Bank swallow

“ But when the aggregate of the money put in jeopardy by the four classes of institutions I name—national banks, savings-banks, trusts, and insurance companies—runs into billions and is lost, the loss must fall on the people, because the only other ones involved are the managers and controllers of these institutions, who always see to it that when the losses which would wreck the bank are actually made, they, the managers and controllers, have no deposits and none of the stock. ”

“ Death ensued to some from the shock, misery was the lot of others, and frantic confusion once more marked the alleys and the neighbourhood of Capel Court. Consternation reigned paramount, and almost every third man was a defaulter. All foreign securities were without a price; the bankers refused to advance money; the brokers’ checks were first doubted, and then rejected; nothing but bank-notes would be taken; and, with a desperation which will never be forgotten, the jobbers closed their books, refused to transact any business, and waited the result in almost abject despair. ”

“ True, the crisis - the result of a speculative bubble - concerned the banking and real estate markets rather than the capital markets. But the similarities are there. The savings and loans association, or the thrift, was a strange banking hybrid, very much akin to the building society in Britain. It was allowed to take in deposits but was really merely a mortgage bank. The Depository Institutions Deregulation and Monetary Control Act of 1980 forced S&L's to achieve interest parity with commercial banks, thus eliminating the interest ceiling on deposits which they enjoyed hitherto. ”

“ When the funds run out and the old investors can no longer be paid, panic ensues. In a classic "run on the bank", everyone attempts to draw his money simultaneously. Even healthy banks - a distant relative of pyramid schemes - cannot cope with such stampedes. ”

“ It is apparent that our existing misfortunes have proceeded solely from our extravagant and vicious system of paper currency and bank credits, exciting the people to wild speculations and gambling in stocks. These revulsions must continue to recur at successive intervals so long as the amount of the paper currency and bank loans and discounts of the country shall be left to the discretion of 1,400 irresponsible banking institutions, which from the very law of their nature will consult the interest of their stockholders rather than the public welfare. ”

“ We offer these helpless ones freely as victims to the greater cunning and strength of men wholly without sense of business honor or personal decency. When we do this, we also attack the whole system of savings banks, which is, or should be, the very bulwark of a nation's financial safety. Says the wolf to the widow, to the busy professional man, to the clerk, the stenographer, the wage earner: "Take your money out of the savings bank. What is three per cent. a year, when I can make you three hundred per cent. ”

“ And such banks would meet an incipient panic freely and generously; they would advance out of their reserve boldly and largely, for each individual bank would fear suspicion, and know that at such periods it must "show strength," if at such times it wishes to be thought to have strength. Such a system reduces to a minimum the risk that is caused by the deposit. If the national money can safely be deposited in banks in any way, this is the way to make it safe. ”

“ After all, such figures give us no adequate measure for losses of this kind. "Among the experiences of working people none is more demoralizing and few are more cruel than loss of savings through failure of banks or absconding of individuals intrusted with funds." To such people there is cold comfort in the assurance that the average loss of savings bank depositors over a long period of years is but a fraction of a mill on a dollar. ”

“ And we had another cause and we still have it, that silly, strange, foolish, incompetent, childish monetary system and banking system, whereby the banker was allowed to deposit these bonds in a certain drawer in any Federal Reserve bank, draw his interest in full semiannually, and draw every dollar in cash besides, and then take these dollars and loan them 10 times to the public, each time drawing interest on every dollar, even the dollars he did not have. Such a monetary system cannot possibly mean anything but bankruptcy every few years. ”

“ At successive intervals the best and most enterprising men have been tempted to their ruin by excessive bank loans of mere paper credit, exciting them to extravagant importations of foreign goods, wild speculations, and ruinous and demoralizing stock gambling. When the crisis arrives, as arrive it must, the banks can extend no relief to the people. In a vain struggle to redeem their liabilities in specie they are compelled to contract their loans and their issues, and at last, in the hour of distress, when their assistance is most needed, they and their debtors together sink into insolvency. ”

“ If in a general panic there were a run on the savings' banks, those banks could not sell £100,000 of Consols without the help of the Bank of England; not holding themselves a cash reserve for times of panic, they are entirely dependent on the one Bank which does hold that reserve.
This is only a single additional instance beyond the innumerable ones given, which shows how deeply our system of banking is fixed in our ways of thinking. The Government keeps the money of the poor upon it, and the nation fully approves of their doing so. No one hears a syllable of objection. ”

“ How is the Provisional Government to find funds for the enormous multitudes who will thus be thrown upon them, or to satisfy the boundless expectations thus formed of them, and which their own acts have done so much to cherish? Already the want of money has been experienced. Nearly all the banks of Paris have failed; the savings’ banks have been virtually confiscated, by the depositors being paid only a tenth in specie, and the Bank of France has suspended cash payments. ”

“ This institution is the friend and agent of the poor only. The rich are repelled, and those who have small deposits-less than $500-receive greater interest than those who have large ones-over $500. Indeed, banks would not, ordinarily, be permitted to perform the sorts of services which alone are performed by this institution. Public policy has not permitted the savings of the poor to be hazarded by the perils incident to commercial institutions and business. ”

