FUTURE BANKING PROBLEMS 397 



But we have wandered somewhat from the subject of foreign liquida- 

 tion. Those little versed in financial matters believed that this liquida- 

 tion would come suddenly, in a day or a week, and that for this reason 

 the exchanges could not be opened. The fact that the opening of our 

 stock exchanges has not brought out a deluge of securities, such as over- 

 whelmed them in the last days of July, is taken by some people as a proof 

 that no liquidation will occur. Both assumptions are contrary to good 

 sense and to the normal operations of finance. The tremendous out- 

 pouring of securities which became so embarrassing a few hours before 

 the outbreak of the European struggle, was the result of an entirely 

 different situation than that which prevails at the present time. A good 

 deal of it was the work of speculators who had been carrying margin 

 accounts and who, becoming frightened at the war clouds overhanging 

 Europe, decided to seek safety. A large share of it was prompted by 

 the desire of foreign financial institutions and commercial interests to 

 make preparation for the storm which had so suddenly brewed. It was 

 apparent if war should come that a period of isolation, uncertainty 

 and ruin would follow. Far-sighted financiers thought that a credit 

 balance in the United States would be of assistance both in settling 

 transactions already entered into, and in connection with future prob- 

 lems, after present-day obligations had been handled. The Bank of 

 England was caught unprepared. Its gold reserve was dangerously low, 

 compared with the burden which it must suddenly assume. Gold instead 

 of coming to it, was being withdrawn, and it was evident that drastic 

 steps for the replenishment of the gold stock were necessary. Thus we 

 had general moratoria and the calling of short-time loans which Amer- 

 ican bankers have habitually made during the summer against credits to 

 be built up through the sale of cotton and grain during the fall, and 

 which normally amounted to $400,000,000 and upwards at the end of 

 July. The clearing up of this current borrowing has really been the 

 object of the conferences between the representatives of the British 

 treasury and American bankers. 



The editors of The Commercial and Financial Chronicle and of a 

 few other publications have performed a notable service in pointing out 

 the unfairness of England's position with reference to this current in- 

 debtedness. Shielding herself behind a moratorium — a self-declared 

 stay-law — postponing indebtedness without regard to the necessities or 

 the desires of her creditors, and at the same time demanding of us the 

 repayment of our obligations on the day when due, and in gold, she has, 

 to a large degree, emphasized and intensified the disorganization which 

 the war would cause, and has, by this purely arbitrary and one-sided 

 arrangement, drawn from us practically all of the gold with which the 

 position of the Bank of England has been bolstered up. I wish to re- 

 assert, in the strongest possible terms, the very wise position which these 

 authorities have taken, that we must not play a maudlin and uncertain 



