Financial stability

“ The country is suffering from industrial disturbances from which speedy relief must be had. Our financial system needs some revision; our money is all good now, but its value must not further be threatened. It should all be put upon an enduring basis, not subject to easy attack, nor its stability to doubt or dispute. Our currency should continue under the supervision of the Government. The several forms of our paper money offer, in my judgment, a constant embarrassment to the Government and a safe balance in the Treasury. ”

“ The measure, being approved by the National Government, had the desired effect of freeing to a great degree the financial world from its parasites of industrial malefactors, and to some extent established again the stability and integrity of honorable financiers, in the meanwhile safeguarding foolish persons from being fleeced out of their savings. ”

“ First, in this time of financial uncertainty, we must maintain America's hard-won fiscal discipline. Our economic expansion is built not on the illusion of Government debt but on the solid foundation of private sector growth spurred by low interest rates. ”

“ How is it, if the savings of a country have been really impaired, that capital at the same moment should be seeking investment at any rate of interest it can command—that all the financial centres are choked with an excess of money, for which it is impossible to find borrowers? Assuredly, loans at a low rate of interest imply an excess of capital over the needs of trade or production ”

“ A steady and constant Revenue drawn from sources that represent the prosperity of the nation,—a Revenue that grows with the growth of national wealth, and is so adjusted to the expenditures, [Pg 445] that a constant and considerable surplus is annually left in the Treasury above all the necessary current demands, a surplus that keeps the Treasury strong, that holds it above the fear of sudden panic, that makes it impregnable against all private combinations, that makes it a terror to all stock-jobbing and gold-gambling,—this is financial health. ”

“ To develop and strengthen the financial system, we shall encourage bank mergers and consolidation, longer-­term spending, regional dispersal of financial institu­tions; strengthen supervision and control of government financial institutions; and develop the capital market.
Let there be no doubt about our commitment to help our financial institutions to strengthen themselves and stabilize their operation. ”

“ Broadly speaking, for such investment, a security is required which will combine perfect safety of principal and interest, a good rate of income, ready convertibility into cash, and unyielding stability of market price. The necessity for insistence upon these requirements in the investment of a business surplus will appear upon a moment's reflection. Safety is required in all forms of investment, but is particularly important in the handling of business funds; a good rate of income is always desirable ”

“ Under this system all the various revenue officials and tax assessors and gatherers would be dispensed with, and a vast system of economy inaugurated, which, in a few years, would transpose us from a borrowing to a loaning nation, making us the financial example for all the world. ”

“ The economic financial incubuses you have created now control your lives, from the day of your conception, until long after your death. With your money they directly control your most essential industries; and indirectly hold ownership through their loans, and mortgages, of your business, your homes, farms, stock, lands. ”

“ We must also work with the same sense of urgency to stabilize and repair the financial system we all depend on. That means using our full arsenal of tools to get credit flowing again to families and business, while restoring confidence in our markets. ”

“ Our economy’s growing. Our businesses have created 7.2 million new jobs in the past forty months. We’ve locked in new safeguards to protect against another crisis and end bailouts for good. And even though more work remains, our financial system is more fair and much more sound than it was. ”

“ As I have said before, the capacity of the financier is dependent upon the confidence of the financial community and the investing public, just as the capacity of the banks is dependent upon the confidence of the depositing public. Take away confidence and what remains is only that limited degree of power or influence which mere wealth may give. ”

“ With the third method a permanent increase is secured in the capital funds available for use in the business. Financial policy, governed by the needs of the business and its markets, will always dictate the method to be used for extinguishing or contracting a debt. ”

“ So this financial reform refocuses the financial sector on what’s really important: getting capital to entrepreneurs who want to grow their businesses, and financing to millions of families who want to buy a house or send their kids to college. ”

“ The structure of the financial system shall be laid down by law in such a way as to ensure saving and its security and the use of the necessary financial resources for the expansion of productive forces with a view to the progressive effective socialisation of the economy. ”

“ In the course of my task I shall describe such parts of the general financial structure as will place my readers, especially those unfamiliar with its more complicated conditions, in a mental state to comprehend the methods by which the savings they think are safely guarded in the banks, trust and insurance companies, are so manipulated by the votaries of frenzied finance as to be in constant jeopardy. ”

“ But the interest on loans, public and private was only a small fraction of the burden of usury imposed upon the wealth producing masses. All the large industrial, financial and commercial enterprises of the country were on a debt-creating basis. Stock companies owned the railroads of the country; the streetcars, waterworks, gasworks and electric light and power plants of the cities; all the great manufacturing, mining and commercial enterprises ”

“ It becomes daily more evident that when all our railway and industrial corporations are known to be honestly managed, and when stockholders and investors get their due, values will be more stable, and American credit, which is now at a low ebb in all the great financial centers of the world, will be restored to its rightful place. ”

“ Now this group in the past through their control direct or inter-related has been able to dominate the centers of credit, the money loaning institutions, such as the great banks and insurance companies. By this means they have been in a measure able to keep to themselves the great industrial exploitations dependent on the ability to finance in the hundreds of millions. More, they have been able to limit to narrow fields such men as myself and other newcomers, who wish to rise to the same financial advantage. ”