“ Make the refractory banks comply with their promises; and there is an end of depreciated paper and deranged exchanges, and of all the distress which they create; and that without a national bank, or its base substitute, an exchequer bank; or a national institution of any kind to strike paper money. Make the delinquent banks pay up, or wind up. And why not? Why should not the insolvent wind up, and the solvent pay up? Why should not the community know the good from the bad? Suspension puts all on a level, and the community cannot distinguish between them. ”

“ A collapse in the stock, which had been declining steadily, might seriously upset financial conditions all over the country, etc. Well, I weathered that and a couple others until I've got where I'm stumped. A bank has got the right to decide for itself what it wants to lend money on; it can decline a loan on any security or all securities offered, and what are you going to do about it? The trust companies are carrying all they can and besides they're being squeezed themselves. ”

“ Bank profits demand the circulation of more notes than they have real value to represent. Profits come only from speculating either upon the confidence or the money of the people, and government has no right to protect such illegitimate and unjust practices.
Our present system of banking is a swindle upon the people, which it is simply surprising that they endure as they have and do. For the banks to be permitted to filch from the people twenty-four million dollars per annum is an outrageous villainy which, if comprehended by the people in its true light, could not exist another year. ”

“ When the Bank curtailed its loans to meet the withdrawal of these deposits, the editors thought that it was trying to coerce the people and government, by threatening a panic, into yielding. “The object of the Bank is to create a pressure for money, to impair the confidence of business men in each other, and to keep the community at large in a state of great uncertainty and confusion, in the hope that men will at last say, ‘let us have the Bank rechartered, rather than that ... ”

“ We must, in a word, use a bank to unbank the banks, to the extent that may be necessary to restore a safe and stable currency—just as we apply snow to a frozen limb, in order to restore vitality and circulation, or hold up a burn to the flame to extract the inflammation. All must see that it is impossible to suppress the banking system at once. It must continue for a time. Its greatest enemies, and the advocates of an exclusive specie circulation, must make it a part of their system to tolerate the banks for a longer or a shorter period. ”

“ He doesn't sell. When he can't sell he goes to the bank to borrow money to make the payment; he finds there many more in the same condition as himself. The banks see the trouble coming and will not loan. [page 170] When the banks refuse to loan the depositors get scared and take their money out of the bank. During that great panic in the nineties three hundred millions of dollars were taken out of circulation within four months by depositors who were scared. Then the country gets flat on its back with a panic. ”

“ It is eminently right and proper that the State, through its bank commissioners or otherwise, should so far supervise the operations of savings banks as to see that they perform their part of their contract with depositors.
Safety, at best, is relative only; there is no absolute safety for the twenty-dollar piece a man has in his pocket, whether he is on the street, at his office, or by his own fireside. We are reminded that 'riches take to themselves wings' and that 'thieves break through and steal.' No savings bank can keep money on hand or deposit it or loan it with absolute safety. ”

“ But no bank has that. The loans are greater, of course, than the amount kept for emergencies, and if all the depositors spring upon us, as most are likely to do if one does, we may be swamped for a time. There’s Sheldon gave notice last night that he must have his five thousand to-day. If he would wait till to-morrow, when a heavy loan we have out will be paid, we shall be all right. But he won’t; he is a kind of a dog in the manger, and something has gone wrong. He’ll draw his money, and others will follow. Men are like sheep, and women are worse. ”

“ These $10,000,000 of deposits represent savings earned by the type of men who have made America what it is, and who laugh when they read in their local papers: "Panic in Wall Street; stocks shrink a billion dollars in a day." "Fools and their money are easily parted," they say, "but Wall Street gets none of our honestly earned money." Now the officers of these five banks are honest men and they know nothing of the "System," yet the day of the panic they each telegraph to their Illinois correspondent, the big Chicago bank, "Loan our balance, $200,000, at best rate." ”

“ Because of this necessary instability bankers watch most carefully the tendencies of the money market, and necessarily reduce their loans for safety when any anxious pressure begins. For the same reason legitimate banking is limited to short time loans—on demand, thirty, sixty, ninety days—the shorter being the safer. Laws sometimes prohibit a bank from dealing in any other business, where a stock of goods must tie up funds, or from speculation in real estate, which confines capital more certainly. ”

“ The plain fact is that wherever there is one bank that attempts to pay its debts, there must be great distress; but in those places where there are two or more, God help the people! The curse of borrowing, of suffering 'paper to do our business,' is falling heavily upon us." "With nearly $500 in notes of different sizes, and of many old and respectable banks, in his pocketbook, the writer of this article was compelled, on Saturday last, to borrow market money." "Misery abounds and the neighborhood of every bank is a neighborhood of bankrupts, positive or anticipated." ”

“ A widow, with the money which she has just received as insurance upon her husband’s life, comes upon the scene. She makes known to the banker her anxiety to invest this money securely for the benefit of her helpless family. He magnanimously spares her a portion of the railroad stock, charging her but a small commission for his services. With the balance of his stock as collateral, he borrows money from a national bank and makes a corner in flour. ”

“ If a man granted one on a fine estate for a consideration, that consideration was rarely paid in money. The unhappy borrower was obliged to take whatever he could get. Thus the stock-jobber made his prey receive consols at a price much above that of the market. The merchant gave him a bill of lading for some indifferent kind of merchandise. The banker handed him long-dated bills, and sometimes was a bankrupt before they were due. The large tradesmen—many of whom then, as now, surreptitiously carried on the trade of money lending—got rid of goods which were otherwise unsaleable. ”