I 7 2

ESSAYS IN PERSUASION

PART

of values which had ruled for only a few monthsor weeks, so that only a small proportion of thebanks’ loans had been based on such values andthese values had not lasted long enough to betrusted. Never before has there been such aworld-wide collapse over almost the whole fieldof the money values of real assets as we haveexperienced in the last two years. And, finally,during the last few months—so recently thatthe bankers themselves have, as yet, scarcelyappreciated it—it has come to exceed in verymany cases the amount of the conventional“margins.” In the language of the marketthe “margins” have run off. The exact detailsof this are not likely to come to the notice ofthe outsider until some special event—perhapssome almost accidental event—occurs whichbrings the situation to a dangerous head. For,so long as a bank is in a position to wait quietlyfor better times and to ignore meanwhile thefact that the security against many of its loansis no longer as good as it was when the loanswere first made, nothing appears on the sur-face and there is no cause for panic. Neverthe-less, even at this stage the underlying positionis likely to have a very adverse effect on newbusiness. For the banks, being aware thatmany of their advances are in fact “frozen”and involve a larger latent risk than they wouldvoluntarily carry, become particularly anxiousthat the remainder of their assets should be asliquid and as free from risk as it is possible tomake them. This reacts in all sorts of silent