586 IOWA DEPARTMENT OF AGRICULTURE 



out or blown out by pulling the choker and enriching the mixture. So 

 these loans might have been drawn out by the simple expedient of pay- 

 ing them off gradually. The effect is not perceptible to the eye, but the 

 firing power of the gasoline, or the lending power of the banks, has been 

 weakened, because the bonds were not absorbed. 



Then suppose we throw in some heavy oil to this gasoline, and note 

 what the effect is; and let us let that heavy oil represent $100,000,000 of 

 blue-sky stock subscription notes purchased by the banks of Iowa com- 

 mencing early in 1919. (Laughter and applause). And when I tell you 

 that most of these notes represented more stock purchased than the 

 maker could pay for from the normal accumulations and savings in three 

 to five years of good times, you will understand why the pipe line of 

 credit began to clog up. 



You know, those blue-sky salesmen promised wonderful dividends 

 from the stock they sold, and some of the promises they made remind one 

 of the story told of a Red Cross nurse attempting to train a raw recruit 

 something about emergency work. And after some instruction the ques- 

 tion was asked, "What would you do if you found a man unconscious on 

 the field?" and he said, "I would give him a drink of brandy." "Very 

 well," was the reply, "but what would you do if you didn't have any 

 brandy?" And he replied, "I would promise him a drink." (Laughter). 



Now, we' have got this gasoline mixed up with some water; we have 

 got it into the carburetor, and we have got some lubricating oil repre- 

 senting $100,000,000 of blue-sky subscription notes in the banks, and 

 then what next happens? Well, if you can imagine this pepper is dirt, 

 then along comes the land boom, and we will throw that dirt in. You 

 thought that was going to hurt us until last March, and then it was all 

 over, but the banks were loaded up with war paper, second mortgage 

 paper, and there were heavy demands on land contracts — big pieces of 

 land bought with very little cash — and that added at least another $100,- 

 000,000 to the burden carried by the Iowa banks. 



Now, shake the mixture up, and what a useless mess we have. And 

 while we are shaking, some of the gasoline has evaporated, and this is 

 analagous to a serious shrinkage of the deposits of the Iowa banks. 



When Can We Start Up Again? 



So much for the problem. Now for the solution. We are ready to 

 go up again. How? And when? 



At the present time there are two outstanding proposals for relief 

 from our present predicament — the revival of the War Finance Corpora- 

 tion, and the creation of large foreign credit corporations under authority 

 of the Edge law. 



The War Finance Corporation was brot into being early in 1918 

 for the purpose of enabling the government indirectly to finance the 

 producers and manufacturers of war materials. The funds which the 

 corporation loaned out were derived from the sale of its bonds, which 

 were purchased mainly by the banks, and then the banks borrowed 

 against the bonds as collateral thru the Federal Reserve Banks. This 

 process would have resulted in another vicious circle of inflation had it 

 long continued. 



