defaults in the same number of years, both due to technical and temporary causes. In each case the customers were protected.

Sometimes the banking-house will not go so far as to buy back defaulted bonds. If the company is sound, and the embarrassment certain to be temporary, the banker must take another course to protect his customers. A prominent bankinghouse of high reputation sold a large issue of bonds secured by a mortgage on the property of a publicservice corporation. The bonds were perfectly secured, assuming that the management was honest. The stock-holding control of this company, however, thought to play a sharp trick on the bond-holders. They diverted earnings from interest into improvements, defaulted on the bonds, and secured the appointment of a receiver, thinking to force a compromise with the bondholders.

The banking-house which had placed the bonds immediately took charge. They laid the true state of affairs before the bond-holders. They assured them that their investment was perfectly safe. They invited their coöperation in wresting the control from the dishonest management. Most of the bond-holders placed their interests in the

hands of the banking-house which took charge of the reorganization, securing for the bond-holders in the new company not only the same interest which they had in the old company, but securities representing a large share of the profits in addition. This house has lost nothing of its high reputation by the course of action which it pursued in this matter.

I have said that the reputable investmentbanker will always protect his clients. Yet how is the investor to distinguish between the reputable investment-bankers and those who look on bonds as the peddler regarded razors, as primarily made, not for service, but for sale. We can find plenty of bankers who will not protect their customers, who use them like a flock of sheep, shearing them from time to time, and yet, by some strange credulity which infests the minds of a certain type of investors, keeping their hold upon them.

I am familiar with the history of one of these firms. Strangely enough, its reputation is high in its city and State. Its members are counted among the prominent financiers of their community. Its list of clients is long and loyal. This firm has sold a number of issues of bonds whose security

was bad and which have been in default. The head of the firm is quite frank about the matter. He once said that his customers did not mind bankruptcy. They were willing to go through reorganization. Some day they would make some money. A member of this firm expressed mild surprise at the painstaking investigation which another house thought it necessary to make before buying some bonds. He was asked how his house proceeded. "Well," he replied, "I guess we buy bonds by instinct." The record of his firm bears out his statement.

There is only one sure test of the character of a banking-house-its record of flotations. If we could have for every investment-banker who offers his wares to the public, a list of the bonds and stocks which he has offered for sale, the representations made at the time of issue, and the subsequent history of these securities, we should have a nearly infallible guide to his trustworthiness. Such a compilation could be easily made. It would, however, furnish a series of comparative revelations as to the records of various bankinghouses, which would not only be illuminating but amazing. On the basis of such a record, the investor could place his money in full confidence that

the houses from whom he purchased were worthy of his trust. I suggest to every investor that, before buying any securities, he investigate the record of the house which offers them. In most cases he will find that record both fair and honorable. Such an investigation, however, may save him from loss.

VII

PUBLIC OBLIGATIONS-MUNICIPAL

BONDS PREFERRED

FOR the conservative investor who looks for absolute safety of principal, and who is willing to make some sacrifices of income in order to secure absolute safety, the municipal bond has the first choice. United States Government bonds, it is true, are safer, but the demands for these bonds from national banks, who use them as a basis for circulating notes, and to secure deposits of money with them by the government, is so great that they yield little more than 2 per cent. This yield is too small to be attractive even to the most conservative investor. Of the government bonds outstanding amounting to $963,349,390, $193,526,090 are held by national banks.

State bonds are distinctly inferior to municipal bonds. In the eleventh amendment to the Constitution of the United States it is provided that "the judicial power of the United States shall not be construed to extend to any suit in law or equity commenced or prosecuted against any of the