TWENTY-FIRST AXXUAL YEAR BOOK— PART VII 585 



deposits in banks of larger cities or in the form of promissory notes, or 

 acceptances, payable by persons or concerns located outside of the com- 

 munity. Then when the demand for local loans comes on in the fall, 

 they will make the outside fellows pay up and be ready to take care of 

 people in their community. 



Iowa Money in New York. 



I think there has been some notion in the past, which probably still 

 persists, that the Iowa banks have great sums of money in New York 

 banks which are used for the purpose of speculation. That might have 

 been true to a small extent some years ago, but it is not true now. And 

 even as the deposits go off, the banker feels that he ought not to call 

 upon the good farmers or his other customers in the community to pay 

 up immediately, at least until they can market their crops, so when he has 

 some loans he cannot collect there is only one thing for him to do and 

 that is to borrow money from the banks in the large centers, notably 

 from the Federal Reserve Bank. The supply of credit which the Federal 

 Reserve Bank can extend is also limited; limited to the amount of de- 

 posits it receives from member banks and to the capital stock paid in. 

 And so if the Federal Reserve Bank in Chicago, which is the central 

 bank for this territory, should run out of funds to loan, and would still 

 want to favor states like Iowa, it has one other recourse, it can borrow 

 from other Federal Reserve Banks — and I want to teU you right here 

 that there are at the present time only two Federal Reserve Banks in 

 the United States which have any surplus funds, and we have the ex- 

 ample of two of the largest banks in the country, the banks in New 

 York and Chicago, borrowing from the smaller banks at the present 

 time. And if the Federal Reserve Bank of Chicago has broken that law 

 in the slightest. I believe it has been in the direction of favoring the 

 farmers and producers of Iowa. 



Every man knows that it takes a thin, clear, quickly evaporating 

 liquid, ordinarily gasoline, to run any kind of a motor car, and that the 

 moment water, grease, dirt or any foreign substance gets mixed in you 

 are headed straight for trouble. Well, it takes just as thin and clear a 

 mixture of short-time, prompt-paying notes to run a bank properly. 



Now let us hark back to the airplane and to what the mechanicians 

 found was wrong with her when she came down. You will recall that 

 they found water in the carburetor; the pipe line was clogged with 

 grease and there was dirt in the carburetor. Now, picture, if you will, 

 a glassful of gasoline, clear and high-test, as representing the assets of 

 the banks of Iowa early in 1918. Now we will pour in a little water, 

 and a little more later, and let the water stand for loans made by the 

 banks in order to aid in the purchase of Liberty Loan Bonds. There is 

 nothing wrong in loaning on Liberty Loan Bonds if the loans had been 

 paid and the bonds actually absorbed from the savings of the com- 

 munity, but they were not generally paid. The banks are carr.>-ing great 

 amounts of these loans, and the whole Federal Reserve System is water- 

 logged with war paper loans, loans made against Liberty Bonds. This 

 wasn't a serious thing in itself, because if just water had come into 

 the carburetor of the engine, it could to a certain extent have been drawn 



