Michigan Moratorium

"Whereas, in view of the acute financial emergency now existing in the City cf Detroit and throughout the State of Michigan, I deem it necessary in the public interest and for the preservation of the public peace, health and safety. . . .

"I hereby proclaim . . . Feb. 14. 1933 to Feb. 21 ... to be public holidays during which time all banks, trust companies and financial institutions within the State of Michigan shall not be opened. . . ."

Thus as had happened in Nevada last autumn, in Louisiana last fortnight, a banking moratorium was proclaimed this week in Michigan. It shut tight for eight days 530 banks with some $1,500,000,000 in deposits, was the biggest moratorium since the Depression.

Direct cause was the precarious position of Detroit's $51,000,000 Union Guardian Trust Co., potent unit of the $400,000,000 Guardian Group, brought on by heavy investments in real estate mortgages. On Monday night lights gleamed from the directors' room on the seventh floor of the Guardian Building. Governor William A. Comstock presided over the conference hurriedly assembled. The Guardian clearly could not face another day. From Washington came Secretary of Commerce Roy Dikeman Chapin. a Detroit man. and Under Secretary of the Treasury Arthur Atwood Ballantine. Most of Detroit's industrial and banking tycoons jammed the smoke-blue room. At 2 a. m. Governor Comstock announced simply that he would declare a holiday. Over the violent protest of the bankers, he told the "unvarnished story" of Union Guardian's plight:

"Like other financial houses it [Union Guardian] has suffered depreciation of its assets and was seeking to get out of the banking business. ... To do so it would have to pay off depositors in cash and it did not have the funds available. . . . The company had already borrowed $15,000,000 from the R. F. C. and had asked for more. Representatives of the R. F. C. were in Detroit going over the assets and were prepared to loan an additional $23,000,000. . . . This loan would have still left the Guardian about $2,000,000 short of paying all depositors.

"The largest depositors . . . were General Motors Corp., Chrysler Corp. and Ford Motor Co. Both G. M. C. and Chrysler had agreed to subordinate their deposits to the R. F. C. . . . and smaller depositors. The Ford company refused to make such an agreement and the result was the necessity of a moratorium. . . . Unless it had been declared, the larger depositors who were informed in advance would have withdrawn their money and left the smaller ones 'holding the bag'. ... I understand that the deposit of the Ford company . . . was about $7,500,000. . . ."

The Detroit Stock Exchange closed during the day. Outside trading of bank stocks was banned. On the New York exchanges both stocks and bonds slumped sharply. Meantime throughout Michigan plans were rushed to permit withdrawals for household accounts and payrolls. General modification of the "holiday"' was envisaged.

More immediate modification of another sort took place next day when Governor Comstock retracted his charges against the Ford company. The full story remained to be told.

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