“ Two such economies will be of infinite value to the people, whose riches will be proportionally increased. In the development of wealth, next to making money is saving money.
Bearing these things in mind, Financial Reconstruction is relieved of its difficulties. It only remains to find the proper machinery or process. And here we encounter the propositions of the Secretary of the Treasury in his Annual Report, [209] which are threefold:—
1. To refund twelve hundred millions of six per cent. Five-Twenty bonds in four and a half per cent. ”

“ We need to make sure that the valve of aggregate monetary supply is well controlled, maintain moderate growth in M2 money supply, credit, and aggregate financing, ensure a reasonable, stable level of liquidity, and increase the proportion of direct finance, particularly equity finance. ”

“ But on the whole it may be said that where all the general conditions are favourable, and point conclusively to the possibility and probability of fairly rapid economic development, a bold financial policy may and should be adopted, even although it may not be easy to prove beforehand by very exact calculations that any special project under consideration will be directly remunerative. ”

“ There being an abundance of money in the banks that lies unemployed, it is evidently not more money we need. What do we need, then? Confidence, confidence which will induce timid capital to venture into enterprise. And what is the first requirement to restore confidence? It is stability, above all things the stability of current values, which renders possible business calculations of reasonable certainty. ”

“ In his Message to Congress, at the opening of its session, the President said: "With plenteous crops, with abundant promise of remunerative production and manufacture, with unusual invitation to safe investment, and with satisfactory assurance to business enterprise, suddenly financial fear and distrust have sprung up on every side. Numerous moneyed institutions have suspended because abundant assets were not immediately available to meet the demands of the frightened depositors. ”

“ In general terms it is assumed that, unless the proposed financial system will answer all these conditions—that unless it will be elastic, adapting itself to all the demands that can be made, be they great or small, and at the same time remain absolute in its value, it is not even fit to be thought of, much less to be seriously considered as a substitute for what has been. ”

“ Broadly the community has cooperated to meet the needs of honest distress, and to take such emergency measures as would sustain confidence in our financial system and would cushion the violence of liquidation in industry and commerce, thus giving time for orderly readjustment of costs, inventories, and credits without panic and widespread bankruptcy. ”

“ Every business man knows better than that. Nearly $150,000,000 of 4 per cent. bonds have, within two years, been sold. They are scattered all over the country, especially the West; and who owns them? Mostly small people, who consider the Government funds a better depository for their savings than the savings banks, and who thus invested in small amounts, from $50 upward. You honest farmer or laboring man, who put your little surplus into a Government security, are you aware that you have sunk down to the level of the bloated bloodsuckers, who fatten upon the sweat of the people? ”

“ Therefore, for the sake of public enterprise in its manifold forms, for the sake of that prosperity which depends on human industry, for the sake of manufactures, for the sake of commerce, and especially for the sake of railroads, by which all these are quickened, we must do what we can to reduce the general rate of interest, which is now such a curb on enterprise; and here we must begin with our own bonds. ”

“ Interest upon capital must be charged, and risk of fluctuation in the value of that which is to be received in payment added. Hence high prices, acting as a protection to the foreign producer, who receives nothing in exchange for the products of his skill and labor except a currency good, at a stable value, the world over It seems to me that nothing is clearer than that the greater part of the burden of existing prostration, for the want of a sound financial system, falls upon the working man, who must after all produce the wealth, and the salaried man, who superintends and conducts business. ”

“ The main features of this system are the limitation of the interest rate that can be charged, the amortization of the debt, and wise and equitable regulations and restrictions relative to loans and the issuance of debentures which protect the farmer from extortion and thriftless borrowing, and at the same time bring safety and a feeling of confidence to the investing public. ”

“ We will deepen the reform of state-owned financial institutions, and steadily develop small and medium-sized financial enterprises under multiple forms of ownership and new types of rural financial institutions. We will actively encourage healthy development of informal financing. We will continue to carry out reform of capital markets, and stabilize stock markets. We will develop and standardize the bond market, and steadily develop the futures market. We will deepen reform of the insurance sector to make the most of its guarantee and financing functions. ”

“ We can never be better prepared for it than we are to-day. Our National debt, formerly held abroad, has returned to our shores; our National credit is good beyond precedent; our products, exported in an abundance never seen before, find a profitable market; current prices are on the gold basis; our Treasury is well stocked with coin. If not now when can we ever expect to restore our money system to a solid foundation? Can any sensible man desire to see the country exposed to longer suffering from the disastrous effects of uncertainty? ”

“ Quite naturally, under the circumstances, they have grown rich, and powerful far beyond the extent of their riches, since their control of the credit—upon which the whole business community depends—and their easy access to other people's money in the form of insurance premiums and savings bank deposits, place them in a strategic position which permits them to dominate and to dictate outside the boundaries of their ownership. ”

“ The readiness with which Government bonds bearing a very low rate of interest are taken, instead of showing that the credit of the Government has improved, is melancholy evidence of the prostrated condition to which industry and trade have been reduced. ”

“ In the first place, the very magnitude of the country's resources has been a favorable factor. The unparalleled prosperity of the past decade has made possible the accumulation of a vast reserve in the case, not only of the great corporations, but also of the average business man. This reserve has acted as a buffer to the shock of reaction, and has softened the impact through a speedy restoration of confidence in the excellence of the country's assets and in the real solvency of business. ”