WELLINGTON NEWS

Hokitika Guardian, 20 October 1930, Page 2

WELLINGTON NEWS

MUSHROOM BANKERS. (Special Correspondent). WELLINGTON, October 17. It is a remarkable phenomenon tliat in times of trade depression or financial crises there grows up practically overnight a whole crop of mushroom bankers and economists, Avlio flood the columns of the daily papers Avith theii weird notions and their prescriptions and remedies 'for curing all the ailments arising from the economic situation. In the columns of a Wellington paper a correspondent signing himself “A.N.F.’i writes under the caption “Capital’s Share of the Slump.”

He started oil uy saying tliat capital falls into Dvq classes, investors’ capita! and moneylenders’ capital. This is really a distinction Avithout a difference. He says that investors’ capital lias been expended in the establishment of enerpr ses, which is true enough, but the capital is nevertheless lent to the enterprise under certain conditions. The investor subscribes for shares in a company knowing that lie may or may not get a return on his money. If the enterprise is successful lie Avill get a return on his capital each year, and if the company is A ery .successful he Avill get u substantial return. On the other inuid, if the concern turns out a dud he loses his capital.

Those who took up shares in the Mercantile Bank of Australia did not get a run for their money for the bank a\>.s forced into liquidation before it opened its doors, and those Avho ventured to take up shares stood.to lose all, or very nearly all the money they subscribed. They took the risk Avlien. lending their capital to the concern. ,The, so-called money-lender, and every mortgage, every bank, every pawnbroker comes under that definition, make?, loans at fixed rates of interest and on definite tangible security. The rate of interest varies according to the nature of the security, tlm term of the loan, and Avhat is cif great import* mice, the character of the borroAver, Thus there is very little’deference between an investor and a money-lender. “A.iVI.N.” says: “A'miortgage Avhich five years ago represented half the value of a farm to-day represents Avell on towards the Avhole value of that farm. The same thing applies in the case of overdrafts and loaned money generally.” It may be salted if fiv r e years ago the mortgage Avas half the value of the value of tlie farm, how comes it that it represents Avell 'on to the Avhole value of the farm ? Is this money-lender, or mortgage responsible for this, and if so in what Avav ? Five years ago farm lands./Were at inflated values because produce Avas selling at inflated prices, and that Avas before the principal countries of the Avorlcl resumed operations under the gold standard. NeAV Zealand is not on the gold standard, hut Ave must market our products on the gold standard countries and must accept the values fixed by those countries. It is useless to try and kick against that. The mortgagee who ad-

vanced only 50 per cent, of tlie value of the farm five years ago acted with commendable caution, but there are a great many others who lent up to 06 and even 75 per cent, and these mortgagees are not quite happy just now. Then “A.NX” proceeds to write out his prescription to “alleviate our troubles” and it is simple and pleasant to take. He says: “We were comfortably off in 19.5. jlie export price level for New Zealand produce stood at 1889 for that year. To-day it is round about 1309. All that is necessary is for Parliament to enact that the rate of exchange on London shall henceforth be regulated monthly according to the Gov eminent export price index, taking, say, the 1925 index figure of 1886 as par.”

Nothing could be simpler than an Act of Parliament and our troubles disappear. It is a wonder that the Australians have not spotted this simpler remedy ; even that financier with a world reputation has overlooked the very simple prescription of “A.N.l*.” An Act of Parliament is all that it necessary. Quack bankers and economists always have suitable and sound remedies in their own estimation, for all ills. How can an Act ol Parliament regulate exchange in London? What is meant by the exchange on London? A merchant in New Zealand buys £IOOO worth of goods in Manchester. The seller of those goods wants to be paid in British money, not New Zealand money. Hence the N.Z. .merchant must find ways and means of securing £IOOO in British money with which to meet his obligation. Ha naturally turns to his banker and tries to buy from him what he requires." The buying and selling of exchange is the business of the banker, and the banker is just as keen after business as any merchant; if he has funds in London or knows where lie can lay his hands on such funds he is ready to do business with the merchant.

The Associated Banks endeavour to make their exchange rates reasonable for many of them can boast of having the trade of companies and firms for years. The rate of exchange in the ultimate depends upon the volume ol funds the banks possess in London or can command. But this is not all, for the banks must at all times keep a close watch on their own stability. Banking to-day is the result of more than a century’s experience, but the quacks think tbev know more than trained bankers.