CONTINUOUS FOREST PRODUCTION ' 49 



conservative investment basis, as has already been discussed. It has 

 been shown that possible savings in interest charges in the industry- 

 may ultimately amount to in the neighborhood of $60,000,000 or more 

 annually. No new or startling financial methods are necessary to 

 begin making large savings in this direction. The central association 

 should market large bond issues based on the bonds of its members as 

 collateral. 



The method of operation of the finance department should be some- 

 what as follows : it should, after careful investigation of each individual 

 bond issue, receive the bond issues of the member corporations of the 

 central association. On these bond issues as collateral should be based 

 central bond issues of the whole association which would be issued in 

 series of such size as to attract attention in the bond markets of the 

 world. It is in connection with the acceptance of these collateral issues 

 that the representative of the Federal Reserve Board on the governing 

 council of the association would be of tremendous advantage. This 

 representative should serve on the finance committee empowered to 

 make final acceptance of individual bond issues as collateral for the 

 central association issue. He might well be empowered by law to 

 refuse as collateral any individual issue not complying with the terms of 

 the act authorizing the formation of the association. 



This act should contain a section dealing with the method of handling 

 these bond issues. This section naturally would limit the collateral 

 issues to perhaps 40 to 60 per cent of the appraised value of the tangible 

 property of the corporation concerned. There should also be limitation 

 of collateral issues as to the net income available to pay interest charges. 

 There should, further, be definite provision requiring a definite per- 

 centage, say 5 per cent, of the interest returns from collateral bond 

 issues to be set aside as a reserve fund, which shall be for the purpose 

 of making good to the central association bond issue any losses from 

 default of collateral issues. The deposit of this reserve in the Federal 

 Reserve banks at a low interest charge might well be required by the 

 law authorizing this association. This reserve fund should be limited 

 perhaps to 5 per cent of the total central issue and kept at that figure. 

 Such other wholesome restrictions as seem necessary may be imposed.- 

 The Federal Reserve banks might well be made trustees for the central 

 issue and have custody of the collateral issues. 



These suggestions do not contemplate any guarantee of these securi- 

 ties by the government. Thus the credit of the government would be 

 unimpaired. On the contrary its credit is enlarged by the conservation 



