National Affairs: Reserve Review

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Adolph Caspar Miller, senior Reserve Board member and good Hoover friend, told the committee that the Board was in a measure responsible for speculative excesses. George Leslie Harrison, governor of the New York bank, openly complained that the Board had raised the rate too late and then raised it too little. He flayed "bootleg loans" by commercial corporations into the stockmarket, admitted that the Federal Reserve Bank was powerless to trace borrowings for speculation purposes. Albert Henry Wiggin, board chairman of the Chase National Bank in Manhattan, biggest in the U. S., declared the Federal Reserve Board should have adopted a stiffer rate policy. He criticized bank loans on unlisted securities and real estate as a general factor in the 1929 crash. Said he: "The debauch of speculation reached a climax and just flopped." He foresaw a further shrinkage in values before the turn.

Investment affiliates by banks were generally flayed by Federal witnesses who urged stricter examination and regulation whereas bankers defended these fiscal appendages as a necessity to meet competition.

Most impressive, most lucid, most constructive witness before the Committee was Owen D. Young, a director of the New York Federal Reserve Bank. Said he of the stock crash: "The low [rediscount] rates were continued too long. An active, firm and decisive policy of advancing rates should have been carried out in 1928. The Federal Reserve Bank of New York did not make its recommendations for rate increases early enough or advance the rates rapidly enough. I was quite as much to blame for that as anyone."

Mr. Young diagnosed present banking ailment as due to charter competition between the U. S. and States. He recommended that all commercial banks be forced into the Federal Reserve system, even if it required a constitutional amendment as a means of "fixing responsibility."* He declared that "Member of the Federal Reserve System" painted on a bank's window today meant, despite popular impression to the contrary, little or nothing because the Federal Reserve exercised no real control over the institution, was in fact afraid to, lest it drive the bank out of the System.

"We have seen thousands of banks fail here," testified Mr. Young. "It is certainly a great reflection on the American people that they cannot get a banking system in hand that will prevent such awful tragedies." He favored a limited form of branch banking, recommended prohibiting corporations from putting their surplus cash into the call market, frowned on security affiliates of banks which go unexamined.

Meyer Matter. While the Glass Committee was surveying the broader aspects of the Federal Reserve system, another Senate committee was engaged with a more immediate problem of the Board, namely, the appointment of Eugene Meyer as its Governor. Mr. Meyer's nomination was on the point of being confirmed by the Senate last month when Senator Smith Wildman Brookhart of Iowa, archfoe of Mr. Meyer and the Reserve Board, got it thrown back into committee for further study. Before the committee he heckled Mr. Meyer so unmercifully on all manner of remote and extraneous matters — inter national finance, Interstate Commerce Commission rulings, farm conditions — that that usually calm gentleman cried out angrily against his "unfairness." The Senator tried to force Mr. Meyer to outline his policies if he became head of the Federal Reserve. Mr. Meyer exploded: "I cannot and will not answer questions as to how I will conduct myself. I'd rather forfeit the position than to prostitute my principle."

Congressman Rainey of Illinois and McFadden of Pennsylvania — representatives of the "lunatic fringe" among Congressional economists — crossed the Capitol to say their say against Mr. Meyer before the Senate Committee. Mr. Rainey ac cused him of "wrecking" the Federal Land Banks when head of the Federal Farm Loan Board and knocking $100,000,000 off the value of these banks' bonds. Mr. McFadden flayed him as a "stock broker" allied with "international bank ers," an "office hunter" who had been juggled into the Governor's job by "Wall Street." Mr. Meyer made immediate and sweeping denials of all such accusations.

Last week in Manhattan was progressing an investigation of a bank failure which was frequently cited in the Senate inquiry as a "horrible example" of bad banking, if nothing worse. Last December the Bank of United States went under owing some 400,000 depositors some $160,000,000 (TIME, Dec. 22). Investigation showed that the bank had 50 affiliates and subsidiaries which had drained away its assets for stock manipulation and real estate deals. About $75,000,000 was tied up in "frozen" loans to these affiliates, many of them dummy concerns without resources. The City of New York stood to lose $1,500,000 in municipal funds deposited with Bank of United States.

Chief investigator of what threatened to be New York's biggest banking scandal was able, witness-baiting Lawyer Max D. Steuer, who was appointed as an Assistant Attorney General and an Assistant District Attorney to get the facts and prosecute wrongdoers. He filled the Press with a hodge-podge of evidence to show that the bank's directors had made wild and unauthorized loans, with no collateral, to themselves and to their subsidiaries; had speculated in the bank's stock and left their losses unpaid. Lawyer Steuer charged that this "crookedness" by directors constituted a "serious crime." He detailed a system of "hokus-pokus" whereby the bank would pay itself with its own money debts owed it by its affiliates.

Chief defender of the closed bank was its Director-Counsel Isidor Jacob Kresel. With venomous politeness Lawyer Steuer and Lawyer Kresel sparred to fix responsibility for the bank crash, with Mr. Kresel exhibiting an ignorance of the bank's doings equalled only by the sudden forgetfulness of witnesses before him in Manhattan's magistracy investigation.