulations destroyed. Naturally, they came to question the wisdom of bankers who had advised them in these investments. - It would take a considerable space to enumerate the contributing causes for the gradual breakdown of public confidence in the stability of the financial structure. However, it is worthwhile calling attention to the final revelation which probably precipitated the final crash. Charles E. Mitchell, president of what had been the nation's largest bank and which was still next to the largest, was examined by a Senate committee. He ad mitted that he drew nearly three and one-half million dollars as salary during 1927-29, yet his admissions of questionable transactions caused his resignation within a few days after his testimony, His institution, National City Bank, had a security affiliate, National City Company, and their operations caused. Heywood Broun to say that "the only thing that some of our great financial institutions overlooked during dur-ing vears cf boom was the installation of a roulette-wheel." roulette-wheel." Mr. Mitdhell testified that $50,000,000 of new stock sold by his bank went towards making up losses in Cuban Cu-ban sugar loans. He admitted that he sold $2,700,000 worth of stock in his own bank to a relative to establish a fictitious loss and escape paying income tax, and later bought the stock back at the price it was alleged to have been sold. The head of the security affiliate admitted that his company had hold of a part of a $90,000,000 issue of Peruvian bonds to investors throughout this country notwithstanding the fact that the bank's own experts had made an unfavorable report on Peruvian, credit, Ap parently, all the bank's officials cared about was the commission which they would make on sale. The New York financial leaders have not been the only ones exposed in an unfavorable light by recent revelations re-velations of past financial history. Owen D. Young, once mentioned prominently for the Democratic nomination for the Presidency admitted that he allowed his General Electric Company to lend Samuef Insull $2,000,000 upon doubtful security. Mr. Young explained that Insull and his companies had always al-ways been a good customer of his industry, but that did not justify giving Insull that much money which should have belonged to the stockholders. The suspicious-minded cannot help recalling that during dur-ing the height of the Insull boom, it has since been revealed, re-vealed, Mr. Insull sold a considerable block of stock to Mr. Young at prices far below the market value for the same. Big industrialists and big financiers swapping fa vors at the expense of the stockholders of their companies. com-panies. The big R. F. C. loan to General Dawes to save his Chicago bank, made a day or two after the General re signed as head of the Federal Corporation, was another questionable transaction. It was no wonder that a3 these facts came to the public knowledge people grew uneasy about the money they had invested. Our depression was caused by a breakdown in the financial fi-nancial system, and the big bankers of New York, Chicago, Chi-cago, and other large centers, who controlled the policies poli-cies of tremendous institutions and by influence and advice, ad-vice, sometimes by pressure, the policies of many thousands thou-sands of smaller financial institutions throughout the country, are the ones to blame for the losses and destruction de-struction caused by the present depression. Too much blame should not be placed upon the com- paratively small bankers throughout the nation who were minor spokes in a great wheel they ;had to turn in whatever direction the hub was going. After speculation specula-tion had run its course, banks and investment companies managed by officers with no sense of public responsibility responsibil-ity had no remedy to offer. The banking profession throughout the country witnessed wit-nessed an economic collapse, caused by a breakdown of financial operations, concerninig which they were supposed sup-posed to be skillful and wise. For several years the same old system maintained itself, although here and there some five thousand banks closed their doors, until at length the distrust and dissatisfaction swelled to such proportions that none were able to withstand the strain. Shortly after his inauguration President Roosevelt closed all the banks in the country by executive proclamation. procla-mation. No other possible step could have been taken. The bankers admitted their inability to handle the ch sis. There were some good banks left but these were involved in-volved in the general crash of all. President Roosevelt, acting under broad powers, has permitted sound banks to reopen. There are some unsound banks which will . neier reopen. The entire banking structure of the nation na-tion is being overhauled and the insolvent members will be liquidated. It is probably helpful that the showdown has come. The banks in good condition will open and they will be provided with money with which to pay their obligations. obliga-tions. Weak banks will be kept closed and the depositors eventually paid off as far as possible. In the meantime the public, hitherto unable to select the strong from the weak, can proceed with its banking business in confidence confi-dence that the banks which have reopened are worthy of their trust. When depositors realize this, money will come back to the strong banks in operation. The financial finan-cial structure which result will be sound and secure, purged of She presence of insolvent banks which created a general doubt against all. There are some points for the general public to bear in mind. First, and important now, is that after banks are reopened they can be trusted to receive depositors money and to pay it back when demanded. Second, and more important for the future, that the naw banking structure must be so regulated and controlled that a rs" petition of speculation and mismanagement in high financial' fi-nancial' circles will not be allowed to occur again, Third confidence will be reestablished in the banks which are allowed to resume' active operation and, as bad as clos ing all the banks was, it will result in clearing the at mosphere of suspicion and distrust. Business will probably prob-ably begin to recover with the reestablishment of some confidence in the banking system available to the public If Congress will pass a United States Govenmrr Bank Deposit Guarantee Law TODAY, Prosperity w begin its gpaody return TOMORROW. |