CHAPTER XII 



IT may be suggested that the law as enacted pro- 

 vides for privately incorporated banks, but two of its 

 provisions are fatal to the successful conducting of 

 their business. First: The volume loaned must not 

 exceed fifteen times the amount of the capital stock. 

 That means that when this capital has been turned 

 over fifteen times, which should not require to exceed 

 three to four years, the bank must wait indefinitely 

 without income that is, face a suspension of profits, 

 but continue the expense of caring for the business, 

 collecting interest, seeing that taxes are paid, etc., for 

 an indefinite period. The other is the guaranteeing 

 of loans made. Large capitalization and guarantees 

 have in the past invariably proven to be ropes of sand 

 binding a camouflage to conceal doubtful securities. 

 More than 98 per cent, of all losses sustained by in- 

 vestors in mortgages after the collapse of the farm 

 mortgage boom of thirty to thirty-five years ago, were 

 on guaranteed mortgages. 



The losses on unguaranteed mortgages were almost 

 infinitesimal. It is easy to see how this should be so. 

 The honorable man of sanguine temperament will 

 take greater hazard on an investment for which he 

 himself becomes directly liable and believes himself 

 responsible, than on an investment for another made 

 upon honor. Another reason why the guaranteeing 



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