Stockmarket

With $500,000 surplus cash to put aside until it is needed, a corporation usually does one of two things. It may bury the money, either in gilt-edged securities, yielding from 3 to 4%, or in its bank account, where it draws 2% as a commercial deposit. Or it may ask the bank to lend the money out on call, at interest rates ranging from 5 to 10%. As the bank asks only a small commission for this service and generally assumes all the risk, the conversion of surpluses into call loans has become a popular feature of corporation financing. In the last year, the total of such loans has risen from $906,144,000 to $1,808,645,000. To the corporations, this practice seems both obvious and admirable. But to the paternal superbankers, guarding the money market, it appears highly hazardous, deeply disturbing. Last week, the issue became acute, the crucial phase of the war of the bankers and the speculators. Clear were the battle-lines. Corporations contended simply that 5 1/2% or 6% is better than 2%. Bankers argued: 1) that the money market will never be stable, settled, with such a staggering amount of money on call, likely to be withdrawn at any moment when the corporations may need it; and 2) that too much money is diverted to speculation, too little to the economic needs of the U. S. Councils of war followed. Bankers considered increasing the charge made for placing the loans, fixing a minimum amount to be lent. Corporations countered by throwing an additional $36,913,000 on the call loan heap. Cried Charles Edwin Mitchell, president of the National City Bank: "It is a dangerous and unhealthy trend." Said able Vice President Francis Hinckley Sisson of the Guaranty Trust Co: "This is one of the by-products of prosperity with which we have not learned to dal." Warned the wise Cleveland Trust Co.: "Clearly a reform is needed in New York banking practice." Screamed the financial writers, sensationally: "Boot leg Loans! Outlaw Banking!" Depressed, discouraged, the bond market fell to 98.29, the year's new low. But the stockmarket, still optimistic, held its own, advanced a little.