THE FOLLY OF SHORT-DATED LOANS.

Dominion, Volume 7, Issue 1968, 27 January 1914, Page 6

THE FOLLY OF SHORT-DATED LOANS.

HON. JAS. ALLEN'S VIEWS. (By Telegraph.—Special Correspondent.) * Dunedfn, January 26. Last week the- Leader of the Opposition, while in Wellington, gave his views on tho easing of the Home money market and tho success of tho recent short-dated loans. When this matter was brought under tho notice of tho Minister of Finance in Diuiedin to-night tho Hon. Mr. Allen had something to say in reply. "It is perfectly true," said Mr. Allen, "tliero is a very considerable improvement in tho London money market, but nothing like to the extent that some people think. It must bo recollected that the latest Victorian 4 per cent, loan, though it was oversubscribed by tho public, was floated at a very low prico indeed (£97), and it was quite_.sufficiently tempting to the public to mako them subscribe heavily for it with the certainty that they would make a profit out of it in a few days: Howovcr, I am pleased to see that there is an- improvement in tho money market. I sincerely trust it will continue, but I see no prospect for some time to come at any rate of our being able to float a loan in London at a lower rate of interest than 4 per cent., and I believo there are very largo demands yet ■to come on tho London market. It is not much use, however, to speculate on tho London prices. Tho market varies from time to time, and wo must do our best with it as wo find it. Sir Joseph •Ward has . dealt with the principle of short-dated loans as opposed to longdated loans. Of course there aro degrees of short-dated loans, and it may be expedient some time to take a comparatively short-dated lqan, though I doubt very much indeed whether it will €ver pay us. But there can be 110 two opinions as to the folly of New Zealand entering into short-dated loans which run for two, or four, or five years. Indeed, with ten-years' loans one will have to calculate tho whole cost of renewal every ten years, including underwriters' fees, brokerage, bank charges, and various other charges, before one can make any comparison, between it and a longer dated loan which haa only to meet these charges once in 30 or 40 years. With tho short-dated loans, however, such as the lato Government committed us to, • for four and two years the absolute folly of thein must be apparent to anybody. Such loans' do not get into the hands of tho legitimate investor. They go into the hands of tho speculator, who is loosing for what 110 can make out of the underwriting fees as often as he can get them. These peoplo are not prepared to renew loans. They insist oil New Zealand going through all tho cost of refloating. That is what is happening with respect to tho last two loans. Two years ago the Government paid underwriting fees, brokers' fees, bank fees, stamp duty, and other bank charges, and thoso samo charges have ail to be paid over again now, and it is tho same story with regard to tho four year loan. Add to this tho difficult position it places the Government in which'_ has to borrow to repay theso loans in ono year, and in tho same year borrow for its usual annual requirements, tliOi cost of the two years and four year loans,' including sufficient to redeem tho discounts, is very much heavier than in tho case of the loan floated last % Febru;}ry.