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• Thursday, December 20, 2007 01:39 PM

  Credit 101 to bankers

  Why not promote some good old sane lending practices?

  In December 1863, H. McCulloch, U.S. Comptroller of the Currency and later Secretary of the Treasury, wrote to all national banks. Here are some of the paragraphs.

  “Let no loans be made that are not secured beyond a reasonable contingency. Do nothing to encourage speculation. Give facilities only to legitimate and prudent transactions.

  “Distribute your loans rather than concentrate them in a few hands. Large loans to a single individual or firm, although sometimes proper and necessary, are generally injudicious, and frequently unsafe. Large borrowers are apt to control the bank.

  “If you doubt the propriety of discounting an offering, give the bank the benefit of the doubt and decline it. If you have reasons to distrust the integrity of a customer, close his account. Never deal with a rascal under the impression that you can prevent him from cheating you. “Pay your officers such salaries as will enable them to live comfortably and respectably without stealing; and require of them their entire services. If an officer lives beyond his income, dismiss him; even if his excess of expenditures can be explained consistently with his integrity, still dismiss him. Extravagance, if not a crime, very naturally leads to crime.

  “The capital of a bank should be reality, not a fiction; and it should be owned by those who have money to lend, and not by borrowers.

  “Pursue a straightforward, upright, legitimate banking business. ‘Splendid financing’ is not legitimate banking, and ‘splendid financiers’ in banking are generally either humbugs or rascals.”

  Gamblers must not manage society’s saving. Central banks ought to institute qualifying psychological testing to bar bank leaders with gambling propensity from wheeling and dealing in customers’ deposits and shareholders equity.

  Elie Elhadj; author: Experiments in Achieving Water and Food Self-Sufficiency in the Middle East

  http://www.dissertation.com/book.php?method=ISBN&book=1581122985

  Also:

  http://journals.aol.com/eeh100/daring-opinion/

  —Elie Elhadj Read Elie Elhadj's other letters
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