Page:Popular Science Monthly Volume 49.djvu/350

332 that may be offered by the oversanguine or the knavish. And the attempts to obtain discounts by the oversanguine and the knavish are not limited to the offer of paper in excess of the amount abundantly necessary to cover the movement in any particular line, but they frequently exchange notes, or in other ways obtain paper from a colleague which represents no legitimate business transaction, but by the discount of which they obtain needed funds.

As unpredicted circumstances may, at unforeseen times, cause unusual demands to be made upon a bank's deposits, it follows that a bank's loans should not be for long periods. In actual practice the average duration of notes is sixty days, and banks do not like to accept paper running longer than four months under any circumstances. Different notes coming due at different times bring into a bank day by day funds which it can use to discount new notes, or which it can retain in case of contingency requiring it to keep more money on hand than usual.

It is evident that a bank should not only be reasonably certain that the prospective exchange of effort which is the immediate cause of a loan should produce enough under ordinary conditions to cancel it, but that in case of contingency that is disastrous to the products immediately concerned the property of the signers and indorsers of the note not covered by other obligations be sufficient to liquidate it. But in these days, when a concern's property is not always visible and its incumbrances frequently concealed, a knowledge of its actual resources is difficult to obtain. It has happened that financial tricksters, by operations in several banks, knowledge of each of which has been kept from the others, have gained possession of funds far beyond the extent to which their resources entitle them, and in such a case, when any one bank suspects that it is being victimized, there is the temptation for it to conceal this knowledge from the other banks, that the unworthy customer may not be prevented from obtaining loans from them, wherewith he can repay the advances made by the bank which has begun to suspect him.

Perhaps the possibilities of unwholesome financiering which must finally result in loss to the banks and disturbance to all the communities concerned can best be illustrated by a definite example traced throughout its ramifications.

From a region rich in deposits of coal a railway extends to docks where coal is loaded into vessels for shipment to remote markets. A corporation controlled by a coal operator and the president of the railroad leases the docks, and engages in the purchase and shipment of coal. The railway is financially weak and the corporation without working capital. But the corporation buys large quantities of coal, giving four months' notes that